On the Margin

I recently had an opportunity to hear some college students present an economic analysis and monetary policy recommendation. I was reminded of something that often escapes our students.

One of the characteristics of monetary policy is the long lag time between change and full impact. This is because each change does not affect all players in the economy equally. Each change has a more significant impact on those economic players at the margin--at the point where the additional rise or fall in rates results in a
deal-breaker/deal-maker scenario. That relatively small number of transactions then ripples through the entire economy in the form of changed orders and decreased or increased consumption and production.

Many students don't get this.

Your comments are welcome.

Posted by TSchilling at 8:30 PM | Comments (0)

Catch 'em Where They Live (or Drive)

One way to get the attention of many of your students is to use cars and things car-related as examples when describing economic issues, events, and concepts. Way back in May of 2005, the Government Accounting Office (GAO) published a report on Motor Fuels: Understanding the Factors That Influence the Price of Gasoline. Is it pre-Katrina? Yes. Is it informative? Definitely. Is it useful for the high school class? Well, it has a lot of charts and graphs that your students are sure to find interesting and maybe even surprising.

And to help your students understand the whole “price-gouging” kerfuffle, you might want to check discussions Macroblog by David Altig, the Becker-Posner blog, Jane Galt (link to this post is no longer available), or or William Polley's blog.

I look forward to your comments.

Posted by TSchilling at 3:15 PM Comments (0)

How Do You Teach "Rich?"

In early stages of economics and personal finance classes, students often talk about their desire to be "rich." The topic often arises again when talking about income distribution or tax policy. But I always found it thought-provoking and instructive to ask the students to define "rich."

They frequently begin throwing numbers around, but I tell them they still aren't telling me enough. I like to ask them whether rich is defined by income, or by wealth, or by some combination of the two. This gets students to start thinking in terms of flows (income) vs. stocks (wealth). It also helps them realize that a person can be wealthy and yet have a small income (i.e. the "landed gentry" in their history texts that were land rich and money poor). That realization has implications that can contribute further to the discussion. And you can ask some interesting hypotheticals about people and companies that are wealthy, yet income poor, or those that have strong flows and are yet tottering at the edge of bankruptcy.

Feel free to share your thoughts.

Posted by TSchilling at November 16, 2005 3:58 PM

Comments
I remember reading, a number of years ago, an article in The Wall Street Journal titled something like, "The Poorest Man in the World." The article was about a Japanese business man who owned large amounts of Tokyo commercial real estate that, due to the collapse of real estate values, was worth considerably less than the money borrowed to buy it, leaving the gentleman with a negative net worth of several billion dollars, hence the label of "world's poorest man."

Yet, due to his creditors reluctance to foreclose, he continued to manage the properties, continued to live in a penthouse atop one of the large buildings, continued to ride in a chauffeured limousine, continued to live a life of luxury that a person with a net worth of several billion dollars more (i.e. a net worth of "zero") could only dream of living.

Was this man "rich?" Apparently at that time he was, regardless of his net worth.

Posted by: Max at November 20, 2005 3:00 AM

Utility and Value

As indicated in an earlier entry, I've been reading Nature's Metropolis. It's an interesting blend of history, economics and geography. But in the closing pages, I was reminded of the concept of utility. Not marginal utility. I'm referring to form, place and time utility. Aside from one of my earliest textbooks, I don't remember running across the concepts very frequently. However I have often referred to it when teaching.

In this context, utility refers to the "usefulness" or "value" that consumers find in objects. The old text I remember classified utility into form, place and time. Basically it said that consumers found a good/service useful because of the form(s) of the object, and/or when and/or where it was available. These qualities made a good/service useful to the purchaser of a good or service.

Nature's Metropolis gives very good illustrations of how time utility can add value to a good to the extent that a higher price is no longer an obstacle. It gives a number of illustrations that can be easily used in the classroom, showing how changing technology (frequently the railroad, but other technology as well) added time and place utility to a good or service, raising its value to the customer, often while reducing the cost.

For the geography and history teacher trying to integrate some economic understanding, the book is a great source. And likewise for the economics teacher trying to provide historical context or integrate geographic learning, the book is highly recommended.

If you have other books that you can recommend that do a good job of illustrating concepts and providing context, let me know.

Posted by TSchilling at 6:57 PM Comments (1)


Comments
It would be great to have a list of such books. I had a post about armchair economics reading list at
http://truckandbarter.com/mt/archives/2004/11/armchair_econom.html
-Paul

Posted by: paul at November 19, 2005 1:42 PM

Trade Negotiations

While the President is in Argentina to discuss trade issues, it may be an opportune time to discuss trade with your students. Here are some interesting quotes (admittedly all tend to favor free trade) to have your students react to, from a variety of sources.

"Trade is in its nature free, finds its own channel, and best directeth its own course; and all laws to give it rules and directions, and to limit and circumscribe it, may serve the particular ends of private men, but are seldom advantageous to the public." from An Essay on the East India Trade, by Charles D'Avenant

"The philosopher and lover of man have much harm to say of trade; but the historian will see that trade was the principle of Liberty; that trade planted America and destroyed feudalism; that it makes peace and keeps peace; and it will abolish slavery." - Ralph Waldo Emerson -

"No nation was ever ruined by trade." - Benjamin Franklin -

“You may be cajoled into imagining that your own special trade or your own industry will be encouraged by a protective tariff, but it stands to reason that such legislation must, in the long run, keep away wealth from the country, diminish the value of our imports, and lower the general conditions of life in this island.” spoken by Sherlock Holmes in The Hound of the Baskervilles by Arthur Conan Doyle

Submit other quotes you feel are good discussion starters.

Posted by TSchilling at 4:29 PM | Comments (0)