Post #5

Hey squad,
            I am continuing to expand my knowledge on microeconomics each week and I can say that I am starting to get better at it. I feel like it was just understanding those first basic concepts that are the hardest and then after that the rest is easy. Thats not to say that a lot of this doesn't confuse me, because it does, but its definitely a little easier to pick up on.
          Now I'm not going to go into my normal lecture on what I learned. I have heard from many of my blog followers that they don't understand a lick of what I am saying. And that makes sense. I was never really trying to teach you guys what I learned, it just so happen that the way I talked about my topic sounded like a lecture. So I'm sorry for that. Its just hard to show my final product by any other means besides explaining what I know.

So anyways....

           This week I came across a lesson that I thought was cool, even though that might be the wrong term for it. The lessons was about taxation of a certain industry. The example that Khan Academy used was the hamburger industry. And in his scenario, he said that every burger was taxed one dollar. And was a result of this taxation the supply and demand curves graphs changed. The curves stay where they are but a new supply curve is added. And its the supply curve for the government. And as you can guess it rests about $1 above the other supply curve. This can be shown in the picture below.

         And the result of this new supply curve changes the equilibrium for that industry. That can be seen where the intercepts are. And its because of that change that the producers, and the industry as a whole, suffers. 

         This change in equilibrium changes the producer surplus and decreases it. And in english I am basically saying that because there is now a tax, a lot of the money that the producer makes goes down. Where does that money go? The answer is two places. The first, is some of the money now goes to the government. And the second is that the money disappears in general, as indicated from the blue triangle. The blue is the deadweight loss for that industry. The area of that triangle basically tells us that the industry lost money because of the taxation. No longer is that surplus going to the consumer or to the producer but its going to another industry, something different.

        And I just found it interesting how legislation like that could change an industry so much. I thought it was cool and maybe an idea worth sharing because It could definitely help someone who is into investing. Because now you know that if the government were to make a tax, or something like that, on an industry you can assume that the value of the industry will decrease. This is because A) the producer is making less money and B) there is now this deadweight loss that is no longer going towards that industry. So as an investor I would keep track of things like that.

        I hope I didn't contradict myself and write another boring lecture. I thought that maybe some of you guys would find that as interesting as I did, and maybe it could help people like Jake F. when it comes to his investing. Thanks