China plans to use cap-and-trade to limit carbon emissions

http://www.cnbc.com/2015/09/24/china-to-limit-greenhouse-gas-emissions-in-cap-and-trade-program.html

Two videos on MR=MC and Perfect Competition

Mr. Clifford on MR=MC for perfect competition
Kahn on MR=MC for perfect comp

Crony capitalism not = the market system

http://www.bloombergview.com/articles/2015-12-24/cronyism-causes-the-worst-kind-of-inequality

Neumark on the employment impact of an increase in the minimum wage

http://www.wsj.com/articles/the-evidence-is-piling-up-that-higher-minimum-wages-kill-jobs-1450220824

If a 10% increase in the minimum wage reduces teen-age and low-skill employment by 2%,

1. What is the price elasticity of the demand for labor?
2. What would happen to the unemployment rate for teen-age and low-skill workers when the minimum wage increases from $7.15 to $10.10? Assume that no workers become discouraged and drop out of the labor market?

Do we need death panels?

Scarcity of health care implies rationing of health care. Here are a couple of opinions that discuss the best ways to ration health care.

http://www.nytimes.com/2012/09/17/opinion/health-care-reform-beyond-obamacare.html?smid=tw-share&_r=2

http://www.nytimes.com/2012/08/22/business/economy/rationing-health-care-more-fairly.html?_r=2&pagewanted=all

Comparative advantage works in microbial economies

The Numbers. Economies of Ail: Bacteria Flourish
by: Jo Craven McGinty
Dec 12, 2015
Click here to view the full article on WSJ.com

TOPICS: Microeconomics

SUMMARY: Columnist Jo Craven McGinty explores how a chance conversation between two former roommates led to a breakthrough in the understanding of how microbial communities interact-and an affirmation of economic theory.

CLASSROOM APPLICATION: Instructors can use the article as an example in a microbial population (or economy) of comparative advantage, and the article's diagram shows a good analogy between countries trading wine and shirts and cells trading metabolites. The article also notes general equilibrium, and it reports on an experiment using microbes to test specialization and gains from trade. "Economists love this kind of study, Colin Camerer, professor of behavioral economics at California Institute of Technology, said, because it shows an economics principle functioning as anticipated in a simple system where economists didn't suspect the rules applied."

QUESTIONS: 
1. (Advanced) The column notes "comparative advantage." Define comparative advantage. Is the trading metabolites among microbes pictured in the column an example of microbes exploiting comparative advantage?

2. (Introductory) The column notes "general equilibrium." Define general equilibrium and explain how it could apply to microbes trading multiple types of metabolites.

3. (Advanced) "In their experiment, the researchers documented a tradeoff between the species' growth and relative abundance in the overall microbial population based on their level of cooperation. The more a community shared, they found, the faster it grew-but the species that shared the most accounted for a smaller fraction of the total population, and eventually the benefit evaporated if the species 'overshared.'" Is it possible that in human economies that oversharing could happen, thereby leading to lower economic growth?

Reviewed By: James Dearden, Lehigh University

Data on CO2 emissions in the US.

https://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=90&pid=45&aid=8&cid=US,&syid=1980&eyid=2012&unit=MMTCD

How to put teeth into a climate change agreement

http://www.theguardian.com/environment/2015/dec/12/james-hansen-climate-change-paris-talks-fraud

The Maple Syrup Cartel

http://qz.com/570828/canadas-mighty-maple-syrup-cartel-wants-to-put-this-grandmother-in-jail/

http://www.bbc.com/news/business-35028380

Is Finland's approach to reducing poverty better than welfare or minimum wage?

http://managerialecon.blogspot.com/2015/12/why-is-finland-is-giving-every-adult.html

Is Econ 101 wrong?

Here is a nice debate: http://gregmankiw.blogspot.com/2015/11/debating-introductory-econ.html

Externality at work

http://www.theguardian.com/environment/2015/dec/07/beijing-pollution-red-alert-smog-engulfs-capital

An example of a the difficulty a cartel has in raising price

http://uk.reuters.com/article/uk-opec-meeting-idUKKBN0TL0MB20151203

Should local government require licenses for occupations?

Opinion. Wisconsin Moves to Rein in the Licensing Game
by: Luke Hilgemann
Oct 31, 2015
Click here to view the full article on WSJ.com

TOPICS: Labor Economics

SUMMARY: Barring municipalities from passing laws that discourage jobseekers and keep entrepreneurs out. "At first glance, occupational licenses might seem like small potatoes. But these regulations force jobseekers and entrepreneurs to acquire government approval before entering their chosen profession-a process that requires time, training, money or all of the above. Intended to ensure quality, occupational licenses are often little more than a barrier to employment that harms low-income communities the most."

CLASSROOM APPLICATION: Students can evaluate whether occupational licensing create barriers to entry into occupations and result in higher prices of services provided by licensed occupations. They can examine how economists would determine the occupations in which the benefits of licensing do not outweigh the costs.

QUESTIONS: 
1. (Introductory) What are the benefits of occupational licensing?

2. (Advanced) What is the effect of occupational licensing on the prices of services provided in industries with occupational licenses?

3. (Advanced) What is the effect of occupational licensing on the ability of workers to enter occupations?

Reviewed By: James Dearden, Lehigh University

Should the government tax soda to induce me to avoid drinking sugar?

http://www.politico.com/story/2015/11/war-over-soda-taxes-coming-to-a-polling-place-near-you-216216

The debate over minimum wage

Studies and opinions about the minimum wage fall into three broad categories: the effects are hard to estimate, the effects are bad, and the effects are good.

The effects are hard to estimate

1. This is a history of minimum wage in the US.
2. The CBO estimates that the impact of raising the minimum wage to $10.10 on employment ranges from a slight decrease to a loss of 1 million jobs. The best estimate is implementation would reduce employment by 500,000 (and increase the unemployment rate by about 0.3%). It states, "Many more low-wage workers would see an increase in their earnings. ... The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO's estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates."
3. This article reports that President Obama issued an executive order raising the minimum wage for federal contract workers to $10.10. Would this increase tend to increase unemployment in the federal contract worker labor force? Who bears the extra expense of the higher wage? The article is a good introduction to the debate over the minimum wage and the difference in incentives facing government and private business.
4. The debate on minimum wage on Intelligence Squared. 
5. This story from Planet Money is a nice discussion of the disagreement in the estimates over the impact on unemployment of raising the minimum wage.

The effects are good.

1. This paper from the Center for Economic and Policy Research says that the minimum wage has no discernible impact on unemployment. 
2. In this video John Green argues in favor of minimum wage legislation.  A key point is that increasing the minimum wage by 10% reduces the number of people living in poverty by 2.5%. His statement that increasing the minimum wage is the “cheapest lunch available” for reducing poverty without increasing unemployment is probably incorrect; most economists agree that an earned income tax credit is a more effective way to reduce poverty.
3. This slideshow. It has 25 facts about the minimum wage.

The effects are bad.

1. This study says that minimum wage increases unemployment among 16-30 year-olds who did not finish high school. This group is likely to have low job skills.
2. This video is not a fan of minimum wage.
3. David Henderson on the minimum wage. He is not a fan.
4. Thomas Sowell on minimum wage. He is not a fan.
5. This paper reports that the gap between nationwide unemployment rates for whites and blacks began around 1940.
6. Fee does a nice job describing the decision employers face when deciding whether or not to employ someone and asks why not raise the minimum wage to $100 if raising it to $10 is good. 
7. A clip from John Stossel on the minimum wage. He is not a fan.
8. Read this article (1 p.). It reports that unemployment for young workers in New Zealand increased in 2008 following an increase in the minimum wage there.

TPP

Supply and demand in action in the farmland

Farmland Prices Decline Across Parts of Midwest
by: Jesse Newman
Nov 13, 2015
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: Farmland values fell in parts of the Midwest in the third quarter, reflecting a downdraft in the agricultural sector driven by three years of lower crop prices, according to Federal Reserve reports.

CLASSROOM APPLICATION: Students can use supply and demand to analyze the reasons for decreases in the prices of farmland in the Midwest.

QUESTIONS: 
1. (Introductory) What factors have caused recent decreases in the prices of farmland in the Midwest?

2. (Advanced) What is the effect of a drought on the demand for farmland? What is the effect of a drought on the supply? Is it possible that droughts result in a decrease in the price of farmland?

3. (Advanced) What is the effect of ethanol regulations (i.e., ethanol requirements in gasoline) on the prices of farmland?

Reviewed By: James Dearden, Lehigh University

One less barrier to entry

Anti-Licensing Movement Scores a Victory
by: Eric Morath
Nov 14, 2015
Click here to view the full article on WSJ.com

TOPICS: International Trade, Regulation

SUMMARY: Fitness trainers in the nation's capital city, led by a push from CrossFit, look set to pull off a feat that has eluded the White House and a number of libertarian groups: stopping the spread of occupational licenses.

CLASSROOM APPLICATION: Students can examine the effect of licensing on barriers to entry and wages in occupations. They can also evaluate the reasons why workers in licensed occupations support licensing and discuss the potential benefits of licensing.

QUESTIONS: 
1. (Introductory) What is the effect of occupational licensing on entry into an occupation?

2. (Advanced) Is occupational licensing equivalent to creating a professional monopoly?

3. (Advanced) What are the advantages and disadvantages of occupational licensing? What criterion and methodology would an economist use to determine whether a profession should be licensed?

Reviewed By: James Dearden, Lehigh University

L24-Public Policies towards Pollution

Here are some optional readings and videos.

1. This article reports that the Pope's encyclical on climate change states, "The strategy of buying and selling emissions credits can give rise to a new form of speculation and would not serve to reduce the global emission of polluting gas. This system seems to be a quick and easy solution with the appearance of a certain commitment to the environment, which however does not imply by any means a radical change in the scale of circumstances. Thus, it may become an expedient that supports continued excessive consumption by certain countries and sectors."
2. Watch MRUniversity A Deeper Look at Tradeable Allowances. It includes a nice comparison of using taxes to reduce pollution with using cap and trade. EcoGeek on cap and trade, carbon. He discusses some of the common arguments against cap and trade.
3. Environmental defense fund on cap and trade, sulfur dioxide. It doesn't describe how the government creates the cap. It does discuss that cap and trade achieves a given reduction in pollution at a lower cost than command and control.
4. This article is a nice summary of carbon taxes around the world.
5. This article is a nice definition of a carbon tax and its effects.
6. Video: Carbon Tax from Australia,
7. Clip on cap and trade. It talks about how the UN distributes permits to emit CO2 to countries who signed the Kyoto Protocol. The US did not sign the Kyoto Protocol.
8. Annie Leonard is not a fan of cap and trade

Older posts on externalities

http://edlikeseconomics.blogspot.com/search/label/Externalities

Examples of negative externalities

A lake that burns
This report from Reuters describes air pollution in Beijing.

This clip describes air pollution in the US and in Los Angeles in particular.

This clip from Erin Brockovich is a good example of externalities.

Barriers to entry in the Internet Economy

Facebook, Amazon and Other Tech Giants Tighten Grip on Internet Economy 
by: Don Clark and Robert McMillan
Nov 06, 2015
Click here to view the full article on WSJ.com

TOPICS: Internet

SUMMARY: Computing hardware has long served as the critical backbone of business operations. Today, the Internet economy is powered by an infrastructure that has become virtual, and is controlled by a small handful of tech giants.

CLASSROOM APPLICATION: Students can evaluate the effect of economies of scale and network externalities (which are not mentioned in the article) on barriers to entry and ultimately the market power of the noted tech companies.

QUESTIONS: 
1. (Introductory) Evaluate this statement in terms of economies of scale and barriers to entry into the relevant industries: "All of these companies are operating in industries where scale is rewarded and where there is a very high level of capital intensity required to even hope to compete," said Karl Keirstead a senior analyst with Deutsche Bank Securities.

2. (Advanced) Evaluate this statement in terms of the market power of tech firms: "These companies are delivering online search, messaging, advertising, applications, computing and storage on demand-which has positioned them not only to empower business but to extract extraordinary value as it grows." Interpret "positioned them" in terms of economies of scale and barriers to entry.

3. (Advanced) Define "natural monopoly" and "network externalities." Do economies of scale and network externalities in the noted tech industries drive barriers to entry and ultimately the market power of the established players in these industries?

Reviewed By: James Dearden, Lehigh University

TPP

Details of Pacific Trade Pact Fuel Debate
by: William Maudlin
Nov 06, 2005
Click here to view the full article on WSJ.com

TOPICS: International Trade

SUMMARY: A public battle brewed over whether to ratify the sweeping Pacific trade agreement that the U.S. concluded with 11 countries, after details of the deal were released. Related article: A currency pact accompanying a Pacific trade agreement unveiled Thursday will give Washington new tools to prevent trading partners from manipulating currencies to gain trade advantage, U.S. Treasury Secretary Jacob Lew said.

CLASSROOM APPLICATION: Students can analyze the potential winners (exporters and labor employed in export industries in member countries, and consumers) and losers (importers in member countries and labor employed in import industries) of the Trans-Pacific Partnership. Students can also examine the effect of the agreement on the environment.

QUESTIONS: 
1. (Introductory) Who are the winners and losers of the TPP identified in the article?

2. (Advanced) What is the concern of U.S. labor unions about the TPP?

3. (Advanced) Why are some Republicans opposed to the TPP?

4. (Advanced) Why are environmental groups opposed to the TPP?

5. (Advanced) What is the issue of "currency abuse" in the context of international trade?

Reviewed By: James Dearden, Lehigh University

A good example of a near monopoly (80% market share)

Luxottica produces about 80% of the frames for sun- and eye glasses. Moreover, it has achieved this dominant position with little help from the government, as far as I can tell. Here is an excellent account of the predictable effects: http://www.forbes.com/sites/anaswanson/2014/09/10/meet-the-four-eyed-eight-tentacled-monopoly-that-is-making-your-glasses-so-expensive/.

The California electricity crisis

Here is a a nice description of the California electricity crisis: https://en.wikipedia.org/wiki/California_electricity_crisis. Here are some money quotes.

"California had a shortage of electricity supply caused by market manipulations, illegal shutdowns of pipelines by the Texas energy consortium Enron, and capped retail electricity prices." (Highlight added from emphasis.)

"the Death Star group of scams played on the market rules which required the state to pay 'congestion fees' to alleviate congestion on major power lines". Who set and enforced the market rules? Answer: a regulatory board in CA.

Cronyism v. Free Markets

This report is an excellent description of the differences between what I mean when I talk about the market system and what most people mean when they talk about crony capitalism. If the market system = capitalism, then crony capitalism not = capitalism.

Rule of law > corruption

http://qz.com/545958/mexico-would-be-an-economic-superstar-without-corruption/

What is the best way to allocate organs for tranplantation?

http://managerialecon.blogspot.com/2015/11/wealthy-buying-kidneys-now-why-not.html

Older posts on oligopoly

http://edlikeseconomics.blogspot.com/search/label/Collusion

Product differentiation

This episode from Planet Money is a good introduction to product differentiation. Is differentiation based merely on brand or perception different than differentiation based on differences in physical characteristics or performance?

Can truth in advertising deceive?

This article reports that the FCC plans to fine ATT for advertising that its data plan was "unlimited" when the plan slowed down data speeds after the customer hit 5GB in the billing cycle.

1. Was the claim that the plan was unlimited true?
2. Was the ad informative?
3. Was the ad deceptive?
4. Did the ad help the consumers make better choices?

A cute example of product differentiation

https://www.youtube.com/watch?v=dD7Eb6u1T9g

Two older posts on monopoly

http://edlikeseconomics.blogspot.com/search/label/Monopoly

Rule of Law

http://www.wsj.com/articles/rule-of-law-is-necessary-for-capitalist-prosperity-1446231687

This letter to the editor of the WSJ does a good job stating that Adam Smith's statement that 'By pursuing his own interest [an individual] frequently promotes that of the society more effectually than when he really intends to promote it' "really only works in societies that are dominated by a 'rule of law' mindset."

I am not sure if I agree with the writer's statements about the cultural divide between rule of men and rule of law. They are intriguing.

Monopolies and Oligopolies are Bad!

So says Robert Reich: http://www.huffingtonpost.com/robert-reich/the-rigging-of-the-americ_b_8447428.html

A monopoly for pot?

If a market for marijuana is good, why would competition be better than monopoly?
http://www.politico.com/magazine/story/2015/11/marijuana-legalization-monopoloy-213312

Costs of the Chevy Volt

This article in Reuters talks about costs of the Chevy Volt. The clever reader can identify total cost, average total cost, average variable and marginal cost, and the profit contribution

http://www.wsj.com/articles/in-west-texas-oil-drillers-keep-pumping-1446254165

When are the variable costs lower:  when "drillers can use one rig to bore vertically down through as many as four layers of oil-and-gas-rich rock and then horizontally through each layer in succession to stretch out the productive life of a well" or when they need a rig for each layer?

Why does the Permian continue to show strength even though the number of oil rigs drilling in the Permian has plunged by about 60% so far this year. What does this imply about marginal costs, average variable cost, and average total cost?

How do higher incomes affect the price of houses?

Apple Pay : One Reason for High Home Prices
by: Laura Kusisto
Oct 26, 2015
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: Apple workers live in pricier homes than other residents in the San Francisco Bay Area, and home values are rising much faster in neighborhoods where Apple workers live, according to a Zillow analysis. The gap between homes that Apple employees live in and overall prices in those areas, according to Zillow, has widened since the release of the first iPhone in 2007. The iPhone has helped boost Apple's stock price and, in tandem, employee compensation.

CLASSROOM APPLICATION: Students can evaluate the effect of increasing wages by a particular large employer or industry on home prices in a geographic area. In turn, students can learn that increasing home prices may cause rents to increase as well.

QUESTIONS: 
1. (Introductory) What is the effect of the increasing wages of tech workers on real estate prices?

2. (Advanced) How is the effect of increasing wages of tech worker on real estate prices affected by zoning regulations and readily available land?

3. (Advanced) What is the effect of an influx of tech workers into a region on the willingness of current residents to sell their homes?

Why is limited government good?

“'Think of your least favorite presidential candidate,' the Cato Institute’s Michael Cannon recently pointed out on Twitter. 'Now imagine s/he wins. Doesn’t limiting government power seem like a good idea?' It sure does—especially when you think of the Biffs in our midst" (http://www.realclearpolitics.com/articles/2015/10/22/the_biff_tannen_presidency_128499.html).

Does morality warrant $15 as the minimum wage:

http://www.huffingtonpost.com/robert-reich/the-morality-of-a-15-mini_b_8332580.html?ncid=edlinkushpmg00000090

Are employees who pay less that $15 immoral?
Are voters who elect politicians who oppose increasing the minimum wage to $15 immoral?
Are politicians who vote against increases in the minimum wage immoral?

Who decides what is moral and on what basis?

Could someone disagree with Reich and mount a credible case that paying someone less than $15 is or may be, in fact, moral?

Hillary Clinton on the ills of market concentration

http://qz.com/529303/hillary-clinton-being-pro-business-doesnt-mean-hanging-consumers-out-to-dry/

Do caps on interest rates charged for payday loans help people who borrow at the payday stores?

http://libertystreeteconomics.newyorkfed.org/2015/10/reframing-the-debate-about-payday-lending.html#.Vied_NWrTct

Costs, Profits, Entry and Exit in the California dairy industry

Conditions Sour for California's Dairy Farmers

by: Ilan Brat
Oct 09, 2015
Click here to view the full article on WSJ.com

TOPICS: Production

SUMMARY: California dairy farmers are retrenching amid falling prices and drought in the largest milk-producing state, a shift that could further reshape the U.S. industry by enabling farmers in other states to expand.

CLASSROOM APPLICATION: The article offers a case for students to evaluate about the relationship between costs of production and entry and exit decisions. In California, where due to water shortages costs of producing milk are now high, farmers are exiting the industry, and in the upper-Midwest, where water is plentiful, farmers are increasing production.

QUESTIONS: 
1. (Advanced) Why were California's dairy farms in the past cheaper to run? Why in the past decade have costs been increasing?

2. (Introductory) Why did U.S. dairy exports fall in the first seven months of this year?

3. (Advanced) Why is the California dairy market contracting while the upper-Midwest dairy is expanding?

Reviewed By: James Dearden, Lehigh

Adam Smith and the Invisible Hand

Adam Smith and the Invisible Hand

"every individual necessarily labours to render the annual revenue of the society as great as he can. He
generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. 
By preferring the support of domestic to that of foreign industry, he intends only his own security; and by 
directing that industry in such a manner as its produce may be of the greatest value, he intends only his 
own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was
no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his 
own interest, he frequently promotes that of the society more effectually than when he really intends to
promote it. I have never known much good done by those who affected to trade for the public good.

"But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from
their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew
them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain
of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the
meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those
good offices which we stand in need of. It is not from the benevolence of the butcher the brewer, or the baker that
we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but
to their self-love, and never talk to them of our own necessities, but of their advantages. Nobody but a beggar
chooses to depend chiefly upon the benevolence of his fellow-citizens."

Property Rights in Communist China

This podcast describes property rights in Communist China and how a change in property rights affected economic activity. For a similar account taken from Puritan New England, visit this video.

Friedman on Greed

This video is an exchange between Milton Friedman and Phil Donahue. Friedman states that free enterprise is the only proven method of increasing standards of living and that all societies "run on greed". For evidence that politicians are greedy, read this article.

Friday, April 5, 2013

Why US Farmers are not planting rice

This summary of an article from the WSJ describes the reasons that rice production in the US is decreasing. It would be a good introduction for opportunity cost, supply and demand, and incentives.

Tuesday, February 26, 2013

What was the role of government in R&D for fracking?

This article argues that the government's role in supporting the research and development that led to the technology for fracking is less than President Obama claimed. The discussion illustrates that the profit motive can and does lead private firms to invest in research and development of new technologies, even when the results are uncertain and unknown. The debate about whether the profit motive alone is sufficient is an ongoing.

Watch a lake burn!

https://www.youtube.com/watch?t=19&v=ZxLmfxBRg2E

Externalities