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Econ Assessment Part 4:

The minimum wage and whether we should raise it has become one of the pivotal points for elections this year. It is believed that Trump does not hold the belief that wages are too low, and that they should be increased, rather he believes that the states should hold the power to control their wages. Meanwhile the popular opinion is that the minimum wage should be raised mainly for the purpose of making life more sustainable. They offered complaints about how some people have to work multiple jobs and long hours just to make it every month. It also tries to manipulate the reader by describing why they should not trust any politician running for office that has stated that they will support a raise in minimum wage because most likely they do not support a substantial difference in the increase of minimum wage.

A raise in minimum wage will definitely affect the unemployment rate, either in a positive or negative manner. By increasing it, job openings may begin to decrease due to the raised amount that companies now have to pay a single worker; therefore, resulting in a higher unemployment rate. On the flip side, increasing the minimum wage may get people that are unemployed to start working once again, believing that the work force is stable once again. Also, the opportunity cost to raise the minimum wage would be high, but helpful in the long run, and would definitely advance our economy. There may be other alternatives to raising the minimum wage, but by selecting to raise the wage, it would have a direct influence to the work force. Lastly, the economic inequality between the rich and the poor may begin to lessen its gap. Owners of companies will now have to pay their workers more, resulting in a higher income for them and a lesser income for the owner, decreasing the difference in economic well-being between them.

Word Count: 321 Grade Level: 14.0

http://www.cnbc.com/2016/05/13/dont-believe-what-donald-trump-says-he-wont-raise-minimum-wage-commentary.html

Econ Assessment Part 3: Supply and Demand

The Law of Supply and Demand is well known as a concept that concentrates on the supply and demand of a certain resource. This law highlights the effect of both the amount of a product and the consumer demand of the resource. It also shows that typically there will be high prices if the demand is high and the supply is low; but oppositely, if the demand is low and the supply is high, then the prices will be lower.

Supply is its own separate concept concentrating on the amount of a single product or good. It can be seen on a graph and illustrates the certain supply of the product that they have for a single price. The amount of something at a given price can also be known as quantity supplied. Also, the way the amount supplied changes due to the prices is better known as the price elasticity of supply. Quantity supply is dependent upon the price during a given time. Typically the price of a certain product can be set by a group of people or controlled by the market. It is important to highlight that if a product has a set price, either a ceiling or a floor, all producers must sell the product at the same price; therefore no competition.

Demand is the concept concentrating on consumer demand, the amount of money a consumer is willing to pay for a certain product. It states that typically as prices for a product increases the demand for the product decreases; and as the prices for a product decreases the demand for the product increases. The law of demand proves that as consumer demand falls prices rise because of the opportunity cost of getting the product has increased compared to the previous lower price. When graphing demand, it is paired with price. The slope of the graph is always downward, and represents that as the price drops, the demand for the product will increase. For example, if the prices for socks dropped by six dollars you may buy a couple more pairs because it is cheaper to buy it at the lower price.

When you combine both the demand and supply lines on a single chart, the point at which both lines intersect represents the equilibrium price. As demand for a product increases, the curve will move to the right, which results in a higher price that the consumers now have to pay for the product. The equilibrium price is always fluctuating due to the many factors that affect demand and supply.

Word Count: 425 Grade Level: 11.0

http://www.investopedia.com/terms/q/quantitysupplied.asp

Assessment Part 1: Meme

Unemployment is a rising factor in our society today. It is well known for the people that do not have a job currently, but are actively looking for one. Typically, unemployment measures how well the economy is going for the government. It is calculated by the amount of people that are not in the workforce, but are applying to jobs and receiving interview, etc.; it is important to note that that those that have been unemployed for quite some time and have given up on applying to jobs are not considered in the unemployment rate. This creates a little error to the rate by not giving the exact percent of the citizens that are not currently in the workforce. The percent of those unemployed is also best understood when taking into account a few statistics, such as the reason behind the increase/decrease, and how the economy is doing at the time. Normally, when the unemployment rate rises many begin to panic before looking into it through perspective. There are normally two reasons why it would rise, the first being that the economy is doing terribly and jobs are just being cut, or secondly, the economy has begun to blossom and is becoming more stable; therefore, those that have stopped applying for quite some time have finally decided it is the right time to enter the job force, and began submitting resumes and applying again. Also, if the unemployment rate is high it will create competition within the workforce, leading to lower wages for the average worker. The unemployment rate can also decrease due to the economy beginning to strive once again, creating more jobs within the workforce. Also, once the amount of those that are unemployed begins to drop it can lead to the inability for workers to change jobs because everyone else will have one already. Also, due to low unemployment rates there will be less competition within the job fields, which will lead to high wages for the average worker.

In the Meme below it states, “Oh, so your currently unemployed? Tell me when you actually get off the couch and start applying for jobs.” It also has the original Willy Wonka meme template as the background. This meme is trying to convey the typical stereotype within our society today about unemployment, that many people who are unemployed take advantage of the system and do not apply for jobs. It can also be seen as sarcastic due to the fact that he is bluntly telling those that always complain about not having a job to actually do something and try to fix it rather than sitting on the “couch” and doing nothing. Also, it is conveying that the economy is doing too well for him to be unemployed for if he actually applies for jobs he should get one with no issue. Lastly, this meme is sending the overall message from those that are unemployed to those that are complaining about being unemployed to start trying to fix their issue rather than prolonging.

Word Count: 506 Readability Score: 13.2

Econ Assessment Part 2

I choose the topic “What is Money?”

https://youtu.be/izC35cxjbVA

Universal Income

In the article “What Would Happen If We Just Gave People Money?”, Andrew Flowers establishes a proposal stating the circumstances that would create a universal income. He believes that by the government taking all the money, getting rid of “myriad social welfare and unemployment insurance programs,” and then sending all the same amount of money to each citizen of the United States would leave the economy better off. Through this process, everyone and anybody would get the same amount of money. In reality, the best thing that would come about from this proposal would be that the poverty level would decrease, and everyone receiving aid would no longer need to rely upon it anymore. Also, people can now pursue what they really want to do in life rather than having to worry about getting enough money to keep their family functioning and surviving in this economy. Although the idea of establishing a communist or socialist economy makes sense on paper, it is risking the possibility of having the economy tanking. For example, people would notice that they no longer need to work; therefore, they will not work anymore. Also, this gives to much power to the government with our own money. There are many instances in our world’s history where the citizens have let their money be controlled by their government, leaders, and it ended up backfiring terribly. Honestly, this proposal does have certain parts that could help our economy, but not enough for me to advocate it. I believe that it takes all the power away from the citizens from their own money. Also, it is not fair for those that sacrifice many years of their life going to college and mastering complex ideas just to receive the same amount of a Bob that works at McDonald’s. This idea will lead to our lazy citizens not working in the long run. Many people now take advantage of the system not working purposely to receive aid, and if this proposal goes through, then not only will there be handfuls of these lazy people, it will be a majority of our population. It is up to the people to take the risks and make it to the top through hard work and determination. The world is not fair and is definitely mean, but it is all about how you manage it to be successful in life. This proposal is just an easy route for those that are not willing to put in the work.

Word Count: 413

Average Grade Level: 12.5

Keyne vs. Hayek

Keyne and Hayek both had different point of views on what the government should do during times of depression, such as in 2009 when the market crashed. Keynes was very influential and had the power for people to listen to him. He believed that the people should spend freely, and the government should steer the market. He was not a supporter of savings, and believed that was not a way to get the cycle flowing again. In the process of the Boom and Bust, which they both understood was an issue, he believed the bust should be fixed quickly and that the government must step up to the plate. The government should be customers and providing jobs, almost being a stimulus to the market. He favored the fact of the FED printing money and offering low interest rates; and that hopefully the wages would not stay stagnant, and that unemployment would not rise. His overall belief was the government should help the people, top to bottom. His positives of his idea is that it puts priority on speed, and that it is active and flexible. The negatives of his idea is that it is prone to corruption, not fair to the citizens of the United States of America, and can cause short term bubbles within the economic market. Also, it makes people believe that you can have control over something you can not, which leads to more issues within the economy. He focuses on the bust part of the system, hoping to get everyone back to the boom as fast as possible.

Hayek’s point of view was quite different than Keynes, almost exact opposites. He was not quite known, but still had a valid point, and was not politically powerful. He believed in the cheap way, and in savings and efficiency, hoping that it would lead to prosperity. He wanted a free-market with not much government involvement. In his process, the growth would be slower, more real, and definitely stable with natural growth because it would be based on savings, real value. He believed that through this process, it would lead to a longer period of prosperity with less economic bubbles in the economy. He criticizes Keyne’s by saying his idea seems great, but it is not long lasting. He points out that all of Kenye’s free money does not go to everybody, leading to the point that it is prone to corruption. He points out that by having high interest rates people will make safer bets, and not invest in random things. His process concentrates on the people getting out of the crash, bottom to up. The positives of his process is stability, self-control, and its more fair to the citizens of America. The cons is that it is too slow and long, seems cold that the government is going to let their people suffer, and it is too rigid.

If I were to take a side I would I choose Keyne because of how his system is built. It is quicker than Hayek’s and would get us out of the bust as quickly as possible. Also, I like Keynes points of view that even though not everyone will be bailed out, it will definitely get us out of the slump. Meanwhile, Hayek is saying to have people fix their issues by themselves. If I were a student that just got out of college, and then the market crashes, and I am continuously told that the market will fix itself, you just have to be patient, it would honestly mess up by career. I will fall behind ten years, and be path I was going to take would be dismantled, while still having a great pile of debt. Therefore, by using Kenye’s idea of quickly getting out of the bust, people can return to their basic lives and continue on the path they were on before the crash.

When Investing...

I’ve learned a lot from the Market Watch game about investments. You definitely should invest, mainly in the long term for the fact of the growth of American market. In this game, I took a long shot with a random company, and it did not produce, but everyone else that invested in basic, big, and diverse companies rose with the market, and got on average an eight percent increase of their value. This fact, in of itself, shows that it is definitely the right thing to do to invest because the money place into the market will increase with the market. Also, it is important to highlight those that do not invest. They receive no profit from their money, but if those investments of the investors increased with the market, they will receive a substantial amount of profit when compared to those that did not. I also learned that you should do in-depth research on the companies you are investing in because it helps guide on whether you believe your investment will be a good one, a winner, or a bad won, a loser. A good thing to point out is that you should invest even if you have not done any research because you will be wasting quite some time before you actually invest; therefore, you will lose the potential gain of wealth. Researching the companies also shows you how they will look in the future and how it will shape up, which can alter if you end up investing the company. I have also learned that when investing in companies you should set it and forget it. This means that after you are done researching a company and placing money into it, you should avoid looking at it constantly because you are investing for the long term. I recommend that you look at your stocks about every six months to see how they are going in relation to the last time you checked them and compare them with market, and see if you have to change which stocks you are investing in. Also, if you continue to keep looking at them, you will run into another issue. This being freaking out because of short term news. You should not worry about the short term news because you are investing for the long term, and the American market seems to always jump back, actually at a great rate. Lastly, you should not just look at your stocks after six months and just judge them individually, but instead you should judge them based on DOW, or how the whole market is doing. This is because if you are stock is down 3%, but the whole market is down 15% you are actually doing better than the whole stock. Lastly, by comparing them to other stocks, you will see whether your stock should traded and base the information from it to the rest of your stocks.

Employment Rate

Employment Rate Goes Up:

The employment rate is nothing but a measurement that represents an important thing beyond it. If the employment rate begins to rise there are many reasons why it could be a good thing or a bad thing. To begin with the pros of a rising employment rate is an enlarging labor force and the strengthening of an economy. Meaning it could be that many discouraged workers that were not applying for a year, because they believed it was not the right time to enter the work force, have finally decided that it is correct time to enter the economy for it seems to be improving over the year. Another positive of a higher employment rate is that it convinces people to go to college. The cons of a rising rate is that wages will go down because their will be a lot more competition. For example, if a worker will not work for a certain amount pay, businesses know they can replace them easily when the employment rate is high. Also, people tend to freak out and become scared whenever the employment rate rises. Another negative is that it could be representing that the economy is weakening and contracting, getting rid of jobs and not replacing them.

Employment Rate Goes Down:

Just like the employment rate can rise, it can also go down. If it goes down there are negatives and positives that carry with it. To begin with the pros of a decreasing employment rate is wages will go up. There are less people that meet the qualifications that could replace someone, if the worker is asking for more money. This also leads to less competition within all fields of the economy. Another pro, and probably the most important factor, is that people begin to start planning for the future. Once, they notice that the economy is stable and improving, people begin to see what they can save for later. The cons of the decreasing rate is is definitely inflation. The value of the American dollar begins to decrease at a quickly rate. Also, many people at the college age enter the work force rather than going to school and getting a degree. This could backfire because if the economy begins to weaken, they would fall behind without schooling. Lastly, almost everybody would be stuck in their current jobs because if you quite your job, there will be nobody to replace you with a low to almost zero employment rate.

Why is This Important to Me: The unemployment rate alters you career path when you graduate from college, and changes your wages. If the unemployment rate is low when you graduate it is easier to get a job and you will receive a higher pay, but if it is high, it will be hard to get a job. Also, it shows me to really look into the numbers rather than just accepting it. If it is high, I should really check what is causing it to be high, and if it low, I should look into why it is low. Also, a good thing to point out with the unemployment rate is that there are many factors that don't go into the unemployment rate, so it must really be studied and looked into to understand the meaning of it.

2013 Inequality for All

Statement I agree with: The rich can not single handily run the economy.

The richest people in the United States makes up a good portion of the wealth in the United States, yet it is impossible for them to completely run the economy. For example, the one owner was describing that he could only buy one car, and can only eat one dinner, lunch, and breakfast, and that no matter what he can only have two to three pillows. Therefore, it is correct when the speaker said that the rich should stop overpaying themselves and distribute the wealth a little more, mainly buy paying more taxes than they are right now. Also, it pointed out that something has to be done with the wealth distribution and the gap between the highest paid and the least paid. Lastly, it seems like some things have been done about this topic, but more needs to be done. Pointing out that the rich can run the economy and proving it by previous history, should make the rich notice that a large gap in wealth distribution will only cause a crash, and bubbles within out economy, and hopefully cause them to higher the wages of their workers, and lower theirs.

Statement I disagree with: Technology is bad for the middle class.

This statement can really go either way when you look into. Technology has greatly influenced our economy and our personal lives as middle class, but may have also harmed it, yet stating that it is bad and produces no good is completely wrong. Technology has advanced how things are produced to being able to look up the current temperature in another country on the other side of world. He stated that by adding advancement in technology the middle class losses jobs; for example, Amazon has instituted robots that are capable of functioning human jobs at a better rate than real people, which has caused a decrease of jobs being offered by Amazon. I disagree with this statement because it does not offer the flip side of technology and how it has helped the middle class, as well as the whole population of Earth.

To further research: Unions are good

In the movie, Inequality for All, the rich person stated the a reason why the economy was progressively becoming and that there is a bigger gap in wages because unions disappeared. Unions were responsible of taking care of the workers, making sure that they have a great place to work in and that they receive righteous wages. Once companies noticed that they could get away with getting rid of unions, which would save them money because it now costs less to maintain the company, and they can keep the wages lower. Unions are responsible for weekends without work, all breaks at work, including your lunch breaks, paid vacation, family & medical leave act (FMLA), sick leave, social security, minimum wage, civil rights act/title VII - prohibits employer discrimination, 8-hour work day, overtime pay, child labor laws, occupational Safety & Health Act (OSHA), 40-hour work week, etc. Labor Unions also caused companies to leave America and place their factories in other countries because now they do not have to abide by the labor unions rules. They also can place their rules and regulations in other countries, and lastly they are able to keep wages low in other countries because now they do not need to worry about them protesting for if they did the company will just leave.

https://www.unionplus.org/about/labor-unions/36-reasons-thank-union

What is GDP and Ted Video

GDP was created during World War 2 because the government wanted to know the economy’s capability to make certain products for war. Gross domestic products measures yearly the total money value of every final production within a country. It can also be considered as a measurement of all the spending on new products, and a measurement for income being received from domestic production. Gross Domestic Production at its root is the measurement of all production of the new rather than compiling wealth. GDP is also known to be in a flow, rather than being static. The private, public, and foreign are the three sectors of the circular flow of the economy. Then the private sector can be split into households and businesses. Households are known for contributing the elements of production to businesses, which use these to create goods and services. Government also adds the public goods that the private sector is unable to offer. GDP is considerably most of the economic activity, but there are some examples that are not included within it. For example, if my father decided to buy an old car that has been bought by another person in 1985, the purchase of the car is not added into the GDP. Now if my father bought a brand new car off the BMW lot, the car would be added to the GDP because it is a new product. Therefore, products that have already been purchased before are not added into GDP. GDP also does not include financial transactions because it does not show a good or service received for money. Also, income that is received under the table is not include because it is hidden from the banks and government. Lastly, illegal production is excluded from GDP because there is no way to track it. GDP is calculated by adding all of the purchases on new production.

The video I decided to watch on “TED was Douglas Beal: An alternative to GDP that encompasses our well being. In this video.” Douglas Beal opened up expressing what GDP is, a measurement of the income of the country, and the new production of the country. He then brings about the argument that GDP may measure the income and production of a country but their are other points that should be considered when calculating the wellness of a citizen in the country. He highlights points, such as inequality and the health options given to each individual. He created an alternative to GDP called SEDA. This is split into three sections: sustainability, economics, and investments. Sustainability consists of governance, income inequality, civil society, and environment. Economics consists of income, economic stability, and employment. Lastly investments consists of infrastructure, education, and health. I believe that income is important and is already highlighted within GDP, but income inequality should come along with it as well because it shows the difference between who is making the most and those who are making the least. Employment should also be valued when looking into the overall wellness of a country because it shows how many have a job, and how hard it is to receive a job. I also believe environment, which Beal points out that most countries are either doing well at it and improving, or doing poorly at it and become worst, should be an important factor when looking at a country. If the environment is poorly kept up it decreases the wellness of the citizen, but the opposite if it is correctly kept up. Health should also be added to GDP because the wellness of the citizens are correctly displayed by health. If most of the people are dying off, that number is important when related to the over wellness of not just the people, but the economy.

Circular Flow

What is Money?

Money needs to have the capability to store value, have a unit of account, and a medium of exchange. Money has to have a long shelf life. It needs to be useful moths to years down the road, instead of just currently because then people would begin to lose trust in the money. It also needs to be rare and hard to get; therefore some kind of craftsmanship needs to be done to it. Also, the currency should be divisible to make small or large transactions, and needs to be universally acceptable. Money needs to be a medium of exchange, meaning it has to be universally wanted and has to be able to be taken and exchanged for goods and services. Money also needs to be universally transportable. Lastly, and most importantly, money is a fiction. The dollar is worth relatively nothing; it is just a placeholder.

Money can be used for goods and services. It works because we believe that it will be exchanged for goods and services. Also, it has value, and we believe it will have the same value when we got to spend it later. Basically, money is a collective belief in all of humanity, and is respected as a lie, and has to remain so. We all have to understand that nobody can see money, and that their is not enough money in our system to cover how much money their is believed to be; therefore money is all but a lie. It is all about how much we value something. For example, BitCoin was worth nothing back then, but once somebody started believing it had value, it started grow, and now is extremely valuable.

When you know the value for the dollar is no longer stable, or the currency, you begin to lose faith in the dollar. High inflation makes people buy quickly, and become hoarders. People begin to stop saving money because the money would become worthless over time; therefore, causing people to spend immediately. Then producers will stop investing in long-term things because the value would decrease by a substantial amount overtime. This happened in Brazil not that long ago when everyone had no faith in their money. Money is printed and the more money that is printed makes it less valuable, which is inflation. Nobody at the time in Brazil really said no to printing off more and more money. Then once the inflation became worse, people tried buying products before they rose in price. This caused the government to reach out and freeze the prices. In response, the producers started hiding the merchandise because the products are worth more than the price tag was displaying. Once the government noticed the price freeze did not work, they decided to freeze the banks. This definitely did not work and led to social up-evil along with political up-evil. Then Brazil finally figured out how to solve the issue. They decided to fix the problem with another lie. They created a currency that was digital and liked to the their taxes (UV's). The only thing you could pay with or receive were UV’s. People noticed that the UV’s price were stable when compared to the normal currency of Brazil, and this caused them to believe in the UV. They used people’s laziness against them and had them trust the money. Brazil finalized the new currency by printing out new money that everyone chose to believe in. To restore faith in money, you have to create something that they could believe in, hoping that the currency will begin to gain value in the peoples eyes.

Money is printed, and typically added into the economic system. There is typically a central bank, the United States is called the FED, which can create money any time it wants. Also, the FED is singled by itself, and is not the federal government. The FED holds responsibility for controlling how much money is added or destroyed in the economy. More money equals more jobs, more flow, but it also means inflation. Money is made by the FED giving money to the bank. They typically buy bonds, and pay extra for it, which increases the amount of money that is added to the system. The banks then loan the extra money out, which brings new money into the economy. An example is what happened in 2008 when FED was placed in a tough situation. The economy crashed, and companies and banks were beginning to die. In 2008, people thought it was going to be another depression; and it would push the whole country back almost fifteen years. FED decided to give money/bail out other companies to save jobs and the companies itself. They made 1.25 trillion dollars. The first 75 years of FED they only created 800 billion dollars, but in 2008 they made 2.4 trillion dollars, and none of this added to the federal deficit. This addition should add inflation to our economy sooner or later. As a country, we give away our freedom to control or add input into how much money is created. FED destroys money by selling stuff they had bought, and then taking the money they earned and deleting it out of the system.

Investment Day 3

When investing you should not pay attention to the chart of the day, and probably not even the chart of the last five days because it does not hold much value of what is really happening to the stock. Also, stocks seem to fluctuate throughout the whole day, or it just may be having a bad week; therefore you should not pay attention to the single day charts. Instead you should look at the charts from 3 months to at least the whole year because it shows you how the stock has changed over time. Also, it shows you the ups and downs of the stock, which are important when figuring out if the stock is on the rise or coming down. Also, looking at the charts from 1-3 years will help you see if the company is has always been a loser or a winner. Another thing you should ignore is the green and red arrows beside the letters of the stock because it does not signify anything. Instead you should look at the market as a whole for the day and see if the market is down or up. Once you have you checked that then you can compare it to the specific stock, and see if it is having a bad day or a good day. One other thing you should pay attention to is the volume of the day because it shows the movement of the stocks throughout the day. Also, it shows the average volume, so you are able to compare how much the stock has moved throughout the whole day. Lastly, rather than looking at how the stock has changed today, look at how it has changed over time, and if it is on the rise or going down.

Investing: Why I Invested in What I Did...

Once I noticed how much money I was awarded, I immediately began researching which companies were the best to invest in currently. I also looked for popular trends in the world that may affect certain economies or companies within the market. I ended up running into a company called Eagles Pharmaceutical Incorporated (EGRX). I further researched and ran into the reason behind this company; they specialize in pharmaceutical products for treatments in orphan diseases and oncology, and they also are in charge of developing these treatments. Then from there I decided to look at the stocks price change over the last three months, and it is there that I realized a shift on the chart. The price had taken a dip the last two months and a half, and looked as if the price was beginning to shift back up. I then looked at the last years chart and realized that the price, and dipped to the lowest, just like earlier last year, but has taken a rise as of lately, as if the price was rising just like a couple of months ago. Just insure my assumption, I looked at the three year chart, and once again it was in line with my hypothesis. I also looked at the prices of the stock from the last year (52 weeks), and took note that the price was on the low end compared to the high end of the year. The last thing I looked at was the volume today compared to the average volume, and noticed that it was way down compared to the normal volume. Therefore, based on all of these observations, I decided to invest in forty shares priced at $66. All my other investments, along with my bonds and ETF’s, I utilized that same process.

Investments

I initially figured that I would invest in a country like India because of its economy and how the country functions. India is fresh and ready to be manipulated like the United States, and is stocked with younger adults; therefore, growth is apparent over the next ten years. Also, it is a great country to compare to the United States, showing that most things that happened here over the last couple of decades could actually happen in India at the same rate, as well. After deciding to move away from India, I decided to invest in water treatment. Water is essential to humanity, and will always be needed, and the scarcity of clean drinking water is becoming worse. This scarcity is making the treatment for water and distillations a great investment for the next ten years. Although all water needs treatment for use, this new wave of needing more distillation for future, unclean water is definitely going to increase the amount of investments. The downside to investing in water stocks is that typically with utilities there is little for improvement. Normally the product/utility normal increases or decreases a little, but mostly stays level making it a very safe field to invest in, but will definitely not grow in wealth most of the time. Also, utilities do not have insurance, which basically means you have no coverage if the stock decides to decline. Also, prices for the product of water may rise due to the increase in distillation needed to clean the water. Although people may notice this increase, they will most likely continue to purchase the water because it is essential for living, but it may affect the field negatively.

Sunk Cost Fallacy

In economics and business decision-making, a sunk cost is a cost that has already been incurred and cannot be recovered. For example, a business decided to spend half a million dollars to try to save it by building another store across the street. They noticed that they will need another half a million dollars to finish the store completely. Now, the business is left with half a million dollars gone, and must decide if spending another half a million dollars is reasonable, and may get back their sunken money.

In 2012, the previously famous basketball star, Derrick Rose was crowned the MVP, and given a contract that is guaranteed almost 100 million dollars. After falling short to Lebron James and the Miami Heat in the conference finals that year, he has yet to play healthy, and has missed more games over the last couple of years than he has played. The Bulls are now stuck in the position where they could get rid of him, and try to build around another player, like Jimmy Butler; although they still owe him a substantial amount of money, or leave him on the team, where he can substantially contribute to the team. This is an example of Sunk Cost Fallacy because the Chicago Bulls offered Derrick Rose a huge amount of money, hoping that he would be able to play at an elite level for quite some time, but now that he is hurt, they lost his money and his value has dropped significantly. Now, the Bulls have to decide to whether to move on from their loss, or just invest in him once again, believing that he could actually get back on track and play how he did four years ago. Everybody has to invest in something at some point in their life, and if it turns out to backfire, you must have the ability to pull out of the game before it becomes even worse.

http://espn.go.com/nba/insider/story/_/id/14375444/how-chicago-bulls-solve-their-derrick-rose-problem-nba

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