March 2006 Archives

So, we basically used our first session back from break to try and get caught up, deal with exam questions people had, etc. Now, we'll try and move forward...

Let's start with clearing up any questions about supply and demand terminology that we've had so far. After that, I've got a set of diagrams for us to play with. We'll take "volunteers" at the board while the rest of us play along at home...

Everyday Economics - With the remaining time, we can have people share the article they read from Steve Landesberg (and sometimes others) at Slate magazine. You get 5 points for these.

MAKE-UP for "TAKING SIDES" and/or "AN UNCONVENTIONAL INTRODUCTION" small group assignments... We've been trying to get some of these done, but we're running into a lot of issues with absences. Here's the new plan.

If you want to get the 10 points for your part of a "Taking Sides" debate that hasn't happened yet, you should turn in a written summary of your side's main points and/or your opinion of those points. I'll look for something in the 1/2 to 2/3 page (single-spaced) range.

If you want to get the 5 points for your "An Unconventional Introduction to Economics" chapter, you should turn in a written summary of what you found most interesting or useful in that chapter. I'd expect something in the 1/2 page range for that.

NOTE: As of now, there is a lag between your submitting a post and its appearance on the blog. I have to "approve" them by clicking on them. Don't resend.

REMINDER: In order to receive credit, these comments need to be posted by 11:10 AM on Monday. Remember that this is a public site, and you are responsible for the content of your postings.

At this time, you are supposed to have read Chapter 5, “Productivity and Human Capital.” You should post a response of at least one good paragraph to one or more of these questions. (You can also react to other posts.)

1. (pp. 98-99) "Meanwhile, one in five American children - and a staggering 40 percent of black children - live in poverty." Should our federal government be doign more to change these numbers? If so, what? If not, why not?

2. "Human capital is an economic passport." (p. 100) Provide an additional example/examples of where this is/has been the case. It can be someone specific or a more general case that illustrates what you believe Wheelan means by this.

3. Given the recent controversy over outsourcing and the on-going process of globalization, what do you make of the "lump of labor fallacy" that Wheelan introduces? (p. 103) Do we need to rethink this? Why or why not?

4. "There is a striking correlation between a country's level of human capital and its economic well-being." (p. 106) Assuming this is true, give at least three specific nations around the world where you think this will prove very postive or very harmful in the near future. Give a reason why for each nation.

5. Is rising inequality a price worth paying if it is accompanied by rising productivity? You can answer as an economist, a moralist, a patriot, or whatever... (This is most directly addressed beginning on page 111.)

6. "Take" Cornell economist Robert Frank's survey on page 114. What would you select? What do you think that says about you? Ask three people not in the class and report on which they picked.

5.

You were asked to have Chapter 6 in Naked Economics read for today. Blog entry #6 won't be due until Monday since we don't have class Thursday due to Senior Performances.

Review "Problems": I know that it's been a couple days, so I want to review the supply and demand vocabulary. You and a partner have five minutes to come up with one or more situations for your classmates to work through. The more terms and concepts you can incorporate, the better. Remember to be informative, entertaining, and appropriate...

ON-LINE SIMULATION ON DEMAND AND SUPPLY: The University of Omaha has done a neat on-line "tutorial" on using supply and demand. We'll spend some time trying to work thorugh that. I'd suggest doing it with a partner. Our goal will be to get through the 6 questions on the "quiz" at the end. Here are some things to look at on each part of the tutorial. The tutorial has six "pages" to work through and a self-quiz at the end.

Explorations in Economic Demand, Part I - The words in bold can be considered to be the "determinants" referred to in the discussion questions at the bottom. Consider how changes in each of those would affect his demand for blue jeans.

Explorations in Economic Demand, Part II - Be sure you understand the role of these terms and concepts: demand curve, income effect, substitution effect, diminishing marginal utility

Explorations in Economic Demand, Part III - Watch for the difference between shifts in the curves and movement along the curves.

Explorations in Economic Supply, Part I - Do the same as we did with the demand page, but you are on the "other side" this time.

Explorations in Economic Supply, Part II - Be sure you understand the role of these terms and concepts: supply curve, short run, long run, fixed costs, variable costs, law of diminishing marginal returns

Explorations in Economic Supply, Part III - Watch for the difference between shifts in the curves and movement along the curves.

Exploring Supply and Demand: Here's the quiz. Work through the problems and see how you do. Notice that the curves will actually move to help you better understand.

REMINDERS: The "take-home" portion of the Macroeconomics unit is due today. Exams that don't come in today will lose 3 points (10%) as long as they are in by next Tuesday.

Your Blog entry #5 is due. Anytime today is fine since I'm sure some of you were finishing the exam.

Please have Naked Economics Chapter 6, "Productivity and Human Capital", read for Tuesday, March 28th. (We won't have class that Thursday because of Senior Performances, so that gives you until the following Monday for that blog entry...)

More on Demand and Supply: Link back to yesterday's definitions if you need a refresher. Today, we'll add a few more concepts, and then give you time to "practice" what you've learned with the on-line simulation below.

elasticity: repsonsiveness of demand or supply for a good given changes in price (Formulas are reprinted from biz.ed, a British website)

* price elasticity of demand: measures the responsiveness of demand to a given change in price and is found using the equation: (PED) = Percentage change in quantity demanded/Percentage change in price

Let's figure out how to tell if a good is elastic or inelastic...

A good or service is "unit elastic" if a one percent change in the price leads to a one percent change in the quantity demanded/ supplied.

* income elasticity of demand (YED): measures the responsiveness of demand to a given change in income

YED = Percentage change in quantity demanded/Percentage change in income

If YED is negative, then the good is "inferior." People use an increase in income to buy less of this good and more of a superior substitute.

If YED is positive then the good is "normal". Consumers use an increase in income to buy more of the good.

* cross elasticity of demand (XED): measures the responsiveness of demand for one good (z) to a given change in the price of a second good (w)

XED = Percentage change in quantity demanded of good z/Percentage change in the price of good w

If XED is positive then the two goods are substitutes.

If XED is negative then the two goods are complements.

Economic theory sideline - Giffen goods: There is some debate among economists as to whether or not these truly exist. A Giffen good is a commodity for which demand increases at higher prices and falls at lower prices. (They exclude what some call the "snob" effect of an item being trendy, etc.) Can you think of any possibilities?

OBVIOUSLY, YOU CAN RUN ALL THE SAME CALCULATIONS FOR THE SUPPLY PERSPECTIVE BY SIMPLY SUBSTITUTING TERMS. For example...

price elasticity of supply: measures the responsiveness of supply to a given change in price.

PES = Percentage change in quantity supplied/Percentage change in price

You get the idea...

ON-LINE SIMULATION ON DEMAND AND SUPPLY: The University of Omaha has done a neat on-line "tutorial" on using supply and demand. We'll spend some time trying to work thorugh that. I'd suggest doing it with a partner. Our goal will be to get through the 6 questions on the "quiz" at the end. Here are some things to look at on each part of the tutorial. The tutorial has six "pages" to work through and a self-quiz at the end.

Explorations in Economic Demand, Part I - The words in bold can be considered to be the "determinants" referred to in the discussion questions at the bottom. Consider how changes in each of those would affect his demand for blue jeans.

Explorations in Economic Demand, Part II - Be sure you understand the role of these terms and concepts: demand curve, income effect, substitution effect, diminishing marginal utility

Explorations in Economic Demand, Part III - Watch for the difference between shifts in the curves and movement along the curves.

Explorations in Economic Supply, Part I - Do the same as we did with the demand page, but you are on the "other side" this time.

Explorations in Economic Supply, Part II - Be sure you understand the role of these terms and concepts: supply curve, short run, long run, fixed costs, variable costs, law of diminishing marginal returns

Explorations in Economic Supply, Part III - Watch for the difference between shifts in the curves and movement along the curves.

Exploring Supply and Demand: Here's the quiz. Work through the problems and see how you do. Notice that the curves will actually move to help you better understand.

NOTE: As of now, there is a lag between your submitting a post and its appearance on the blog. I have to "approve" them by clicking on them. Don't resend.

REMINDER: In order to receive credit, these comments need to be posted by 11:10 AM on Friday. Remember that this is a public site, and you are responsible for the content of your postings.

At this time, you are supposed to have read Chapter 5, “Economics of Information.” You should post a response of at least one good paragraph to one or more of these questions. (You can also react to other posts.)

1. Can you propose a way to "save" the Hope Scholarship program proposed by the Clinton Adminstration from the problem of "adverse selection?" (pp. 80-81)

2. "More important, they [professional women taking maternity leave and/or quitting] impose a cost on other women." (page 83) I'm simply asking you to react to this analysis. You can do this at an economic level, an equality level, a moral level, or whatever combination of levels that work for you.

3. What would you do to clean up the problems of information in the used-car market? (pp. 84-85) Does technology like "Car Soup" and the like help or hurt with this effort?

4. On page 90, a quote from The Economist magazine explains the "looming quandary" genetic testing may pose for the health care industry. What should we do?

5. Most of you are headed off to college next year. Take a crack at the "chicken/egg" question about the value of a "Harvard-like" education that is introduced on pp. 93-94. (You can also react to the results of the Krueger study.)

6. Jump into the racial profiling debate started on pages 95 and 96. "Does race or ethnicity... convey meaningful information? If so, what do we do about it?"

REMINDERS: Your blog entry #5 is be due by class time on Friday.

Your "take home" portion of the exam is also due by class time on Friday.

I'll ask you to have Naked Economics Chapter 6, "Productivitiy and Human Capital", read for Tuesday, March 28th. (We won't have class that Thursday because of Senior Performances, so that gives you until the following Monday for that blog entry...)

MICRO-ECONOMICS: Today, we'll introduce the two basic concepts of microeconomics: supply and demand.

Demand and Supply: These are the two basic concepts of microeconomics. We'll take a look at them today. Get out a piece of paper. You'll be doing some drawing... (Plus, I have a useful handout.) By the way, certeris paribus is Latin for something like "other things being equal".

DEMAND: the relationship between the quantities of a good or service that consumers desire to purchase at any particular time and the various prices that can exist for the good or service

quantity demanded: the amount of a good or service that consumers would purchase at a particular price

demand curve: a graphic representation of the relationship between price and quantity demanded

law of demand: a rise in prices causes a fall in the quantity demanded, whereas a decline in price causes an increase in the quantity demanded. This affects people in two ways...

* income effect: the effect of a change in the price on the amount purchased that results from a change in purchasing power of a consumer's income due to the price change
* substitution effect: the effect of a change in the price on the amount purchased that results from the consumer substituting a relatively less expensive alternative

What determines demand?
* consumer tastes and preferences
* income
* substitutes and complements
* population
* perception of future prices

SUPPLY: the relationship between the quantities of a good or service that sellers wish to market at any particular time and the various prices that can exist for the good or service

supply curve: a graphic representation of the relationship between price and quantity supplied

law of supply: the quantity supplied of a good or service varies directly with its price; the lower the price, the smaller the quantity suppled, and the higher the price the larger the quantity supplied

What determines supply?
* capacity and technology
* costs of production
* (short run)- a period of time so short that the amount of some inputs cannot be varied
* (long run)- a period of time long enough that the amount of all inputs can be varied
* prices of substitutes and complements
* perception of future prices

equilibrium price: the price at which the market "clears"; the price at which the quantity of a good or service offered by suppliers is exactly equal to the quantity that is demanded by purchasers in a particular period of time

Today will be pretty flexible. In some groups, we have "Taking Sides" debates to finish up.

We'll make sure eveyone knows what they are supposed to have done/ be doing.

With time remaining, we'll share the articles you were asked to read from "Everyday Economics"- This is the on-line column that Steven Landsburg writes for Slate magazine.

These would be worth up to five points each...

Remember that the problems for the Macroeconomics Exam are due Wednesday at the latest. I'll obviously take them earlier. Those are worth 30 points, as opposed to the 20 on the multiple choice portion. We'll go over the multiple choice portion today.

READING: Please have have Chapter 5, "Economics of Information," in Naked Economics read for Wednesday. We'll dig into supply and demand basics then as well. Your next blog entry will then by due by Friday.

SITE OF THE DAY: "Everyday Economics"- This is the on-line column that Steven Landsburg writes for Slate magazine. Please read one column of your choice BEFORE you come to the next small group meeting. We'll share them then. These would be worth up to five points each...

We'll take the 20 multiple-choice questions in class. No notes or anything. I've recopied the "take home" portion of the exam below... Have a good break. Tackle chapter 5 in Naked Economics if you get bored...

TAKE-HOME PORTION OF THE MACRO-ECONOMICS EXAM

The take-home portion is worth 30 points, and it will be due on Wednesday, March 22nd. The questions are below. Of course, I'd love to get them before break, but that's up to you.

Problems: (10 points)

1. Components of GDP: (4 points) - Determine if each of the items listed below should be included in GDP and under which component or components: Consumption, Investment, Government, Exports or Imports.

1. A cell phone produced and sold in the US by a Japanese company
2. MPA tuition
3. Social Security payments
4. Best Buy stock purchased from Best Buy
5. The purchase of a plane ticket to Shanghai on Air China
6. The purchase of a US Treasury Bond by an individual
7. A new factory
8. The sale of a previously occupied house
9. A bottle of French wine, sold in the US
10. A television produced, but not sold.
11. A dinner at a restaurant
12. A computer produced in the US and sold in Canada

2. Calculating GDP: (3 points) - Given the following data (in billions of current dollars), calculate the current level of gross domestic product.

Consumption spending $6,000
Social security payments 1,400
Income tax receipts 1,700
Exports 1,600
Business purchases of new factories and equipment and changes in inventories 2,500
Federal government spending on goods and services 1,700
Construction of new homes 400
State and local spending on goods and services 1,500
Imports 1,200
Wages 13,000

3. Federal Reserve "Tools" and Effects: (3 points) - For each Fed "action," explain its effect on the money supply. Will the listed action increase or decrease the money supply? Fill in 3a through 3f.

Open Market Operations

3a. The Federal Reserve buys securities
3b. The Federal Reserve sells securities

Discount Rate

3c. Raising the discount rate
3d. Lowering the discount rate

Reserve Requirement

3e. Raising the reserve requirement
3f. Lowering the reserve requirement

Short answer: (20 points - 5 points each) You need to do four of the following "short answer" questions. Choose any four that you would like from the list. Answers should be between 300 - 500 words or so. You can either print them out or submit them electronically to me as an e-mail attachement.

A. You are asked to present an Emmy Award for the category of "The Most Influential Economist". The three nominees, lucky for us, are Adam Smith, Karl Marx, and John Maynard Keynes. Tell me who you think should win the award. More importantly, provide justification for your choice. (This is a carry-over from last year when we also read Explaining Economics. It's certainly one you could easily research, but we didn't really "teach" these guys this time around.)

B. Martians have landed on the earth, and they want to better understand the American economy. You are allowed to teach them about the two (and only two) economic measures or indicators that you believe reveal the most about the economy. Which two would you choose to explain? Why?

C. Assume that the United States needs a new "chief economist". You have been tapped for the job. At your Senate confirmation hearing, you are asked if your macroeconomic "view" relies more heavily on the "demand" approach or the "supply" side. What would you tell them? Why?

D. Taxes are, however unfortunately, a fact of life in America. Assume that you are on the committee appointed to look at "tax reform". What would you recommend as the best system of taxation in America? (You don't need to talk about specific numbers, but be sure that your choices reflect the values you would want to emphasize in our society.)

E. Here's a "softball" for you. What do you believe should be the role of government in managing and/or regulating the economy?

F. The Federal Reserve Board has been responsible for conducting our nation's money supply for decades. Critics charge that it is often ineffective, sometimes making things worse. Based on what you know, should changes be made in the way the Fed operates? Why or why not?

G. Do budget deficits matter? Justify your answer with reference to ideas discussed in class or the readings.