The Price Point

As Stuyvesant students prepare to enter the outside world, understanding the economy becomes an essential skill. In today’s society, knowledge of economics provides us with a foundation for navigating financial issues, understanding the effects of public policy on the market, and making informed decisions about our own personal finances.

Mortgage Rates Rise Above Seven Percent

This week, mortgage rates rose above seven percent—the highest since May. Although the Fed cut rates by 25 basis points in December, mortgage rates have continued to rise. This is part of a trend to increase home affordability challenges, and economists do not predict mortgage rates to drop below six percent anytime soon. However, under the Trump administration, the U.S. government claims that they will do what they can in order to ease the affordability crisis for American citizens.

The US Core Inflation Rate Slows To 3.2 Percent As Of December 

The core inflation rate—an economic indicator that measures the increase in consumer prices for goods and services not accounting for food or energy—was only 3.2 percent. This means that, on average, prices have only gone up 3.2 percent since last December, indicating that the economy is recovering fairly well and inflation has mostly slowed, which is even faster than expected by most economists.   

UK Economic Outlook Upgraded

The International Monetary Fund’s GDP growth outlook for the U.K. has been upgraded from 1.5 percent to 1.6 percent. While this upgrade may not sound like a lot—given the U.K.’s lackluster growth in the past due to Brexit—every little bit of recovery helps. The nation’s wage growth also remains fairly strong, but job growth fell over the course of the month. The British economy looks like its real GDP growth rates and other leading economic indicators are finally recovering from their prior decline, although only time will tell to what extent the UK economy will grow.

Economics Concept of the Issue

Monopolies

A monopoly is a market structure in which there is only a single seller. In this situation, we call the only seller a “monopolist.” Since monopolists do not need to deal with competition from other sellers—which would force them to lower their prices to remain competitive—monopolists can charge a higher price in the market. Here are some reasons why monopolies arise:

1. Economies of Scale: cost advantages that come as a result of producing more. As a result, smaller competitors are forced out by larger competitors who can produce at lower costs.
2. Legal Barriers: creation of a patent prevents competitors from selling the same product, which we commonly see with pharmaceutical drugs.
3. Ownership of a Key Resource: if only one company has access to a key resource in the production of a good, they will be the only ones who can produce the product. 

Monopolies generally decrease competitiveness, but there are examples of them being used to increase equity. For example, union establishment creates a monopoly on the market for workers—in which the union is the monopolist—which can increase rights for members of the union.