MBN 6-10;12

Chapter 6
This chapter discusses government efforts to control booze and drug activity. The
government generally tries to do this by targeting suppliers. If they increase the operating
costs and the risk of punishment for making and selling such products, prices will rise.
By the law of demand, consumers will then buy fewer goods at a higher price and
consumption of drugs and alcohol will go down. However, there are unintended
consequences that follow.
One consequence would be an increase in violence. Some people have a
comparative advantage in illegal activity because they already have a criminal record and
making drugs and alcohol illegal would only encourage them to take on business.
Furthermore, illegal contracts are enforced through private methods, which very often
includes violence. Law enforcement of illegal goods also encourages the usage of more
potent, expensive drugs because it is easier for suppliers to hide a smaller amount of a
more valuable good and the relative cost is lower for consumers to purchase stronger
substances. Enforcement also raises information costs and allows fake brands to gain
traction in the market. This runs the risk of lower quality products that are often more
difficult to punish.
Chapter 7
Fracking is a technique in which water, sand, and chemicals are injected
underground to break rock apart. This process has been implemented to obtain large
amounts of energy at a relatively low cost. On the good side, fracking has increased the
supply of gas and as a result, natural gas prices have fallen. The lower prices have
changed American demands. The lower natural gas prices have reduced the demand for
other fuel sources such as coal. Lower prices for natural gases have also brought back
American manufacturing that had been outsourced to foreign countries. It has decreased
out dependence on foreign oil companies.
However, where there are advantages, there are trade-offs. Fracking has been
speculated to cause earthquakes and can potentially contaminate groundwater. Fracking
also consumes a significant amount of water as water is the number one ingredient. While
natural gas has displaced coal, which emits far more pollutants, critics have argued that
natural gas has displaced strides in much cleaner forms of alternative energy, such as
wind, solar, or nuclear. It should be noted though that these other forms of energy
require much greater inputs.
Chapter 8
This chapter analyzes kidney transplants from an economic perspective. Kidneys
can be donated and the surgeons who perform such transplants get paid. However, it is
illegal in the United States to receive money for giving a kidney. There are more people
each year in the United States who are waiting to receive a kidney transplant than kidney
donations. Many patients have to wait a significant amount of time before receiving one.
During this time, their lives are dependent on expensive dialysis treatment. The question
is would more lives be saved if kidneys could be sold for money?
Iran has more or less successfully implemented a system for receiving a kidney
transplant. If no kidney is available for donation, it can be received from someone who is

paid for the kidney. Thousands have been saved as a result. One frequently brought up
concern is the potential for involuntary donations. However, with few exceptions, the
Iranian system has worked for many years without such a problem. A more viable
concern is increased costs. If kidneys can be sold for money, more people will be able to
get a kidney and hence, medical subsidies will increase. There will also be less altruistic
donations that will drive up costs. However, the return is that costs from patients having
to wait for a kidney is lowered and more lives are saved.
Chapter 9
This chapter address several myths about water from an economic standpoint.
Water is a renewable resource in that as we use it, water is put back into a cycle that
replenishes it. At the same time, water is a scarce resource. Like any other good, there are
opportunities costs in obtaining water and the amount of water available to us at any
given time is a limit. However, it is wrong to say the planet is drying up. The Earth is a
closed system to water; the water we have isnt leaving it as it continues to cycle. It is
also a myth to assume that flushing less and using less water in agriculture will save
water. The water is used is returned to the environment. However, there is an economic
concern with agricultural water use because farmers are subsidized heavily for water,
which lowers the overall wealth in society.
Many people assume that water is not subject to the laws of supply and demand.
This is not true as buying and selling behavior changes as water price changes. Water is
simply a fairly inelastic good and does not change as much as other goods do when price
changes. People also assume that price ceilings for water will protect low-income buyers.
However, with lower prices, there is a lower supply and thus a shortage results. The last
myth this chapter addresses is the misconception that the ocean is too saline to drink.
There have been major gains made in desalination of ocean water, especially in dry
regions such as Southern California.
Chapter 10
This chapter looks into the problems that arise from rental price controls. These
have been implemented to prevent landlords from charging excessively for rent, ignoring
the principles of supply and demand to control prices. Rental controls discourage
landlords form investing in new units because they dont see the need to build new units
when people wont be able to buy them at high prices. Furthermore, landlords reduce the
supply of rental housing in response to higher prices, which follows the law of supply.
Because of smaller profits, landlords cut back on maintenance and repairs, which
leads to a decline in quality. Rent control also impedes the rationing of scare housing.
People are reluctant to give up a rent-controlled house and end up reducing tenant
mobility. The people that are hurt from most are generally low-income individuals.
Landlords dont want to take the risk on low-income individuals when prices are low.
They want assurance that they would be paid in full.
Chapter 12
This chapter delves into the increasing amount of college debt. Five out of six
students take on some form a loan, whose interest over the years accumulates. Inflation
has led to a devaluation of the dollar, but even when adjusted for inflation, college prices
have soared in the past thirty years. Many have questioned the value of a college degree
as a result. However, the return on a college degree has never been higher. The
unemployment rate for college graduates is half the rate for high school graduates.

Not all college degrees are created equal. The rate of return for certain college
majors is much higher than others. There is also a more personal aspect to gauging the
value of a college degree. Top schools tend to have better payoffs than lower tier school.
Colleges spend a significant amount of money on amenities. Thus, much of a students
investment does not go directly to his or her education. Rather, they go to amenities that
keep the college business competitive.