Non-Price Determinants of Demand

This is not appropriate for use in high schools. However, those of you who teach at the college or university level may find this helpful.  Econgirl at EconomistsDoItWithModels has a great illustration of non-price determinants of demand with the help of "the most interesting man in the world."

The Invisible Hand and Thanksgiving

I suspect many of you are busy today.  Our family had our dinner yesterday because one of my sons is working on Thanksgiving Day. But when you get a chance, you might want to review this column by Jeff Jacoby of The Boston Globe. (HT to Carpe Diem for the reminder.)

The market works wonders. And if you're thinking "but turkey was relatively expensive this year"; the market explains that, as well.  Here's an item from Bloomberg.

Happy Thanksgiving.

Putting Things in Perspective ... Thanksgiving Edition

As we approach year's end and the traditional holiday season, and with the failure of the Supercommittee to achieve anything of substance beyond finger-pointing, here is something courtesy of XKCD to fill those odd classroom moments.

Price

Price isn't everything.

Causation, Correlation or Coincidence

And we were only talking about subsidies and their effects on markets the other day in my class. I wish I had this at that time. (HT to Division of Labour).

Wealth and Income Effects of Monetary Policy

Back when I worked for the Federal Reserve Bank of Chicago, there were a couple of issues that had to be dealt with repeatedly. One was the limitations of monetary policy – there were certain macroeconomic goals that were easier than others to address through monetary policy. The other was the fact that monetary policy was a broad tool.  One could not really initiate policy to affect a narrow sector of the economy – too often it had effects on other areas.

This latter is illustrated well in an opinion piece (free content at time of this writing) from today’s edition of The Wall Street Journal . The piece is critical of the Fed’s monetary policy move referred to as QE2.  The charge is that it was meant to have a specific effect on financial markets, but has had unintended consequences in other markets, such as commodities.  While I don’t pretend to know whether this is true or not, the piece does explain how QE2 resulted in wealth effects and income effects.  And it is there that it provides a service for those of us who teach.

In explaining the linkage between an accommodative monetary policy and prices (of both securities and commodities) it can be used to help students understand the wealth effects (confidence arising from rising stock prices) and income effects (falling real income) that accompany the changing value of the dollar.

You might want to take a look. Let me know if you agree.

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?

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.

Economics in Weird Places

Last week I linked to a story about an "anti-tragedy" of the commons. Now here's a story from The Washington Post about price elasticity of demand and terrorism (HT to Marginal Revolution).

Housing Prices as a Roller Coaster

Here is the Case-Schiller Home Price Index depicted as a roller-coaster. 

The data is inflation-adjusted and runs from 1890 to 2010. It's a redo of the original one that was developed in 2007. (HT to ChartPorn.)

Supply, Demand, Interdependence, Inflation

Last week, we were discussing inflation. Later, outside of class, one of my students brought this article in Slate to my attention. It talks about rising food prices and some underlying factors. It gets into basics of supply and demand and provides opportunities to review whether you shift the curve or move along curve.

It also talks about the impact of government price policies and the interdependence that comes with a global marketplace. I think you’ll find it a useful addition to the discussion with your students on a number of levels. Let me know if you agree.

Just So We Don't Forget...MR>MC

(You can't just “make it up on volume.”)

If you're looking for something to help your students remember that firms have to be profitable to survive in the long-run, try this. (Big HT to EconomistsDoItWithModels. And you will want to read her accompanying post.)

Inflation

For those of you dealing with inflation and the Consumer Price Index (CPI) in your classes, there are two great interactive graphics (HT to Chartporn) that you can use.

This one is from The Wall Street Journal and lets you compare the price behavior of any of the CPI components to the overall CPI and the core CPI.

Another excellent graphic is this one from The New York Times in 2008. It shows how all of the components are weighted within the various categories.

If for some reason you have trouble getting to either of these, go to the Chartporn post andclick directly on either the second or third chart. (You may have difficulty getting through toChartporn because of the school filters.)

 Let me know what you think.

Economic Systems - Remember the Bad Old Days?

Here is an interesting item from the BBC (HT to Carpe Diem).

It seems that the hot game in Poland is about shopping in the old days - when Poland was a communist country. It's based on the queues that people had to wait in to purchase just about anything.

If you want to show students a similar situation, I recommend the first few minutes of the movie Moscow on the Hudson. Although the relevant cut takes place in the old Soviet Union, the story is essentially the same. See a queue? Stand in it and buy whatever is being sold.

When we talk about economic systems, we sometimes to remind students that price is a rationing mechanism that distributes goods according to willingness to pay. (Students should be able to connect to that if they read anything about ticket prices, parking prices, airline, and hotel prices in Dallas last week.)