Monday, May 30, 2011

If You Tax Something,

you get less of it. I seem to remember reading that someplace...oh, yeah. It's in almost every economics principles text.

This article from The Independent in the U.K. (HT to Carpe Diem) could be very useful when you discuss tax wedges. It could also be used when discussing taxes and elasticity, willingness to sell and incentives.

I'm planning on using it. What do you think? Does it have potential for your class?

Friday, May 27, 2011

Exchange Rates

Earlier this week, Greg Mankiw (HT) linked to an excellent column in The New York Times. It is by Christina Romer, former chair of the President's Council of Economic Advisors. In it, Dr. Romer gives as clear and lucid an explanation of exchange rates as I can recall in some time. She explains what it means for a currency (in this case the dollar) to be strong and what that really implies. Most importantly she makes a case of why discussion of the exchange rate is needed if people are going to understand the broader economic picture.

Too often our students lose sight of the fact that the exchange is the price of securing a tool - a tool necessary for conducting business in a different economy. And whether it is Americans seeking to conduct business elsewhere or foreign citizens seeking to conduct business in the U.S., it is necessary to have the right tools.

Please take a look and share your thoughts.

Non-Price Determinants of Demand

I've been meaning to blog on an article for the past couple of weeks but just have not had the time.  I have a few moments while one of my summer classes are taking an exam so I will try to do it now.

The article in question is from The Wall Street Journal. It discusses how buying patterns have changed among the wealthy as a result of the recent recession. It offers a chance for you and your students to discuss some non-price determinants of demand.  How are non-price factors such as tastes, income, availability of substitutes/complements, expectations, and the number of buyers reflected in the article?  You can also use it to discuss the price elasticity of certain goods. What are your thoughts?

Thursday, May 26, 2011

What Is Economics?

(I know I've been remiss. I'm hoping you all understand what end of school year means. It doesn't excuse - only explain.) Anyway, here is an interesting summation (HT to MarginalRevolution) for one of those last days of class or an introduction for the first day next fall. I'd be very interested in your comments.

The Story of Economics from Kate Burn on Vimeo.

HT Marginal Revolution

Friday, May 13, 2011

Rent Controls, Price Ceilings and Property Rights

I've been meaning to post this for a number of days now. I apologize for not getting to it more quickly. Recently, I ran across this article about a landlord in San Francisco who is having trouble with the city's rent controls. This is not a new concept for those of us who teach economics. Rent controls are the classic example of a binding price ceiling creating shortages.

What made the article a little different was the fact that it mentioned a portion of the San Francisco law that limits what the owner can do with the property. In this case, the landlord/owner wants to evict a tenant so he can move family into the space. But if he does that, it limits his use of the building in the future. In essence his property rights are restricted in such a way as to make it hard for him to evict the tenant. At the same time, eviction impacts the tenant’s property rights. While the tenant is not the owner, there is an issue of possession.

This makes an excellent discussion piece if you want to tie property rights into price ceilings. I encourage your comments.

Decisions, Choices and Opportunity Costs

Here is an example of a "non-economic" choice that is just full of potential for opportunity cost. (We will  overlook the fact that they both say "price" when it's really "cost" they're talking about.)


Wednesday, May 11, 2011

Extreme Hyperinflation

Zimbabwe must hold the record.  See this story in today's edition of The Wall Street Journal.  (And it only has that value as a "collector's item.")

Sunday, May 8, 2011

The Value of Cutting Costs

Recently, I took an online course that focused on economic development and poverty. One of the discussions we had questioned whether technological innovation benefited the rich, the poor or both.  One of the conclusions was that, because of the cost of innovation, initial benefits tended to gravitate to the rich because they could pay a price that would compensate the producer.  But over time, as the cost structure changed, the benefits were realized by those at lower income levels, as well. One of our classmates even noted that, because of the passage of time, the technology was actually better quality as well as cheaper by the time it became available at lower prices.

Yesterday, there was an opinion piece in The Wall Street Journal that dealt with that topic. It reinforces the point that the real value in innovation may not come in the initial stages - many innovations don't last very long.  But for new products and technology that does last, the real benefit comes as producers find ways to reduce the cost. And I will add, improve the quality and reliability in the process.

This relates to my post from one week ago which linked to a discussion of poverty and choice.  It also reminds me of a quote from Joseph Schumpeter who once said "The capitalist engine is first and last an engine of mass production which unavoidably also means production for the masses. . . . It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls."

I welcome your thoughts.

Wednesday, May 4, 2011

Opportunity Costs & Trade-Offs

The Corps of Engineers’ demolition of a levee to relieve pressure and save the town of Cairo, Illinois but at the expense of farmers in Mississippi County, Missouri offers some great possibilities to review some of the most basic concepts.  You can find The Wall Street Journal's version here with a slide-show, video and interactive graphics. But you can also find the story just about anywhere on most news sites.

According to the stories, there was a choice to be made. If nothing was done, the water could break through the levee at Cairo and put much of the town under 20+ feet of water. Or the Corps could blow a hole in the levee on the Missouri side of the River. This would save the town but flood farmland, farmland that was already planted. 

One can examine the potential for economic losses (damage and lost business in the city vs. damage and lost crop revenue), but there are additional questions. What about the impact on commodity prices?  These prices are already climbing.  One story I heard hinted that the planted crops are a total loss and after the flood waters recede and the fields dry out it may be too late to plant a second crop?  And there are now stories about the farmers being eligible for disaster relief.  How does the relief to the farmers compare to the relief payments that would be made to the residents of Cairo?  Would any of these qualify as “unintended consequences”? My inclination would be to say “yes” regarding the impact on commodity prices, but “no” to the disaster relief question.

What about political questions?  How many voters would be affected on the Illinois side vs. the number of voters affected on the Missouri side?  I don’t want to believe that was part of the calculation, but it does spring to mind.

Anyway, leaving the political issue out of the question, how do you see this story being used in the classroom, if at all?