econ 100

Tag: econ 100

An easy subject at which very few excel!

The study of economics does not seem to require any specialised gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science? Yet good, or even competent, economists are the rarest of birds. An easy subject, at which very few excel!  — John Maynard Keynes

I came across this gem at Brad Delong’s website, where he is having a dialog with Paul Krugman about the use of graphs in Econ 101, and specifically whether Production Possibilities and Edgeworth Boxes should be introduced at the introductory level.

This is certainly a conversation we are having on our floor.  I think we generally introduce PPFs, but not the Edgeworth Boxes in our introductory courses, and our Econ 300 students get the Ysidro Edgeworth treatment.  I guess I’m all ears if you have thoughts on the topic.

As for the more obnoxious point that economics is a seemingly lightweight subject that few are good at, huh.  Keynes continues:

The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher-in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future.

That’s from his obituary for Alfred Marshall, author of the incredible Principles of Economics, the profession’s first textbook, and namesake of Marshallian Demand!  Truly a pioneer and an intellectual giant, regardless of what Keynes says here.

It’s nice to see someone say something nice about economists, even it if is an economist, and even if it was 90 years ago.

 

 

 

Economics of Innovation in the New “Pamphlet” Era

This week seems to be innovation week for me, as I am reading two short books on the heels of The Great Stagnation. Reading these pieces, I can’t help but get the feeling that the economics profession is hurtling into a blog-soaked, pamphlet-era frenzy.  First up for Econ 100 is Alex Tabarrok’s Launching the Innovation Renaissance  (review here), where Tabarrok makes a case against patents, holds out promise for prizes, and makes a plea for broad educational reform in both primary and secondary education.  For the Reading Group crowd we have Erik Brynjolfsson and Andrew McAfee’s Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy, and with a subtitle like that, who needs a description?

So for those of you who have read one and need a primer on the other, here you go:

As a warm up to Renaissance, here is Tabarrok giving his TED lecture. Here’s a bit on education. (If you follow all the links at Marginal Revolution, you can pretty much read the whole book).

Here are Brynjolfsson and McAfee summarizing their argument in The Atlantic.  See also Professor Finkler’s recent plug.

I’ve read both and recommend both.  We’ll see what my Econ 100 students think.  Thought provoking all around.

Can’t Beet these Profit Margins

Zoinks!

This past week in 100 we tackled the unusual welfare economics and the effects of price controls.  For introductory economics courses, rent control and minimum wage policies generally serve as the dominant examples of controls that mean well, yet have perverse impacts.  But I’ve always had a soft spot for the U.S. sugar program, which continues to surprise and astonish.

As you probably don’t know, but might suspect, the average U.S. citizen consumes about 140 lbs of sweeteners per year, about half coming in the form of sugar and the other half in the form of some sweet corn goodness.

Because of import restrictions, however, U.S. consumers pay a rather steep markup over world price.  In class I cited a 2010 article where U.S. prices were about $0.35 per pound compared with $0.20 on the world market.  If you take $0.15 per lb. times 70 lbs. times 300 million people, you’re starting to talk about real money.

But on a trip over to Mark Perry’s blog, I see that sugar prices have gone absolutely bonkers in the past two years. Perry has a nice figure that shows the markup is now more like $0.25 per pound, meaning that sugar producers are now really going to the bank. Perry estimates that with the markup, U.S. consumers pay about $3.5 billion more for sugar than they would absent the quota. Although that is certainly a tall number, on a per capita basis it only comes to about $10-$12 per person.

On the other hand, the U.S. sugar producers pocket a healthy chunk of that $3.5 billion.

In one of the all-time great sound bites, Judy Sanchez from U.S. Sugar Corp. said sugar policy has “zero cost” to taxpayers and offered up this line:

Face it: Sugar is given away for free in restaurants, where they charge you for water, they charge you for an extra slice of cheese on your hamburger.  The sugar is so affordable that it’s given away for free. That’s because American sugar policy works.

Do you suppose sugar would still be “given away for free” if the U.S. price was cut in half tomorrow?

UPDATE: For some background, here’s a Congressional Research Service report — usually readable, often helpful.

Causes of Demand Curve Shifts — Expected Price Changes

The first thing to remember about the law of  demand is “all else constant.” What we are holding constant includes expected future prices.  This from the Financial Times:

Chinese consumers, increasingly alarmed at the rising cost of living, cleared supermarket shelves this week of shampoos, soaps and detergents after state media said four consumer goods companies … would raise prices by between 5 per cent and 15 per cent.

Via Marginal Revolution.

Econ 100 Preview, Complements

Click for Clucky!

Suppose the NFL players and owners fail to agree to terms on a new contract, thus reducing (or eliminating) the number of professional football games this coming season.  What are the expected changes (if any) to the equilibrium price and quantity of chicken wings?

Answer here.

Certainly, you will be more likely to get the correct answer if you rely on the basic theoretical model, rather than just winging it.

Motivating Econ 101

Alex Tabarrok talks to NPR about the story he uses to motivate his 101 class at George Mason.  It is a tale of the English shipping their prisoners off to Australia, with the sorry result that many of the prisoners perished during the sea voyage.  Yikes.  How could they have prevented this sorry fate? Oh, I just wonder.

Cowen and Tabarrok are authors of an introductory textbook that I am willing to endorse, at least on the micro side.   They also blog at Marginal Revolution.

The Price is Right? UPDATED, TWICE!

The Summer marches on, and that means it’s time for some more summer reading. My recommendation this week is from George Mason economist and Marginal Revolution blogger extraordinaire, Tyler Cowen.  His latest book is The Age of the Infovore.

So, I was poised to pick up a copy for my wife at Amazon for what seemed to be a bargain price of $10.88, but then noticed that the hardcover version, Create Your Own Economy, was selling for only $4.64.   It’s the same book, but the title changed when the paperback edition was released.

But then I thought, maybe she’d want the Kindle version instead.  But the Kindle edition of Create Your Own Economy is $12.99, whereas the Kindle for The Age of the Inforvore is $9.99.  Huh. So I’m paying a premium for a Kindle version of a hardcover version of the book, but I enjoy a steep discount if I actually purchase the hardcover.

Then I thought, well, maybe I’ll get her some perfume.

I think Yoram Bauman is right – choices are bad.

UPDATE: I sent this pricing info to Professor Cowen and he sent me a copy of his book with the inscription, “How is $0.00 for a price?”  Thanks!

UPDATE 2: While trolling the EconTalk archives, I came across an episode of Roberts and Cowen talking about the book.

Monkey business

In Introductory Microeconomics, we have been discussing trade. We all know that Adam Smith wrote that trade was a result of people’s “propensity to truck, barter, and exchange one thing for another.” But did you know that he also wrote “Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. Nobody ever saw one animal by its gestures and natural cries signify to another, this is mine, that yours; I am willing to give this for that.” (Wealth of Nations, Book I, Chapter II) This video calls all of that into question, it would seem (thanks to Adam King). On a related note, listen to this podcast from NPR to get an interesting perspective on early trade (thanks to Max Randolph).

Did Amazon Blink?

Looks like Amazon might have blinked.

Dear Customers:

Macmillan, one of the “big six” publishers, has clearly communicated to us that, regardless of our viewpoint, they are committed to switching to an agency model and charging $12.99 to $14.99 for e-book versions of bestsellers and most hardcover releases.

We have expressed our strong disagreement and the seriousness of our disagreement by temporarily ceasing the sale of all Macmillan titles. We want you to know that ultimately, however, we will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books. Amazon customers will at that point decide for themselves whether they believe it’s reasonable to pay $14.99 for a bestselling e-book. We don’t believe that all of the major publishers will take the same route as Macmillan. And we know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative.

Kindle is a business for Amazon, and it is also a mission. We never expected it to be easy!

Thank you for being a customer.

More on the Amazon-Macmillian Fracas

Excerpts from a very illuminating discussion:

Greed, no doubt, exists on both sides, living as we do under capitalism, but greed alone doesn’t explain the dispute. Yes, Amazon wants to sell e-books for $9.99 or less, and Macmillan wants Amazon to sell them for $15 or less. But as Macmillan’s CEO John Sargent explains, in a statement released today as an advertisement to the book-industry newsletter Publisher’s Lunch, Amazon and Macmillan aren’t at the moment fighting to see who can make more money on a book sale. They’re fighting to see who can lose more money. This is a very peculiar battle.

,,,

Most publishers have until now sold their e-books to Amazon for the same wholesale price that they sell their hardcovers–roughly half the hardcover’s list price. It is up to a retailer like Amazon whether to sell the book to consumers at its list price, as printed on the inside front flap, or at a discount. With e-books, Amazon has usually offered a discount so low that it actually loses money. That is, Amazon buys for $12 an e-book whose hardcover list price is $24.95, and then Amazon sells the e-book to its customers for $9.95.

…

Macmillan has probably been selling its e-books to Amazon at the wholesale price of about $12, and Amazon has been selling them retail for about $10. Macmillan says that it would like to sell its e-books at the wholesale price of about $10.45, and have Amazon sell them for the retail price of $14.95. In other words, Macmillan was offering to earn $2 less per e-book. Amazon, however, insisted that it would prefer to take a $2 loss on each e-book, instead, and became so indignant over the matter that it has now ceased selling any Macmillan titles, print or electronic. Macmillan’s proposal is known as the “agency model” for e-book pricing, and the company probably only dared attempt it because Apple has promised that it will sell e-books for its new tablet on exactly those terms. (Amazon has said that they’re willing to accept the agency model, starting in June, but only if an e-book’s list price does not exceed $9.99.)

…

Thank you, Mr. Shatzkin.

Big Apple Stirs Up Bezos’ Hive

A few months ago we saw Amazon and Walmart and Target engaged in some aggressive price competition in the sale of on-line books. I haven’t heard to much on that front of late, so I assume that the dust has settled and those firms will fight another day. Amazon is back in the thick of things, this time aggressively defending its Ebook turf from the encroachment of Apple and its new iPad.

The book world is all a flutter. Here’s a note from one of friend of mine, who has intimate knowledge of the sordid dealings of the book world (edited for content; these book people drink like journalists and swear like sailors):

So this ebook pricing conflict is getting serious. Amazon has pulled all of Macmillan’s titles from its store — physical, ebook, etc. — in response to Macmillan wanting higher prices for some kindle editions than $9.99. So, for example, you can’t buy any Picador titles. That’s a lot of bestselling books.

[I’m not certain I agree with Amazon’s actions here]. To dictate $9.99 for all books and instill that price point in readers minds as the only appropriate ebook price is just ridiculous — especially when they’re losing money on every kindle edition they sell of a hardcover book.

And this:

So it’s about Macmillan trying to switch over the agency model of pricing, which is what Apple is offering with their new ibookstore. It makes a lot more sense than the distribution model that Amazon uses for ebooks.

Nothing like a good old fashioned price squabble to keep things interesting. I’m looking into the details of this “agency pricing” model and of course will let you know when I find out.

Stay tuned to this space.

Update: This stuff is so delicious I just want to take a big bite out of it. It appears to be more of a market power argument than a transaction costs argument. And it appears this may well have all come to a head with or without the iPad.

Thanks to my source, “The Big Stick,” for the tips.