G11 - Week 7 - Day 1

In-class work

1. Work on ch. 3-4 commentary assessment
2. Hand in hardcopy by end of class

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From the blogosphere

1. Firms that Discriminate are More Likely to Go Bust
2. Is Sustained 4 Percent Annual Real Growth Achievable?
1. “As we noted in our 16 Myths document, the last time the U.S. had 4 percent growth on average for 25 years was 1940-1964. And in the modern context with an aging population and a large percentage of women now already in the labor force, pursuing a number of pro-growth policies mentioned would only achieve about 3 percent real growth at best over the long run. Therefore, it would be very difficult to achieve sustained 4 percent annual real GDP growth.”
3. These charts prove that the world is getting dramatically better, not worse

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Currently Reading

Education for Sustainable Happiness and Well-being

EDUCATION FOR SUSTAINABILITY  

Education for sustainability is more than just a new curriculum. It is about how the content and process of education can be interwoven with real-life contexts to create opportunities for young people to take the lead in building sustainable communities and societies. Peter Senge (2014, p. 325) 

Peter Senge (2014) recounts the story of 12-year-old Analise during a student presentation evening. There were 250 people gathered to hear about the students’ sustainability projects. Analise represented her group and briefly described the wind turbine project that she and her peers had created at their middle school. Installing the wind turbine had involved many of the steps that Zhao (2012) outlined in product-oriented learning, including a presentation to the principal and the town’s mayor, as well as garnering expertise from parents to explore engineering and investment options. The scope of the project itself is impressive. Even more impressive is her wisdom and courage to challenge the adult audience. Senge tells us that once her presentation was finished,  

Analise set aside her notes and standing calmly, some 75 pounds of fierce determination said, “We children are often hearing that ‘you children are the future.’ We don’t agree with that. We don’t have that much time. We need to make changes now. We kids are ready, are you?” (Senge, 2014, p. 328)  

Analise is absolutely right. We need to make changes now. Muddling along with small revisions to curricula here and there is drastically out of step with the pressing need for educators to demonstrate greater leadership in sustainability education. (p. 85)

G11 - Week 4 - Day 1

In-class work

1. Questions?
2. Assessment Peer Marking
3. Market Equilibrium, Disequilibrium and Allocative Efficiency
1. Exercise 1 & 5-8 (p. 58 & 66)
4. Consumer Surplus and Producer Surplus
1. Exercises 9-13 (p. 70)
5. A Supply and Demand Paradox - the Chevy Volt versus the Chevy Cruze
6. Finding Equilibrium using Linear Demand and Supply Equations (HL Only)
7. Consumer Surplus and Producer Surplus in the Linear Demand and Supply Model (HL Only)
1. Exercises 2-4 (p. 64)

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From the blogosphere

1. Who Is the Most Impressive Leader in the World Right Now?
2. Happy Birthday to Me: I'm Giving Someone $3,500

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Currently Reading

Creating a Learning Society

"It has long been recognized that most standard of living increases are associated with advances in technology, not the accumulation of capital. Yet it has also become clear that what truly separates developed from less developed countries is not just a gap in resources or output but a gap in knowledge. In fact, the pace at which developing countries grow is largely determined by the pace at which they close that gap.

Therefore, how countries learn and become more productive is key to understanding how they grow and develop, especially over the long term."

G11 - Week 3 - Day 3

In-class work

1. Questions?
2. Assessment

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From the blogosphere

1. Are universities worth it?
2. The Future (Probably) Isn't as Scary as You Think

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Currently Reading

The Road to Serfdom

"To split or decentralize power is necessarily to reduce the absolute amount of power, and the competitive system is the only system designed to minimize by decentralization the power exercised by man over man." (Kindle Locations 3980-3982).

G11 - Week 3 - Day 2

In-class work

1. Questions?
2. The Law of Supply and the Determinants of Supply
3. Why does Supply slope upwards? (The law of increasing opportunity cost and supply)
1. Skim pages 40-47
2. Complete exercise 17-21 (p. 42 & 47)
4. Linear Demand Equations - part 1 (HL Only)
5. Linear Demand Equations - part 2 (HL Only)
1. Exercises 11-16 (p. 40)
2. Read section 2.4 as needed
6. Linear Supply Equations - part 1 (HL Only)
7. Linear Demand Equations - part 2 (HL Only)
1. Exercises 22-27
2. Read section 2.7 as needed
8. Deriving Demand and Supply Equations from Data (HL Only)

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From the blogosphere

1. The Future of Work
1. Analyze how the shifts in future work might be connected to scarcity of different resources.
2. Evaluate what the opportunity costs might be if education doesn't change and adapt to the technological progress happening.
3. How might some of these changes affect both supply and demand of future markets?
4. How do these questions relate to decisions about your future?
2. PPP Demystified

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Currently Reading

The Road to Serfdom

"This is the fundamental fact on which the whole philosophy of individualism is based. It does not assume, as is often asserted, that man is egoistic or selfish or ought to be. It merely starts from the indisputable fact that the limits of our powers of imagination make it impossible to include in our scale of values more than a sector of the needs of the whole society, and that, since, strictly speaking, scales of value can exist only in individual minds, nothing but partial scales of values exist—scales which are inevitably different and often inconsistent with each other. From this the individualist concludes that the individuals should be allowed, within defined limits, to follow their own values and preferences rather than somebody else’s; that within these spheres the individual’s system of ends should be supreme and not subject to any dictation by others. It is this recognition of the individual as the ultimate judge of his ends, the belief that as far as possible his own views ought to govern his actions, that forms the essence of the individualist position." (Kindle Locations 2545-2552).

"This is precisely what the price system does under competition, and which no other system even promises to accomplish. It enables entrepreneurs, by watching the movement of comparatively few prices, as an engineer watches the hands of a few dials, to adjust their activities to those of their fellows. The important point here is that the price system will fulfill this function only if competition prevails, that is, if the individual producer has to adapt himself to price changes and cannot control them. The more complicated the whole, the more dependent we become on that division of knowledge between individuals whose separate efforts are coordinated by the impersonal mechanism for transmitting the relevant information known by us as the price system." (Kindle Locations 2385-2390).

G11 - Week 3 - Day 1

In-class work

1. Questions?
2. The Law of Demand - HD
1. Skim pages 26-29
2. Complete exercises 6-9 (p. 29)
3. The Determinants of Demand - HD
1. Skim pages 29-35
2. Complete exercise 10 (p. 35)
4. The Law of Supply and the Determinants of Supply
5. Why does Supply slope upwards? (The law of increasing opportunity cost and supply)
1. Skim pages 40-47
2. Complete exercise 17-21 (p. 42 & 47)

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From the blogosphere

1. The Real Benefits of Migration
2. Are Saudis More Productive than Germans?

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Currently Reading

The Road to Serdom

"Whatever merits this book possesses consist not in the reiteration of this thesis but in the patient and detailed examination of the reasons why economic planning will produce such unlooked-for results and of the process by which they come about." (Kindle Locations 1185-1186).

G11 - Week 2 - Day 2

In-class work

1. Questions?
2. Read page 21-22
1. Complete exercises 1-2 (p. 22)
3. Market Structures
1. Skim pages 22-26
2. Complete exercises 3-5 (p. 26)
4. The Law of Demand - HD
1. Skim pages 26-29
2. Complete exercises 6-9 (p. 29)
5. The Determinants of Demand - HD
1. Skim pages 29-35
2. Complete exercise 10 (p. 35)

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From the blogosphere

1. Does hosting the Olympics make us happier?
2. Euthanasia arbitrage the moral hazard culture that is Belgian French
3. Minority rule: Migration, Brexit and Mandates

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Currently Reading

The Democracy Project

"The truth is that most Americans have been taught since a very young age to have extremely limited political horizons, an extremely narrow sense of human possibility. For most of them, democracy is ultimately something of an abstraction, an ideal, not something they’ve ever practiced or experienced;" (Kindle Locations 109-111).

"Everyone involved recognizes that creating a democratic culture will have to be a long-term process. We are talking about a profound moral transformation, after all" (Kindle Locations 149-150).

"The social argument I’ll be making is fairly simple. What’s being called the Great Recession merely accelerated a profound transformation of the American class system that had already been under way for decades. Consider the following two statistics: at the time of this writing, one out of every seven Americans is being pursued by a debt collection agency; at the same time, one recent poll revealed that for the first time, only a minority of Americans (45 percent) describe themselves as “middle class.” It’s hard to imagine these two facts are unrelated. There has been a good deal of discussion of late of the erosion of the American middle class, but most of it misses out on the fact that “middle class” in the United States has never primarily been an economic category. It has always had everything to do with that feeling of stability and security that comes from being able to simply assume that— whatever one might think of politicians— everyday institutions like the police, education system, health clinics, and even credit providers are basically on your side. If so, it’s hard to imagine how someone living through the experience of seeing their family home foreclosed on by an illegal robo-signer would be feeling particularly middle class. And this is true regardless of their income bracket or degree of educational attainment.

The growing sense, on the part of Americans, that the institutional structures that surround them are not really there to help them— even, that they are dark and inimical forces— is a direct consequence of the financialization of capitalism. Now, this might seem an odd statement to make, because we are used to thinking of finance as something very distant from such everyday concerns. Most people are aware that the vast majority of Wall Street profits are no longer from the fruits of industry or commerce but from sheer speculation and the creation of complex financial instruments, but the usual criticism is that this is just a matter of speculation, or the equivalent of elaborate magic tricks, whisking wealth into existence by simply saying it exists. In fact, what financialization has really meant is collusion between government and financial institutions to ensure that a larger and larger proportion of citizens fall deeper and deeper in debt. This occurs on every level. New demands for academic qualifications are introduced to jobs like pharmacy and nursing, forcing anyone who wants to work in such industries to take out government-backed student loans, ensuring that a significant portion of their subsequent wages will go directly to the banks. Collusion between Wall Street financial advisors and local politicians forces municipalities into bankruptcy, or near-bankruptcy, whereupon local police are ordered to massively increase enforcement of lawn, trash, and maintenance regulations against homeowners so that the resulting flow of fines will increase revenues to pay the banks. In every case a share of the resulting profits is funneled back to politicians through lobbyists and PACs. As almost every function of local government becomes a mechanism for financial extraction, and the federal government makes clear that it considers its primary business to keep stock prices up and money flowing to the holders of financial instruments (not to mention guaranteeing that no major financial institution, whatever its behavior, ever be allowed to fail), it becomes increasingly unclear what the difference between financial power and state power really is." (Kindle Locations 157-181).

Clearing Up Inelastic Demand Curves and Price Changes

The video below makes two points about inelastic demand curves: the first is specific to inelastic curves and the second is more general to all demand curves.

1. Please keep in mind the differences between NO quantity change and LITTLE quantity change when prices are increased or decreased!
2. Our demand curves CAN show us revenue, but NOT profit...

New Maternity Leave Really About Incentives for Talent

Robert Reich (The Fraud of the New “Family-Friendly” Work)

First, these new policies apply only to a tiny group considered “talent” – highly educated and in high demand.

The second thing to know about the new family-friendly work policies is that relatively few talented millennials are taking advantage of them. 

They can’t take the time. 

The Mutability of Wages - Paul Krugman

A great evaluation of supply-side policies that insist on lowering wages to increase production from Krugman.

The Mutability of Wages - NYTimes.com

Arindrajit Dube enlarges on my post about efficiency wages, pointing out that the same logic applies to firms that have monopsony power. That’s a very good point — and I think we’re circling in on an important part of the logic behind the “new view” on inequality policy, which says that policies to enhance worker bargaining power can have major effects on the distribution of market income. 

What’s going on here? Maybe two schematic pictures can help. 

The conventional view about the choices facing an employer looks something like this: 

 

The employer’s choice of wage to pay is pinned firmly in place by the invisible hand. It can’t pay less than the going market wage, or it won’t be able to attract any workers; it really, really doesn’t want to pay more than the going wage, because any wage increase translates dollar for dollar into lost profits. Minimum wages or a strong union can force the wage up all the same, but it takes a lot of political or institutional power. 

What Dube, I, and many others are suggesting is, however, that for quite a few employers — including large service-sector companies — the situation looks much more like this: 

 

There isn’t a sharply defined “going wage”, either because the firm has monopsony power — it can, in effect, choose the going wage in its local labor market — or because efficiency wage considerations lead it to pay more than the minimum, so that there are normally more applicants than places. And as I’ve drawn it, the top of the hill relating the wage rate to profits is fairly flat. In particular, the firm shouldn’t mind very much paying a somewhat higher wage, because this will produce offsetting benefits — a larger supply of labor if it has monoposony power, lower turnover or higher productivity if efficiency wages are an issue, maybe all of the above. 

The point is that under these circumstances it needn’t be all that hard to push up wages: the threat of union organizing or a consumer boycott, even moral suasion from the government might be enough. So the standard view that it’s very hard to change the distribution of market income, that policy must involve after-market taxes and transfers, may be quite wrong.

Giffen Goods

Here's a fun type of inferior good that's not on our economics syllabus, but pretty cool to know about. I've actually never heard of this type of good until today. Very counter-intuitive and one of the reasons I love learning about economics.

Giffen good - Young Economists

 

A Giffen good is an extreme type of inferior good. The negative income effect of changes in price of a Giffen good is actual stronger than the substitution effect. This leads to its bizarre quality: when the price of a Giffen good rises, consumers actually buy more. Veblen goods behave the same way for very different reasons. 

To understand how this happens, consider the example of a Giffen good for which there is the best evidence that it is a Giffen good. Households in the Hunan province of China were shown to buy more rice when they had to buy it at a higher price, and less when the price they paid was subsidised. 

The reason for this is that, even when expensive, rice was still the cheapest source of calories available. Therefore, when the price of rice was cut, households had more money left over after buying rice. Some of this was spent on buying more expensive foods (meat, vegetables and fruit), which reduced their need for rice.

From Wikipedia

In economics and consumer theory, a Giffen good is a product that people consume more of as the price rises—violating the law of demand. For any good, as the price of thegood rises, the substitution effect makes consumers purchase less of it, and more of substitute goods; for most goods, the income effect (due to the effective decline in available income due to more being spent on existing units of this good) reinforces this decline in demand for the good. But a Giffen good is so strongly an inferior good (being more in demand at lower income) that this contrary income effect more than offsets the substitution effect, and the net effect of the good's price rise is to increase demand for it.