Post Lesson 38/Pre Lesson 39

It is really important to keep in mind the difference between claims or value judgments (normative) and statements of reality (postive) especially when evaluating an argument. Arguments rest on premises and draw to conclusions based on logic. That logic should take you from the facts to the conclusions and you should constantly be evaluating whether there is another alternative to the proposed logic. This is a life skill not just a skill relating to economics. If you have further questions PLEASE come see me.

Secondarily, identifying those normative statements which may be intended to "frame" an argument or discussion by taking certain tradeoffs off the discussion table are important. So, for example, this often occurs when the words 'fairness,' 'greed,' or 'exploitation' are used. It is not that none of those things may occur but rather that we should be sceptical that those words will not merely be used to avoid a conversation about the opportunity cost of an action. The best current examples I can think of come from sequestration. So many of the arguments against sequestration go something like: you can't cut funding from there itll cost lives! The idea being that you should never do something which may, however indirectly, result in death. Of course what often gets left out is that funding that project may cost lives in other areas, so that spending money on airline safety might actually result in fewer dollars allocated to vehicular safety and actually result in far more deaths. In any case, we need to be aware of this.

For next time, in addition to your paper, write out two questions you would put on the final and answer them. Your final 15 IP points will be based on this submission.

Post lesson 37/Pre Lesson 38

The problems of government and business solutions to "unethical" practices as the same. Both government and business involve men, who, if given the wrong sets of incentives, may act in ways that ARE selfish AND at the expense of others. Such situations TRANSFER rather than CREATE wealth. This is something worth thinking about because economics is all about the ways we better allocate resources to CREATE wealth.

Just like in Smith's argument, someone who earns money by producing something has benefitted himself but he likely has also benefited someone else. The key here is that he will have benefited someone else if he is in a competitive market. Generally, markets will police, on their own, any attempt for an individual to be greedy, selfish, unfair etc and in the case where they do not, while governments may be able to help, they often won't for similar reasons because governments do not generally face competition.

In the last part of the discussion about Smith v. Marx v. Keynes I wanted to point out two crucial things. First, all of the above were focused on trying to allocate resources most efficiently. The fact that they came up with different answers is somewhat a result of the different circumstances they saw around them. Second, it is important to know how economists ended up where they are and to value what Smith and economics actually says. Economics does not say that being selfish is the way to get ahead, what it does say is that competition will allow for incentives that align acting in self-interest with service to others.

Next time we'll focus on normative and positive statements. You need to read BE 570-571, 596-603, and 608-612. Then bring an article which addresses an issue you believe needs to be corrected because of greed/fairness/equality etc. Finally, separate this list of statements into normative and positive:

• Higher interest rates cause people to save more
• High income taxes discourage effort
• High taxes on cigarettes discourage smoking
• Road-use charges would increase traffic
• People are more worried about inflation than global warming.
• People should save more
• Government should tax the rich to help the poor
• Smoking should be discouraged
• The tax system should be used to reduce traffic
• Technical change is a bad thing because it puts some people out of work
• Government should do more to reduce carbon emissions in order to save the planet from global warming

Post Lesson 36/Pre Lesson 37

Next time,

1. Read BE 621-627 and 634-637.
2. Then, think about what makes scrooge so unbearable to you. What stands out about Adam Smith's arguments, at least as Sowell tells them? How is this similar or different from Keynes' arguments?
3. Finally respond to this quote in your journal: "It is not from the benevolence of the butcher, the brewer, or the baker that we can expect our dinner, but from their regard to their own interest." Does this quote imply that we only get ahead by being selfish? 

You will turn in your journal after this class.

I hope you enjoyed the discussion and review that Maj Ackerman did with you. Different perspectives are always helpful.

Next time we'll discuss both journals and sets of readings.

Post Lesson 35/Pre Lesson 36

Folks,

I want you to read the short 6 page section of conscious capitalism I emailed to you. In your journal please explain why you want to be an Air Force officer…why would you potentially risk your life for others…and what you think, if anything, that has to do with economics and business.

 

Last time we wrapped up the section on macroeconomics. In particular most classes played a game involving the role of government in society. We saw that different constructs provide different incentives to work or not work and thus provide different outcomes. Government has a crucially important role in both ensuring that free trade can occur (most notably by protecting property rights) but also in keeping itself from preventing trade (or avoiding onerous regulation).

 

The important things:

1. Property Rights (no one stealing your work after the fact)
2. Stucture of Laws
3. Competitive Markets
4. Efficient Capital Markets (ability to get more papers, staplers, workers etc)
5. Limited Regulation
6. Low Taxes
7. Monetary Stability (your work is worth roughly the same across time)
8. Free Trade

Government can either allow for these things to occur or keep them from occuring through being either too involved or not involved enough.

Post lesson 33/Pre Lesson 34

Takeaways:

1. Productivity and Growth, these are the goals...the best use of our scarce resources which are normally acheived via prices. As a result we focus on Unemployment and Inflation which INDICATE whethere we are truly becoming more productive. We use fiscal and monetary policy to respond to changes in either.
2. THE fundamental purpose of government is to establish laws and rights that encourage free trade so that individuals become more productive. The government can, for example, improve on current uses of resources when externalities are present or when lack of ownership results in poor outcomes (ie overfishing). In either case the intervention occurs because prices dont actually convey the aggregate (macroeconmic) price of an action.

No reading. Next time we'll watch a video and I'll have updated grades.

Final Paper

Assignment: You will use no more than 2000 (~4 pages) words to reflect on the topic below. Your writing should reflect an economic thought process and utilize economic principle(s) to support your explanation. Emphasis is especially on developing a sound premise and logic and in logical evaluation of the costs and benefits of potential solutions or conclusions.

Topic
Choose one of the following:
1. Uncover the arguments behind the main competing views about the role of monetary and fiscal policy in the business cycle. I do not want you to pick a side and hail it as the answer; rather, I want you to evaluate the basis for each set of views by using the basic principles where applicable. Note how the priniciples inform each view and where you see contradiction or questions that remain in your mind. I especially hope that you address both pros AND cons of either position in your paper with a mind to the principles. To frame your discussion watch the videos here: http://econstories.tv/category/videos/ starting with "Fear the Boom and Bust" and then use other sources.

2. Discuss how and when income inequality becomes a problem with a focus on the relationship between inequality and the basic principles. It would be useful to think about the relationship between inequality and the economic principles, the different causes of inequality, and the role that government may play in either minimizing or furthering inequality. For example, when is inequality "good" or "bad" and how might the government’s role differ in either case? Or, what role are the economic principles playing or what role are they failing to play when inequality is "bad"? Use these two articles to frame your response: http://businessjournal.gallup.com/content/165716/bad-income-inequality.aspx and http://www.forbes.com/sites/hbsworkingknowledge/2013/08/19/how-income-inequality-affects-individual-behavior/.

Academic Resources:
You may discuss the topic with each other but once writing begins in earnest the work should be solely your own. A documentation statement, as always, is required.

Post Lesson 32/Pre Lesson 33

Folks,

Today we talked about three things: banks, money, and the FED. The FED has the role of setting monetary policy. Like fiscal policy, it is one tool to try to "smooth" the cycles we often experience. In particular the FED tries to keep unemployment and inflation stable. This is a constant trade off between the two and sometimes fails to work. It can work in the short run but expanding the money supply leads to inflation in the long run. In other words, decreasing unemployment today will mean higher prices tomorrow.

Remember the purpose of banks and the roles of money as well as how the FED changes the money supply.

For next time please read the pdf file that I am emailing along with your final paper assignment and answer this question:

Why is national defense often the responsibility of the government? Is there a better arrangement?

We'll talk about this and about the major unifying concepts of this whole block.

Post Lesson 31/Pre Lesson 32

Folks,

Today we specifically discussed the ways that government's raise and spend money. In particular we spent the bulk of the class discussing WHY the government might use fiscal policy. Much like an individual who tries to "smooth out" their standard of living, the government could potentially use fiscal policy in order to "smooth out" national business cycles. The problem is that increased spending during recessions is hardly ever met with the same level of decreased spending during expansions. This is due to the political realities faced by those in charge of spending. If you are still struggling with this please see the primer here: K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser\Block C-National Economy

Second, we talked about taxes. How taxes can change incentives, who pays taxes, and whether companies can merely "pass taxes onto" consumers. How do taxes change your choices or others choice? Some questions you should be able to answer after today:

1. Comment: "To reduce the government's budget deficit, the government should raise taxes on the rich."
2. Comment: "It's better to levy taxes on businesses because they can more easily afford to pay the taxes than consumers."
3. What happens when a city tries to keep bus fares lower for low income workers?
    

Next time we will focus on the other tool of the government: Monetary Policy. You can read BE 386-408 or the supplement here: K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser\Block C-National Economy but you must read one or the other and tell me:

1. How does our banking system "create money?"
2. How does the FED control the amount of money in currency? (what are the three policy tools)
3. During the Great Depression, both Hoover and FDR tried to keep the prices of goods and labor high. What was the rationale and what are the social and economic ramifications of such decisions?

Post Lesson 30/Pre Lesson 31

Today's lesson focused on the foundational importance of the government and the rule of law. Government, properly ordered, gives rise to a functional economy by providing for property rights so that individuals are incentivized to use resources in the most efficient manner. Doing so means that the costs of one's action or inaction will fall upon them and not be reappropriated. Of course a government that is powerful enough to protect you is also powerful enough to take from you. Creating structures such that governments neither find it in their best interest to protect others at your expense or to protect themselves at your expense is the difficult part. Remember also that trust among individuals and with the government results in a willingness to spend my time at what costs me the least. In order to do so, I must become vulnerable and depend on the fact that others will trade with me.

As an aside, government can play an important role when someone else's actions have an effect on society at large. In cases of externalities having government involvement can produce better outcomes but this depends 1) on the structure that is put forward to solve the issue and 2) whether the government might give undue influence to parties which have a specific interest in the issue at hand (ie tobacco companies' lobbies being involved in tobacco legislation).

Next time we'll further discuss just how the government can change behavior via taxes, how they generate revenue, and how and when fiscal policy could be used by using the analogy of personal finances.

Read BE 433-436, 444-451, 458-465, and 468-470. Respond to this question: When do you personally take a loan? why? Now, use the same idea and tell me, when might it be smart to spend more money than you take in as a government (whether you take a loan, sell bonds, or dip into savings)?

Finally, the paper is located at: K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser

Post Lesson 29/Pre Lesson 30

Folks,

You should be able to define all of the terms from my last post. You should also have a basic understanding of how we calculate GDP and what things might change our evaluation of GDP or of economic growth. For example, what happened to inflation, how many people are in a country, or what new goods and services we now have that we didn't 5, 10, or 15 years ago. Generally, it is harder to compare GDP's the further they are apart (time-wise).

Another major topic is how we track inflation by using the CPI, consumer price index. Like GDP it has flaws and is certainly prone to flaws as we change the goods in the index (having an iphone now vs a razor 5 years ago).

For next time I want to move into the Functions of Government. Please read BE 414-426 and respond to this question in your journal: what do you think of as the most basic function of government and why is it important to economics?

RP IV/Post Lesson 28/Pre Lesson 29

Everyone watch this: http://www.npr.org/blogs/money/2011/10/26/141741360/video-what-is-gdp

And be able to define these terms (many should be familiar): Aggregate Supply, Aggregate Demand, National Output, National Income, GDP, Flow, Stock, National Wealth, Economic Growth, Recession, Inflation, Cost of Living, and Deflation

Reflection Paper IV is due next Thursday. The question was:

Reflection paper IV: It is unfair that people can make money merely because they have money. I mean shouldn’t everyone, rich or poor, have to work for their income?

Finally you need to read BE 369-383. Yes it is a bit dry but you NEED to know this stuff. For your journal, what is the greatest miscalculation or misinformation that you had about GDP and what it means before this reading? Additionally, why is it that an increase in only your wage actually makes you better off but an increase in everyones wage changes nothing (hint: focus on what happens to scarcity in each case)?

I hope to have your final paper/project assignment when you turn in your RP IV on Thursday.

Post Lesson 26/Pre Lesson 27

All,

I hope today was a good way to wrap up this section while having some Friday fun. To prep for the GR I'd really encourage focusing on the objectives but also re-reading my blog re-caps. The major theme encapsulated in one line to me is: prices~wages~interest rates and differences in prices-->trade.

Beyond that some good things to think about:

1. wages tell us something about productivity. if someone is more productive they should rightfully be paid more because they (as a productive worker) are a scarce resource which others would love to have.
• as a sub point...the more expensive a person is to do a given job, the greater returns to automating that process if possible
• since the above point is true, trying to legislate higher wages may eventually lead to fewer jobs via automation which suddenly becomes feasible with higher wages
2. statistics can be deceiving...as unemployment stats sometimes are
3. screwing with wages is like screwing with prices....what are the effects?
4. trade is useful because it allows all of us to lower our costs. this is true whether trade is between individual persons or between entire countries
• limiting trade only forces costs to be higher than they could otherwise be
• there may be instances where trade restrictions are important but what happens with those kinds of arguments (ie claiming it as a national security requirement)?
• just because you can pay someone less does that mean you will employ them? no! it would be "cheaper" for an engineering firm to hire the average worker at mcdonalds but this lower cost would result in a drastically lower benefit as well. sometimes the cost is not all that matters. (see the low-wage myth in sowell)
5. we all have a comparative advantage because our costs are ALWAYS relative.
6. Investments come in all sorts of shapes and sizes so to speak. All of them have a purpose, even speculation, in allocating the use of money today and money tomorrow. Interest rates are the prices that allocate the use of this scarce resource.

There is so much more that could be added but hopefully this gives all of you a start on studying. I hope you can relax a bit this weekend and I hope to see at least some of you around the tailgate on Saturday!

Post Lesson 25/Pre Lesson 26

You better know how to do present and future value calculations....that is all.

For next time in addition to the journal assignment from last time add this question:

What is the purpose of insurance and what problem does it solve? Why does government provided or subsidized insurance often fail to solve the problem?

Post Lesson 24/Pre Lesson 25

Interest rates work like prices in that they allocate the scarce resource called money to it's alternative uses, consumption today versus tomorrow. Not only that but the real "price" of money takes into acount both the number we see and what we expect to happen to the value of money over time (inflation). Thus Real Interest Rate = Nominal Interest Rate - Inflation.

Related to this is the difference in real rates of return (or rates of expected interest) among different types of investments: stocks vs bonds vs CDs vs Mutual funds vs real estate etc. Generally the more volatile (or risky) an investment the higher the average rate of return. Additionally, investments (ie bonds) that are longer term have higher rates of return. Why? to compensate for the increased uncertainty and risk over the longer period. So, for example 30 yr bonds will have higher yields (interest rates) than 5 yr bonds.

Finally, to figure out what money in the future is worth today or what money today will be worth in the future you need to know how to complete Present Value and Future Value calculations. You need to memorize the formula to do so, using annual compounding only. Of course these calculations to know the amount of money, expected rates of growth (to get future value) or discount rates (to get present value), and the number of years.

For next time read BE 341-352 completing the standard journal entry and answering this question:

1. Give an example of moral hazard or adverse selection here at the air force academy.

Last time was a check minus.

Post Lesson 23/Pre Lesson 24

Folks,

now we will begin in personal finance! This is an important topic and one in which economics has a lot to say. Why do we invest? Why don't we just buy everything now? Why do other people borrow the money we aren't spending? What encourages or discourages people to lend/borrow? Specifically, answer these questions in your journal as you READ HO 167-170 & 177-180 as well as BE 299-303 (Financial Investments):

1. Explain why lending/borrowing occurs using the definition of economics and the basic principles.
2. What encourages or discourages people to lend/borrow?

The lesson this time was straightforward. Everyone gains from trade because trading changes the costs we face. If someone else has a lower opportunity cost, even if we might be better at it absolutely, we can trade and obtain a cost lower than our own. In doing so we can "skirt" the scarcity of our resources by relying on others thereby seemingly increasing the resources we have.

This is shocking and hard to believe but it's true because all prices (and costs) are a result of relationships between things. Recall that definition of economics, that piece about alternate uses, and when we realize that prices merely reflect those scarce resources and their alternative uses we begin to see that all they tell us is the relationships between things. Thus most attempts to interfere with trade, like attempts to interfere with prices to make things "cheaper" only tend to obscure the true relative value between goods or uses of those goods. Anyway...sorry for the diatribe. You need to be aware of the fallacies of trade restrictions like tariffs save jobs, low wages are unfair and make us uncompetitive, etc. that we may or may not have talked about but was in the reading. You will be evaluated on those things and should be ablt to apply the logic of prices and the principles of economics to trade.

Yesterday was a check by the way. You should also be able to answer these questions:

1. What is the relationship between real and nominal interest rates?
2. T / F When comparing monetary values from different time periods it is best to convert them to a common base year, typically present value.
3. If demand for loans rises and supply falls, the interest rate will INCREASE or DECREASE until equilibrium is reached. When loan prices are LOW or HIGH firms are more inclined to borrow.
4. What is investment?  How is it different from saving?
5. In your own words, describe the purpose or function of financial institutions.
6. Economic speculation is a way of allocating what scare resource?
7. What is interest?
8. In general, what effects would a cap on interest rates have on the market for loanable funds?

The additional reading which covers these questions are BE 295-326

Post Lesson 22/Pre Lesson 23

Folks,

16 Oct, F-1 @ 1900!!!!!
It was a slow start this morning and it seemed that some of you weren't well prepared. In particular asking questions like, "how do I know what they'll trade for?," tells me you hadn't figured out opportunity costs ahead of time. Therefore I gave today a check minus.

Note that everyone was better off than they would have been on their own BUT some countries had larger gains than others.

For next time complete the TRADING GAME REPORT:
1.       Provide a hard copy of the EXCEL worksheet for the TRADING GAME.  Be sure to print the worksheets so they fit on one page
           a.       TRADE PREPARATION worksheet
           b.      TRADING SCORECARD worksheet
2.       Evaluate the effectiveness of your top three trades based on the percentage of the difference in the autarky terms of trade captured.
           a.       Compute results on the TRADING SCORECARD worksheet
           b.      Explain the significance of these values and how you were able to achieve them.
3.       Review the Basic Principles of Economics and discuss how three of these principles relate to the trading game and its outcome.  For example, what happened to scarcity? Why could you make/get more than you did before? How could you possible increase the number of man hours available, isn’t time fixed?

Also, read BE 510-522 & 551-555 (THE ROLE OF TRADE)
Due next time: trade game report
Due on monday!!!!! Reflection Paper III

 

Post Lesson 21/Pre Lesson 22

You all were great! Check plus! Remember that prices convey something to us not just about how good we may be at making something but also about how relatively good or bad we are compared to others and other persons alternative uses of their time. Thus specializing and trading in what we are RELATIVELY (or comparatively) better at makes everyone better off. We'll see this in action next time.

Please complete the spreadsheet and read the trade game instructions here for next time: K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser\Block B - Trade Game

Post Lesson 20/Pre Lesson 21

Folks,

for next time:

1. Read BE 499-507 (this reading should help you complete #2)
2. Complete the Comparative Advantage worksheet located here K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser\Block B - Trade Game
3. Check out what country you've been assigned via the excel file in the same location (we may have a quiz on this)

I dont have any specific journal question for this reading

Last time we discussed basically the issues inherent messing with wages in any variety of ways. Just like prices, wages reflect something about scarcity and alternative uses and even with very GOOD intentions, policies to change this reality often end up with POOR outcomes. Many times such policies even hurt those who it was specifically intended to help. So Job security legislation normally hurts the average unemployed worker, minimum wages actually hurt the poor and unskilled the most, and unions or cartels often result in job lossses for union members, and job safety legislation results in unhappy workers!

as we move into trade and macroeconomics we can see many well intended arguments about "sweatshops," outsourcing, job protection, and explotation in the public arena.

Post Lesson 19/Pre Lesson 20

Folks,

I hope you enjoyed our min wage game. Think of what happens on a larger scale and when the changing of wages in one industry will also incentivize/disincentivize those who might work in other industries. So, if the minimum wage is increased, what might that do to the desire of some to get an education?

Also realize that scarcity and alternatives will change overtime. It's not easy to automate a process overnight but if prices are high enough it may encourage me to automate over a year or more, thus reducing the number of jobs.

Finally, statistics are important only if you know and understand the numbers behind them. With that in mind define these terms along with completing/re-completing the worksheet that was previously assigned:

• Unemployment
• Discouraged Worker
• Underemployment
• Voluntary Unemployment
• Unemployment Trap
• Labor Unions

Post Lesson 18/Pre-Lesson 19

Folks,

Good discussion today in class. I gave it a check. Two main points:

1) Wages, like prices, convey information about scarcity and alternatives both to a producer (who demands labor) and to a worker (who supplies labor). In the case of a producer there are choices between productive resources (land, labor, capital, management) and even between different levels of those resources (having Darelle Revis as your cornerback vs Aqib Talib will depend on other assets of your team). In the case of the worker, wages can indicate to me how I ought to use my current skills or whether I should invest to obtain other skills. In any case, both supply and demand are incentivized and affected by wages.

2) Productivity depends not just on the individual but on the resources and people who surround them. Additionally, wages OUGHT to reflect the productivity of one person versus another but such things are notoriously hard to see precisely because productivity is SO dependent upon outside factors. The choices between what productive resources to use will (as stated above) be affected by how each additional unit will affect productivity overall. In other words the opportunity cost of the next unit of any resource matters. Having 3 hammers and one person just will not increase productivity and so, due to increasing opportunity costs, the producers decision on which resource to employ next will change based on what I currently have.

For next time I'd like you to read one on the following sections:
-Job Security: BE 235-244 & 249-251 (Skip Informal Minimum Wages)
-Collective Bargaining: BE 251-260
-Working Conditions: BE 260-267

Pull out one (or two) sentence(s) which you think defines the reading or is key to Sowell's point.
-ie (and you can't use this!) in the Collective Bargaining section Sowell says: "In general, employers cannot simply make whatever arbitrary decisions they which when there is a competitive market for labor and for the products they sale."

Finally, complete the worksheet here: K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser titled "worksheet-due lesson 19.docx"

Post Lesson 17/Pre Lesson 18

Hey everyone,

I hope to have GR's back to you Tuesday along with our updated syllabus through the end of the international trade block. Keep thinking about why people get paid what they get paid. Specifically, if messing with prices is a bad idea how would that relate to wages? If an employer (like a producer "overcharging") underpays his/her employees, what will be the effect on the business?

More generally wages are affected by the seven principles. For example when there are only a few people who can do specific things they might get paid a lot more than others (scarcity). So, a neurosurgeon gets paid more than even a family practice doctor. However, scarcity isn't the only factor that comes into play, alternatives also matter. Normally we talk about alternatives via opportunity cost or comparative advantage. Whether I am a world renowned PhD holding Economist or a world renowned PhD holding English professor, the scarcity of each is about the same but they get paid completely different amounts for the same jobs (proffessor at a university), why? The answer is alternatives, as an economist my skills lend me to have many other alternatives and a much higher opportunity cost than the english professor. Having more alternatives means that my opportunity cost of teaching is higher and so the school must compensate me accordingly.

Finally, what does it mean for someone to be productive? Many times it depends on the people and tools at my disposal. If you put me (with my skills) in Somalia, my level of productivity will change while I haven't changed at all. How many machines (physical capital) I have also depends on how much they cost me relative to other options, like hard labor. There is a tradeoff between machines and people and the relative costs of each will determine equilibrium.... If people are more expensive, I'm more likely to find machines that can do the job.

As for assignments:

Read BE 207-212 & 229-233 and answer this question along with your regular journal entry:
-Would you expect the average hammer to drive more nails per year in a richer country or a poorer country? Would you expect the average worker to produce more output per hour in a richer country or a poorer country? Explain the reasons in each case.

Also, Read BE 212-218 & 222-229 and answer:
-What determines how much people are paid to work? How is this like prices?

Vocabulary terms to memorize:

Productivity – the relationship between inputs and outputs, which can be applied to individual factors of production or collectively.  Labor productivity is the most widely used measure.  Much of the differences in countries living standards reflect differences in their productivity.

Capital – One of the four essential ingredients of economic activity or factors of production.  Money and assets put to economic use.  Examples include human capital, social capital, financial capital, and fixed capital.

Labor – One of the factors of production; determined by the number of people in the population, their willingness to work, laws and regulations, and the health of the economy and firms. 

Wages – the price of labor.  In practice, wages are often sticky, especially in a downward direction: when demand for labor falls, wages do not fall.  Instead, the fall in demand results in higher involuntary unemployment. 

Post Lesson 14

Folks,

best of luck studying. I've included a concept map example on the K Drive.

One of my students put it best when explaining why prices/money are such a big part of what we talk about in economics:

simply put money/prices "are the common language of economics." in otherwords it's the way that we talk about scarcity, tradeoffs, opportunity cost, equilibrium and efficiency.

Post Lesson 13

Today was just terrible, definitely a check minus for the class as a whole. I know first can be very difficult...maybe i need to bring a thermos of coffee ;)

We mainly talked about the worksheet and the quiz...

1) the first thing to always realize is that there are two sides always at play (supply and demand) and affecting one side (forcing suppliers to provide something cheaper) will invariable also affect buyers in some way shape or form.

2) what is so bad about these "imperfect markets" and why is government so (often) terribly bad at fixing the problems when they have the ability to?

The answer all comes down to the knowledge that is conveyed. In a functioning market economy prices reflect economics because they reflect (ideally) true scarcity and alternatives or alternative uses (that is relative value). If prices are "messed up" then they are not communicating the right information about scarcity or alternative uses of time meaning that ultimately we get the wrong QUANTITY NOT THE WRONG PRICE!

Why can't government "fix" the problem? because they dont have the right sets of information either! Keep in mind that government is also a monopoly of sorts which is likely to be swayed by varied groups with different interests and biases. Government has no way to easily/cheaply "sort through" what is truly biased and not.... All of this isn't to say that government CAN'T be or ISN'T helpful...it's just harder than simply saying: well the price ought to be lower. How much lower?

3) it is not enough to say that a monopoly exists by just pointing out that only one company exists. what also needs to be answered is: i) are there alternatives? ii) are there barriers to entry in the market

one reason for barriers to entry might actually be laws and regulations while another might be large startup costs (think utilities/water companies)

4) when might a monopoly be "good?" think about economies of scale and start up costs. If we only allow for many "smaller companies" what will happen to quantity? why is it a good thing that we have patents?

5) the previous point led us to a graph: what does this picture mean...you need to be able to explain how/why a supply and demand graph looks the way it does. the model is meant to simplify and communicate information about a situation so we can evaluate how/what will be the effect of changes on the seven principles.

Concept Map/Final Journal before GR A

Folks,

I want you to look at what we've covered and create a "concept map." 

(ie http://cmap.ihmc.us/publications/researchpapers/theorycmaps/Fig1CmapAboutCmaps-large.png)

Ideally at the "center" or "top" you'd start with the idea economics. From there you should focus on the definition and principles and then move to specific things we might have covered and how they might relate to the principles and to each other. Hopefully this is an exercise in connecting all the disparate lessons together. I'd also desire that you include objectives in places where you feel them to be relevant. If you're not sure about objectives look at the objectives linked to reading portion in your syllabus or on the K drive (K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser).

If it helps think about this question: How are the seven principles and the definition of economics related to prices? why isn't economics just about money?

Post Lesson 12/Pre Lesson 13

Man this semester is flying by! Yesterday we discussed different ways in which prices "fail" and we talked about why prices fail.

Recall that prices coordinate information. Specifically prices, when working properly, will accurately reflect without any work on our part the relative scarcity of different items so that we can accurately weigh the costs/benefits and tradeoffs of different decisions. In cases like monopoly it's not the high prices that are really the problem...the problem is that the high prices reflect a scarcity that does not truly exist thus creating an inefficiency (we have too few transactions). This is the same reason that price controls are so bad...they also create an artificial surplus, at least in the case of price ceilings that we have talked about.

All of these cases are failures from an economists point of view because scarce resources with alternative uses are being kept from being used or produced how they ought to be.

On lesson 11 we talked about asymetric information as one example and yesterday we talked about monopolies. Other market failures similarly result in prices that don't acurately reflect the information they ought to and like the used-car case there are often various potential solutions. We need to be aware of how different solutions will actually get at the root problem. So we could set a price ceiling to keep a monopolist from "overcharging" but what effect might a price ceiling have on a business' production?

As for monopolies, it is hard to have a monopoly if:

• consumers can turn to other products if you prices are too high (there are close substitutes)
• for example it would be really hard to have a monopoly on apples because even if you owned all the apple farms in the world you still have to compete with oranges
• another way of saying this is that the product has to be unique in quality (think water)
• consumers can turn to other firms that is you can't have a monopoly if there is more than one company
• a prospector could start up a new firm in your industry relatively cheaply and easily
• the easier it is for someone to enter the business the harder it will be to raise prices so that you can raise profits.
• so if you are a corn "monopolist" and raise prices so that you have large profits what will happen? probably, wheat farmers will start planting corn since it's cheap to switch so that quantity supplied will again increase and prices will decrease thus leaving the monopolist right back where he/she started.
• on the other hand if you are a monopolist of electricity and you raise prices there is a large cost for someone else to come into the market. Just to get started a new company would have to lay miles of utility lines. This is an expensive endeavor! You'd have to believe that your profit margin would be extremely large and large for a long time to even attempt to challenge the current provider of electricity.

With all of this in mind I want you to read BE 156-164 and either the section on regulatory commissions, 164-170, or anti-trust laws, 170-182. For your journal respond to this scenario:

Two cadets conspire and cheat on a test and their teacher brings them up for an honor hit. Each cadet knows that if they both don't talk they'll will fail the class but get no honor probation. However, if one of them talks, the one who talks will have to redo the assignment while the other will be disenrolled. If both talk they'll each redo the assignment but receive honor probation. What is the best outcome for the cadets? What do you think will happen?

Initial Refl Paper II

Again I have some general comments on the initial papers. You need to talk to me if you are confused...I can't read minds:

1. In addition to the current rules you can write about a current intervention which you think is good and explain why
2. Made up situations can't be vague or far-fetched. You need to explain why they are realistic and what the root cause of the issue (a monopoly) for example is.
3. About prices: what does it mean for a market to be inefficient? Why point to higher prices? Are higher prices neccesarily bad? what should prices communicate (or what knowledge are they communicating, think about the connection to the definition of econ)?
4. You ought to be referencing scarcity...are things under your situation more or less scarce than we'd like....why?

I also don't need descriptoins of free-markets or for you to tell me that free markets are usually efficient. That is fluff, it's unneccesary and it obscures the things you ought to be focused on. Here is an example structure, it could just as well be written in paragraphs or in bullet format:

• Claim: Market X is inefficient
• Premise 1: Efficiency exists when A occurs
• Premise 2: Because of B, A is not occuring and/or is distorted from reality
• explanation of why the distortion is occuring
• Solution: We want A to occur, We might intervene by doing C or D.
• C will cause _____________changes. (how will it address the root problem or issue of incentives? are there costs? are the costs greater than the benefits?) 
• D will cause ______________ changes (same as above)

Post Lesson 11/Pre Lesson 12

Folks for next time read BE 128-134 and 139-143. Also complete the worksheet on the K drive.

I thought again today you all stepped it up. You had answers to questions, participated together and had great insights. I have today down as a check plus.

However, the next time I correct someone on a computer issue both the offender and any neighbors will be penalized severly and so will the class.

Takeaways from today:

• All systems, capitalism included, have costs. In particular for capitalism to function properly means that losers will exist.
• It is important to first identify how and/or why prices are or are not working.
• If prices are failing to do their job it is not enough to merely say there ought to be intervention. Instead you need to evaluate how different alternative solutions will change costs, benefits, incentives and how such changes might affect equilibrium solutions and efficiency.

Again great job today! See you wednesday.
 

Post Lesson 10/Pre Lesson 11

Folks,

Read BE 89-91 and 112-117 and journal on this question: why would i pay more to buy a used car (the same make, model, miles etc) from a dealer than from an individual?

Don't forget your inital reflection paper is due next time.

thank you so much for today's lesson, check plus. I honestly think that it was a great conversation because it was organic. Some major takeaways:

• Address the question that is asked. If you don't know what the question is your first step should be to clarify.
• Think about the incentives to all parties involved. think about how their actions always in the best light. In other words try to assume first that someone is doing something out of a desire to help and then explain why incentives result in a failure of that to happen.
• Premises matter to the incentives that you think are in place and the outcome you think will occur.
• Problematic premises (doing or believing X is bigotted) can prevent a discussion or dialogue alltogether.
• Nuance is important
• Prices convey information. If a government dictates prices then they are attempting to centralize all knowledge/information.
• There are three basic ways that prices change which we have talked about:
• Shifts in supply
• Shifts in demand
• artificial price controls (often via gov't intervention)
• each will have different effects on incentives, equilibrium and efficiency
• Prices and Profits/Losses are similar in that they convey information. Profits/losses tell owners/investors whether one should or should not stay in business or if they need to get better/more efficient at what they are doing. More to come next time
• Next time we'll focus on the value on profits/losses and start in on questions about when prices fail and what the best response is to such failures.

Reflection Paper II

Detail an instance where free-markets fail to produce an efficient outcome and explain why. Explain why government intervention will create greater efficiency.

(Hint: on a deep level you should be thinking about when/how prices work AND whether the alternative structure to prices, government intervention, would provide any better incentives for efficient allocation. What is the cost-benefit and incentives to each solution?)

Note: you are free to invent a situation of your choosing it does not have to be real-world.

 

Post Lesson 9/Pre Lesson 10

For next time: Read BE 95-98 & one section from 98-112. I also want you to reflect on a very basic question in your journals: what are the things that can cause a change in price? what are the effects on demand? on supply? what do the different reasons for the changes in prices mean for you?

Today we focused exclusively on our quiz as a review of Block A.I specifically focusing on the role of prices in the economy and how supply and demand is useful to us in understanding the role of prices. Remember that prices too are affected by our principles...in fact prices merely reflect the reality of economics (the 7 principles) and CONVEY INFORMATION.

Your reading for today talked about the role of profits and losses, which we touched on briefly. Profits and losses like prices, convey information to businesses about their practices. We also discussed briefly the need for competition for prices to work...this is true also in applying economics to businesses and we'll begin to think, in this block, about what happens when prices (or profits/losses) fail to do their "job" and what choices we have to alleviate problems that might arise.

Your reading for next time discusses what happens when the world changes around a business and what happens if the business fails to adapt. We'll hopefully circle back on this and your previous reading!

Post Lesson 8/Pre Lesson 9

I really enjoyed class yesterday it was a lot of fun. I know we didn't get to what I had "planned" but that is exactly the point of this class...we'll let conversations go where they take us. It was more interaction than normal but probably less than perfect. I gave you all a check.

Points to take way:

• Prices send signals, when we mess with prices we mess with those signals.
• Prices adjust in order to move the market and they change for a variety of reasons either
• Supply changes: some underlying cause moves the whole function of supply which makes producers desire to produce more or less at all prices. The way to tell if you are thinking about this properly is to ask yourself the question: "If prices stayed the same would I produce more/less of the product?"
• the answer is yes if, for example, it gets cheaper/more expensive to produce something
• if you find your self saying "because prices changed supply changes" just stop. it is correct that a producer will make less but that is just the law of supply (movement along the curve) not a change in supply (a change of the curve itself)
• Demand Changes: some underlying cause moves the whole function of demand which makes buyers desire to buy more or less at all prices. The way to tell if you are thinking about this properly is to ask yourself the question: "If prices stayed the same would I buy more/less of the product?"
• the answer is yes if, for example, an alternative good gets cheaper/more expensive
• if you find your self saying "because prices changed demand changes" just stop. it is correct that a buyer will buy more/less but that is just the law of demand(movement along the curve) not a change in demand (a change of the curve itself)
• External legislation: prices may change when/if the government legislates minimum/maximum prices
• A shortage or surplus can signal that prices aren't where they ought to be and can tell a supplier that they need to produce more/less and raise/lower prices to cover their marginal cost of producing the next unit. This is like the SUBARU example. Increased prices can actually be good because they encourage suppliers to provide more of the product you desire.
• If the above is true it should be true for any situation. Messing with prices (lowering them) is not the right way to get goods (that are perhaps desperately needed) to the area that needs them. Despite the rightful desire to care for the poor, failing to encourage business by denying them the incentives (higher prices) to move products to their best use (area after hurricane) will only lead to further shortages and other issues.
• Even when price controls don't seem to effect total surplus (concert ticket examples) the surplus will depend on how we allocate the resource. What if we use lines? what if we use lotteries? do either have additional costs that wouldn't be incurred if we allowed prices to increase? Do these different systems of allocation potentially result in different people getting the tickets?

For next time bring your quiz from before and read BE 20, 30-38, and 118-125. In your journal, respond to this statement: "We ought to cap the amount of profits any company can earn. Beyond X billions per quarter we should claim that amount and distribute the money to small struggling businesses or people."

Post Lesson 7/Pre Lesson 8

Today's lesson was better..a check...but we still need a bit more interaction. Major takeaways:

• Prices coordinate knowledge so when we mess with prices we stop the neccesary flow of information. This has an effect on allocation (or the failure to allocate) resources to their most efficient uses.
• Looks can be deceiving, it may not appear that efficiency is affected by price controls (self-imposed or otherwise) but it still may be.
• Non-monetary costs can be just as important as the monetary costs.
• Scarcity and Shortage/Surplus are two completely different things
• YOU need to think....given some facts you need to interpret what they mean on a graph and how the basic principles apply. What does the supply curve tell you? the demand curve? aren't they just X's? what does it mean if they look different than you expected? what does it mean for a consumer to have surplus? for a producer to have surplus?

For next time

1. Complete the take home quiz
2. Complete your first reflection paper with the following peices stapled together in this order
1. the grading rubric found here: \\AFAEDUFS10\cadet-data\DF\DFEG\Economics\Econ201\Fall 2013\Balser
2. your initial submission
3. your final reflection paper (you might care to note how the block or feedback from the first paper made you reconsider or modify your views on the question)
3. additionally read pg 24-30 and 112-117 in Basic Economics

Post Lesson 6/Pre Lesson 7

Today we discussed shifts and focused on opportunity cost and alternatives. Please complete the reading for Lesson 8:

SUP 25-31, BE 49-52 and one section from BE 52-58. For your journal answer the following question:

How does rent control affect the quality of housing, the average age of housing, and the number of people per apartment?

I gave today's lesson a check minus, you all have to pick up the comments. Remember those fundamental questions and that changing Demand or Supply means changing the whole function (desiring more or less quantity at every price) and not just a change in price.

Post Lesson 5/Pre Lesson 6

First things first,

HW for next time, answers from this time, and Reflection paper rubric are found here: \\AFAEDUFS10\cadet-data\DF\DFEG\Economics\Econ201\Fall 2013\Balser

Today in class we talked about Marginal Value and Demand, Marginal Cost and Supply, the relationship between each of them and price, consumer and producer surplus (or profit), and we began to talk about what things might shift supply and demand. In particular:

• Marginal Value/Marginal Cost have the root question of How many do I have/have I produced? that is these two are a function of quantity that tells us a price we are willing to pay/receive to obtain/make the next unit
• Demand/Supply share the root question How much will it cost/can I get paid for it? that is demand/supply are a funciton of price that tells us how many we will buy/sell at any price
• Graphically MV=D and MC=S
• When prices get screwy we end up with "lost transactions" which result in less total surplus for the whole economy.
• For supply or demand to change (and not just move along the curve) something has to happen which makes us want to buy (or sell) more of that product at every price.
• As an example for demand we talked about the effect of an increase in income. At any price for snickers, if i have more income i'm going to buy more snickers shifting demand to the right.
• For supply we used the example of a new technology. If the new technology makes it cheaper to produce a good then for any price I get paid I can make more of that good.

I would say todays class was a check minus. I know first period is hard but I'm still expecting the same output. Finally, it seems the other sections understood the homework change, perhaps I didn't make it clear enough to you all...let me know what you think.

Reflection Papers

For the most part I have the same initial comments on almost all papers. Please read the rubric....i know they can be vague but i think this may help. I am always free for questions!

If you did gas prices:

1. Most of you should have a better idea after we cover Supply and Demand the next couple lessons because it should give a model to explain what you are intuitively thinking
2. I'm interested in how the price change would affect YOU...not the world
3. Why might gas prices have changed in the first place? Could they have changed for multiple reasons? would those different types of changes have different effects?
4. When the price changes how does it affect the 7 principles especially incentives, cost-benefit, equilibrium, and efficiency? What are the primary and secondary effects that relate to YOU and might those effects have both costs and benefits.

If you did the teacher:

1. Do not focus on describing the problem as YOU see it. Also, do not describe or discuss teachers who don't seem to care...we are presuming that teachers care.
2. What are the incentives to a teacher? to a student? how might these affect the classroom?
3. Surely, many teachers know HW and other graded events can be painful and even fail to truly measure learning... why dont they change them?
4. How does a teacher know if they are actually acheiving learning in the classroom.

Overall these are much better than anticipated. I know you all are finding your way and that this paper guidance may have been vague...that's part of the point to allow you room to be creative, to think, and to apply what we are discussing.

Post Lesson 4/Pre lesson 5

Folks the mandatory reading for lesson 5 is Hidden Order pgs 41-48 (up to Economics and time) & 54-60. The optional reading is the Supplement (found here: \\AFAEDUFS10\cadet-data\DF\DFEG\Economics\Econ201\Fall 2013\Balser) pg 1 and 11-25. In lieu of the traditional journal questions your questions for next time are:

1. Explain the definition of marginal value in your own words. An example may be helpful.

2. How is marginal value different than demand? How is it identical? (or Marginal cost different from supply)


3. How is marginal value different than price? When is it the same? (or marginal cost different from price)

4. Explain the definition of consumer and produce surplus in your own words. An example may be helpful.

5. David Friedman states “water is far more useful than diamonds, and far cheaper.” Why?

You may discuss with others, but your response should be unique to you. Please remember to document your work.

Today we laid out the framework for our model...remember models simplify things so that we can draw conclusions. In particular when incentives (or prices) change what effect will that have directly and indirectly on lots of different markets? you all worked some of this out in the corn example and seemed to understand that prices were conveying information about costs, benefits, scarcity, incentives and the effect that changes have on equilibrium and efficiency or how we allocate those scarce resources with alternative uses when things change.

We also talked about opportunity costs...remember it is the next best alternative and costs aren't just about money. Also think about what happens to opportunity cost as you spend more time doing something...if i watch one movie what is the cost? if i watch a second was the cost more or less? why?

Post Lesson 3/Pre Lesson 4

Today we focused on:
- Our problem: we have a scarcity of knowledge. Knowledge is often kept in small pieces
- Prices solve this knowledge problem by conveying the knowledge we need to know. Prices convey what things are "worth" relative to other things we could have
- Competition is important for prices to "work" in the way we desire
- Even one small price change can have dramatic effects on all sorts of other goods both directly and indirectly
- Supply and Demand both need to be considered and can help us understand some of the effects that may occur

In particular think about the question of prices in low-income neighborhoods. When you all only considered the "buyers" you failed to consider the incentives and costs for sellers...this means that you left out more than half the story. Where else might you fail to consider alternative viewpoints?

Instructions for next time:

• Your Information Sheet is FOR YOUR EYES ONLY
• You have two scenarios (sessions). We will play each out. Each session will have 2 rounds, so you'll play your first scenario twice and then your second scenario twice.
• Your goal is to make as much profit as possible by trading (buying/selling apples) with others in the class.
• In order to make a trade you must agree upon a price, fill out a sales sheet at the front of the room, and hand it to me.
• When I receive a sales sheet I will record the information on the board.
• Once you have made a trade in the round you are done (you can only make one trade per round) and may sit down.

Post Lesson 2/Pre Lesson 3

The class today was fairly good. I gave it a Check. We need more discussion that comes FROM you all first and I must do a better job of allowing for that as well. Some major notes:

-We didn't mention it explicitly but our definition for the year is: Economics is the allocation of scarce resources which have alternative uses.

-The question is then how do we allocate which is what we talked about today

• Prices allocate by helping us to realize the value of an object...and we value those things RELATIVE to their other uses.
• Prices are not just an obstacle to our desires...they are information about how we ought to allocate our scarce resources (ie. time and money)
• Prices enable us to have lots of knowledge (the kind we need) we wouldn't otherwise have without forcing us to know everything.
• Prices allow for things to flow to their most efficient uses
• BUT...prices also have a cost and it doesn't always make sense to use them.

Prices are also subject to our economic principles....we'll see this next lesson and also in supply and demand.

Your prompt for your next journal is: Are prices usually higher or lower in low-income neighborhoods? Why? Think about how much it costs an individual to cash a paycheck.

Finally, we didn't discuss it but your first initial reflection paper is coming up. Choose one of these questions to think about and please discuss with classmates:

Respond to this statement: Decreasing the price of gas will be good for me. It will lower my costs of living. Explain your answer with LOGICAL steps and economic reasoning. (i.e. A occurs which will cause B which causes (or may cause) C and D etc) Are there any exceptions?

OR

Teachers acts in ways that cadets often find baffling. Although most teachers are truly interested in your learning and in making your experience worthwhile they often do things which accomplish just the opposite, why? How would you solve this problem?

SEE YOU THURSDAY! 

Post Lesson 1/Pre Lesson 2

Folks,

First here is my question for your journal (which you can replace either questions 2 or 3 with): We tend to think of costs as the money we pay for things. But does that mean that there would be no costs in a primitive society that did not yet use money or in a modern cooperative community, where people collectively produce the goods and services they use and do not charge each other for them?

Remember that your 3 standard questions are:

1. What was the thesis of this reading?
2. What was your biggest takeaway or what/how does this apply to your interests? (If you don’t know where to go here I will email a question for thought before each lesson).
3. What don’t you understand or what objection do you have?

Second, here are my thoughts on todays lesson:

T1 is always tough but I promise i'll be amped as long as you are. The discussion was pretty good today and I hope you feel the same. Note that without your contribution this class will be terribly boring. Also, on any given day I really encourage you to bring in a question or thought that might be bugging you and challenge your classmates and I to figure out how/what econ has to say about these things.

Welcome to ECON 201! This class is an experiment that we all are embarking on together.

There are some things I'd like to know about how to motivate you...what do you think the "best" way is for me to find out how to motivate you? Why do most of us act as if grades are a great motivator for you to work hard? Does this work? Why or why not? and most of all...what the heck does any of this have to do with economics?

-Capt B

Syllabus: \\AFAEDUFS10\cadet-data\DF\DFEG\Economics\Econ201\Fall 2013\Balser