This article from MarketWatch describes the difficulty OPEC has maintaining its agreements to limit output. Here is a money quote.

"... non-signatories represent a critical mass whose increased production as prices rise will compensate for a good portion of the quantities that OPEC and its partners have promised to remove ... This is besides that experience shows the deal’s signatories are likely to cheat each other."

How did high tariffs work for Argentina?

This article from CNN says not so well.

More on Venezuela

Venezuela closed its Colombia border to fight currency smuggling. The 72-hour shutdown will help it fight “mafias” smuggling hard-to-find cash, said president Nicolas Maduro. The move comes after the inflation-ravaged country yanked its largest-denomination bill—now worth just $0.02—from circulation.

How incentives work in socialist countries

How NOT to motivate physicians: lessons from Cuba

Cuba penalizes physicians for "not meeting quotas" on infant mortality.  How do they respond?

• When pregnancies are deemed risky, doctors have to coerce women to undergo abortion in spite of their wishes. 
•  On top of this, forced sterilization in some cases are an actually documented policy tool. These restrictions do reduce mortality, but they feel like a heavy price for the people. 
•  ...doctors ... lie about the statistics. One thing that is done by the regime is to categorize “infant deaths” as “late fetal deaths” – its basically extending the definition in order to conceal a poorer performance.

What happens when you adjust the infant mortality statistics?

• ...Cuba moves from having an average infant mortality rate ... to having the worst average infant mortality in that dataset – above that of most European and North American countries.

A long and very good exposition of the benefits and costs of free trade

Gwynn Guilford explains why the conventional wisdom about free trade is wrong. “Starting with Ronald Reagan, American presidents of both parties have oversimplified and overemphasized the benefits of free trade… That lapse has now invited a populist demagogue into the White House. Trump has correctly identified a problem. But by focusing only on free trade deals he risks repeating the very mistakes that conjured him forth in the first place.” Read more here.

From qz.com.

What do poor people think is in their self interest?

If you give the poor cash, they don’t waste it. Direct transfers lead to more spending on children’s food and health—especially when women are in charge.

Who in the US loses in a trade war with China

Josh Horwitz on the US companies and states that will suffer most if US-China relations worsen: “Any trade war that introduced new tariffs on US goods sold in China or made it more difficult for US companies to do business there would hurt some profoundly. In the aggregate, US soybean farmers, auto makers, and aircraft companies export the most to China.” Read more here.

From qz.com

Incentives matter

http://www.bbc.com/news/blogs-news-from-elsewhere-38208914 reports that visits to nursing homes in China increase when the home pays people to visit.

Will trade barriers make America great again?

Essay. How Latin America Pays the Price of Protectionism by: Taos Turner and Paul Kiernan Nov 26, 2016 Click here to view the full article on WSJ.com TOPICS: International Trade SUMMARY: As Donald Trump talks of tariffs, Argentina and Brazil show the costs that consumers and taxpayers pay for barriers on trade. CLASSROOM APPLICATION: After covering gains to trade and the costs of barriers to trade, instructors can have students read the essay to enforce the point that trade barriers carry costs. Instructors can ask students to evaluate whether the costs of trade barriers outweigh the benefits. QUESTIONS:  1. (Advanced) What is the evidence presented in the article that protectionism is damaging to a country's economy? 2. (Introductory) The article notes measures of the cost of protectionism. What is the measures noted? 3. (Advanced) Does protectionism spur hard work and innovation? Does free trade do so? 4. (Advanced) The essay uses the term "populism." What is populism? Interpret the statement: "The losers from populism can be found everywhere. They are the millions of jobs and hundreds of thousands of companies that were not created because of very disorderly macroeconomic policies." 5. (Advanced) The article notes "import substitution." What is import substitution? What is the anecdotal evidence presented in the essay of the damaging effect of import substitution? Reviewed By: James Dearden, Lehigh University

Is buying a luxury car irrational consumption?

China slapped a whopping tax on super cars. High-end imported cars were already subject to a 35% import tariff. Now an additional 10% tax will be imposed on vehicles costing more than $190,000. It’s part of president Xi Jinping’s drive to promote “rational consumption.”

From qz.com.

Price elasticity of oil

What is the implied price elasticity of demand for oil when the futures price of oil rises by 8.6% when OPEC announces an agreement that reduces production by 2%?

See http://qz.com/849133/oil-prices-are-up-8-6-after-opec-surprised-everyone-by-agreeing-to-a-deal/?utm_source=Quartz+Morning+Brief&utm_campaign=d7073aa20c-EMAIL_CAMPAIGN_2016_12_01&utm_medium=email&utm_term=0_1ff2527dbb-d7073aa20c-55459981.

The story on OPEC's agreement to reduce production courtesy of theSKIMM

THE STORY courteous

Yesterday, OPEC agreed to cut oil production for the first time in years. BF gassy D.

BACK UP.

OPEC’s the fam of 14 countries (like Saudi Arabia, Iran, Venezuela) that together produce about a third of the world’s oil. In recent years, their profits have droppedthanks to things like fracking in the US. Lots of supply, meet not enough demand. Rich countries like Saudi Arabia have been able ride it out. Struggling countries like Venezuela and Nigeria, whose economies depend on higher oil profits, have not. OPEC has been saying ‘no thanks’ to cutting oil production for years. That’s partly because Saudi Arabia and Iran have wanted to wait it out rather than risk giving up market share to the US and Russia. But prices kept dropping, so now the waiting game’s over.

SO WHAT JUST HAPPENED?

OPEC says it’ll cut oil production by more than a million barrels a day starting next year. Russia heard the news and said ‘us too.’ Good news for countries like Venezuela, which might get a little breather from years of economic troubles. Bad news for your morning commute since gas prices could be on the up and up.

theSKIMM

Talk is cheap, competition between oil-producing countries is still fierce, and some OPEC countries are known for not keeping their promises. So TBD on whether this deal sticks…and whether it does anything to bring oil prices back up.

Click here to join theSKIMM.

Tension in OPEC

This article describes well the tensions faced by firms when they try to attempt to collude: everyone wants everyone else to reduce output but no one wants to reduce its output. Here is a money quote:

"Everyone in Vienna concurs that cutting OPEC production to accelerate that perceived trend is a great idea—but no one can agree on who should do the cutting. Well, that’s not precisely true. Everyone thinks that the Saudis should do all or most of the cutting, except for the Saudis, who are insisting that the pain be more evenly shared.

"Specifically, the Saudis want Russia, Iran, and Iraq to cut."

The price of oil falls when observers think that the OPEC will not reach an agreement to reduce output and rises when the prospects for an agreement increase.

Substitution in the construction of houses

With Workers Scarce, More Home Builders Turn to Prefab Construction by: Chris Kirkham Nov 16, 2016 Click here to view the full article on WSJ.com TOPICS: Manufacturing SUMMARY: A persistent shortage of construction workers across the U.S. is prompting some of the nation's largest home builders to experiment with a model they once derided: factory production. CLASSROOM APPLICATION: Students can examine the reasons for factory production of homes : a short supply of skilled construction workers and the introduction of new wired technologies in homes. QUESTIONS:  1. (Advanced) The article notes a shortage of skilled labor in the construction industry. Does a shortage in this sense mean that at the current wages in the industry, the quantity demanded of skilled labor is greater than the quantity supplied? If not, what is the meaning of the term shortage? If quantity demanded of skilled labor is greater than the quantity supplied, do wages adjust? 2. (Advanced) What is the effect of innovations in wired technologies on the home production processes? 3. (Introductory) What are deterrents to construction companies building home modules in factories? Reviewed By: James Dearden, Lehigh University

Supply and demand in action in the nursing market

Nurses Are Again in Demand
by: Melanie Evans
Nov 08, 2016
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: After years of relative equilibrium, the job market for nurses is heating up in many markets, driving up wages and sign-on bonuses for the nation's fifth-largest occupation. "The last nursing shortage more than a decade ago ended when a surge of nursing graduates filled many positions, and the financial crisis of 2008 led older nurses to delay retirement. But as the economy improves, nurses who held on to jobs through the uneven recovery are now retiring or cutting back hours, say recruiters. The departures come as demand for nurses has increased, thanks to expanded insurance coverage from job growth and the Affordable Care Act."

CLASSROOM APPLICATION: Students can evaluate the causes of increases in both the demand for nurses and the supply of nurses. They can use supply and demand analysis to show that an increase in supply and demand can result in an increase in the equilibrium quantity of nurses and the equilibrium wage of nurses.

QUESTIONS: 
1. (Advanced) Is the supply of nurses increasing? Is the demand for nurses increases? Demonstrate that an increase in the demand for nurses and an increase in the supply of nurses can result in an increase in the equilibrium quantity of nurses.

2. (Advanced) What factors are causing wages for nurses to increase? Demonstrate that an increase in the demand for nurses and an increase in the supply of nurses can result in an increase in the equilibrium wage of nurses.

3. (Introductory) Why do employers pay signing bonuses as opposed to paying greater wages?

Reviewed By: James Dearden, Lehigh University

Supply and demand in action in the pilot market

Pilot Shortage Prompts Regional Airlines to Boost Starting Wages
by: Susan Carey
Nov 07, 2016
Click here to view the full article on WSJ.com

TOPICS: Labor Markets, Supply and Demand

SUMMARY: Regional airlines that feed the nation's biggest carriers are boosting starting wages to fight a pilot shortage, hoping to encourage aspiring aviators to endure what has become lengthier training. "The marketplace for pilots is pretty tight right now," said Capt. Tim Canoll, president of the largest pilot union, Air Line Pilots Association. "What we're seeing is the operation of supply and demand economics."

CLASSROOM APPLICATION: Students can evaluate the effect of a decrease in the supply of commercial pilots for regional airlines on the equilibrium salaries of these pilots. The article also informs students about the importance of regional airlines to the major commercial airlines.

QUESTIONS: 
1. (Introductory) What factor has caused a decrease in the supply of commercial airline pilots?

2. (Introductory) What is the effect of a decrease in the supply of commercial airline pilots on the equilibrium wages of pilots?

3. (Advanced) What is the effect of decrease in the supply of commercial airline pilots on the prices of travel on regional airlines?

4. (Advanced) What is the effect of a decrease in the supply of commercial airline pilots on the supply of flights offered by regional airlines?

Reviewed By: James Dearden, Lehigh University

An example of collusion?

Generic-Drug Firms Face Possible Collusion Charges
by: Peter Loftus, Brent Kendall, and Christopher M. Matthews
Nov 04, 2016
Click here to view the full article on WSJ.com

TOPICS: Antitrust, Price Fixing

SUMMARY: Federal prosecutors, after a lengthy probe, are nearing possible criminal charges for price-collusion in the generic-drug industry, according to a person familiar with the matter.

CLASSROOM APPLICATION: The article offers a case for instructors to present about potential price fixing. Instructors can demonstrate the increased profits that firms earn from colluding in setting prices.

QUESTIONS: 
1. (Introductory) What is "price fixing"?

2. (Advanced) Demonstrate that price fixing results in increased profits for firms that collude.

3. (Advanced) Why would antitrust, or competition, laws be written to prevent price fixing?

Reviewed By: James Dearden, Lehigh University

Reblog: Comparative advantage in the Beatles

https://managerialecon.blogspot.com/2016/11/comparative-advantage-in-beatles.html

Outcomes and externalities in the marijuana market

Review & Outlook. A Brave new Weed
by: Editorial Staff
Nov 02, 2016
Click here to view the full article on WSJ.com

TOPICS: Law and Economics

SUMMARY: The costs so far from marijuana legalization are higher than advertised.

CLASSROOM APPLICATION: Students can evaluate the economic consequences of the legalization of marijuana, including the price of marijuana, usage rates, and drug cartel behavior.

QUESTIONS: 
1. (Advanced) What is the effect of the legalization of marijuana on the supply of the drug? What is the effect of the celebrity glamorization of marijuana on the demand for the drug? What is the effect of legalization and celebrity glamorization on the equilibrium quantity of the drug?

2. (Advanced) What is the effect of the legalization of marijuana on the arrest rates of black and Hispanic youth? What is the effect of the legalization of the drug on traffic accidents?

3. (Introductory) Has the legalization of marijuana eliminated the illegal market for the drug? How has the legalization of the drug affected drug cartel behavior?

Reviewed By: James Dearden, Lehigh University

What happens to the price of gasoline when an explosion disrupts supply?

Gas Prices Jump After Pipeline Fire
by: Alison Sider and Nicole Friedman
Nov 02, 2016
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: A major fuel artery for the Southeast and East Coast was disrupted for the second time in two months, underscoring the fragility of a delivery system that is relied upon by tens of millions of people.

CLASSROOM APPLICATION: Students can evaluate the effect of a negative shock to the supply of gasoline on the equilibrium prices of gasoline (in particular in futures markets).

QUESTIONS: 
1. (Introductory) What is the effect of the Colonial Pipeline fire on the supply of gasoline to the East Coast?

2. (Advanced) What are "gasoline futures"? What is the effect of the Colonial Pipeline fire on the prices of gasoline futures?

3. (Advanced) What is the effect of the Colonial Pipeline fire on the amount of gasoline shipped by trucks?

Reviewed By: James Dearden, Lehigh University

What happens when politicians allocate?

This opinion for the WSJ gives a glimpse into how the political process allocates scarce resources.

Opinion. All Aboard the Infrastructure Boondoggle
by: Michael J. Boskin
Nov 01, 2016
Click here to view the full article on WSJ.com

TOPICS: Cost Benefit Analysis

SUMMARY: Whoever wins on Nov. 8, a flood of public-works money is coming. Cost-benefit tests are crucial. "No matter who wins the presidency, a huge pot of additional money earmarked for infrastructure, on top of the recently passed $305 billion five-year highway bill, is sure to unleash a mad scramble in Congress to secure funds for the home turf. The logrolling and pork will get ugly without far tighter cost-benefit tests and oversight."

CLASSROOM APPLICATION: Students can discuss whether cost-benefit analysis should be applied to decisions about whether to improve infrastructure. They can also analyze the incentive problem created by the U.S. federal, state, and local budgeting system; and they can learn about the ways that politicians hide the true costs of projects to taxpayers.

QUESTIONS: 
1. (Advanced) "The logrolling and pork will get ugly without far tighter cost-benefit tests and oversight." What is "logrolling"? What is "pork-barrel spending"? Why are logrolling and pork-barrel spending especially problematic when cost-benefit tests are not applied?

2. (Advanced) What is the incentive problem created by the U.S. public budget model in which most infrastructure requests and decisions are made at the state and local level while being funded mostly at the federal level?

3. (Introductory) What are ways for politicians to hide the true costs of infrastructure projects from taxpayers?

4. (Introductory) Should politicians use social spending for social engineering?

Reviewed By: James Dearden, Lehigh University

What happens when government removes price ceilings?

http://www.wsj.com/articles/venezuela-backs-away-from-price-controls-as-citizens-go-hungry-1476475368

Price and quantity traded both increase

Why is Nigeria poor despite having abundant natural resources?

This opinion in the NYT blames protectionist policies and failure to implement the rule of law.

Haiti v. Dominican Republic

http://www.cnn.com/2016/10/11/americas/haiti-dominican-republic-visual-explainer/index.html reports that Haiti and the Dominican Republic differ remarkably despite sharing an island. The reasons why may be:

1. "In a ranking by Transparency International of corruption, Haiti ranks near the bottom as 158th out of 167 countries. Dominican Republic ranks as 103rd."
2. Haiti has a score of 6.99 (85th highest) in the Index of Economic Freedom; DR's score is 7.32 (55th highest).

Supply and demand in action in the market for apartments

Some Big U.S. Cities See Apartment Rents Fall for First Time in Years
by: Laura Kusisto
Oct 05, 2016
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: Apartment rents declined in some of the country's priciest cities during the third quarter, a dramatic reversal that could signal the end of a six-year boom for the U.S. rental market.

CLASSROOM APPLICATION: Students can evaluate the effect of an increase in the supply of apartments and a decrease in job growth, which causes a decrease in demand, on apartment rents. The article also notes a "hold-up problem": Landlords typically drive a harder bargain on renewals because they know residents would rather avoid the hassle of moving.

QUESTIONS: 
1. (Introductory) What is the effect of an increase in the supply of apartments on rents?

2. (Advanced) What is the effect of a slowdown in job growth on rents?

3. (Advanced) Why do landlords typically drive a harder bargain on apartment lease renewals?

Reviewed By: James Dearden, Lehigh University

Why did Saudi Arabia push for production cuts?

Economics Drove Saudi OPEC Move
by: Summer Said and Benoit Faucon
Sep 30, 2016
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 

TOPICS: Oil Markets

SUMMARY: Behind the kingdom's decision to agree to production cuts was a recognition of the consequences of low oil prices, according to people familiar with the matter.

CLASSROOM APPLICATION: Students can evaluate Saudi Arabia's decision to cut oil production, while exempting Iran from the cartel's production limits.

QUESTIONS: 
1. (Advanced) Why is OPEC cutting oil production? Are the production cuts motivated by government budget issues of member countries?

2. (Advanced) Why is the cartel exempting some member countries from production cuts?

3. (Introductory) What is a market-share policy, which is noted in the article?

Reviewed By: James Dearden, Lehigh University

Questions:

1. Estimate the price elasticity of oil using the data the article reports.
2. Will Saudi Arabia benefit from the cut if Iran maintains its current level of output?
3. Will Iran benefit from the cut if it maintains its current level of output?
4. When would Iran benefit more, when it maintains its current level of output or when it increases its output?

Why would OPEC want to meet with non-OPEC countries to implement a deal OPEC made to cut its output?

http://www.reuters.com/article/us-oil-opec-algeria-idUSKCN1252CN

Questions:

1. What happens to the price of oil if OPEC cuts output and non-OPEC keeps output constant?
2. When are profits higher for OPEC, when non-OPEC countries keep output constant after the cut or when non-OPEC countries increase output after the cut?
3. When are profits higher for non-OPEC, when non-OPEC countries keep output constant after the cut or when non-OPEC countries increase output after the cut?

The IMF says governments need to do more to help the people hurt by free trade agreements

https://www.theguardian.com/business/2016/sep/27/international-monetary-fund-world-economic-outlook-globalisation-free-trade

A money quote:
"The IMF noted there had been studies showing /significant and long-lasting adjustment costs/ for those whose job opportunities had been impaired by the structural changes associated with the trend, even if the lower prices generated by globalisation helped those on low incomes. 
"'An increasingly popular narrative that sees the benefits of globalisation  and trade accrue only to a fortunate few is also gaining traction,' the IMF study said. 
"'Policymakers need to address the concerns of trade-affected workers, including through effective support for retraining, skill building and occupational and geographic mobility, to mitigate the downsides of further trade integration for the trade agenda to revive.'"

http://www.wsj.com/articles/how-to-make-trade-work-for-everyone-1475621791

More money:

"Despite the tremendous benefits of trade, too many people feel it has left them behind. Other factors, including automation, may have a greater impact on dislocation. But whether adjustment is triggered by trade, by technology or by other factors, for those individuals and communities facing adjustment, the lost jobs and stagnant wages are painfully real.

"With the correct supporting domestic policies, trade will work for all. Governments can step up investment in education, job training, temporary income support, job-search assistance, and targeted trade-adjustment assistance, using approaches crafted to best fit their national circumstances. Many countries, including Singapore, Denmark and South Korea, have implemented successful adjustment programs such as these. Our institutions can help others to develop effective programs and to share cross-country experiences.

"Transforming trade into an engine of growth for all and meeting our objectives for global poverty reduction requires reinvigorating trade integration, not rolling it back. By marrying greater economic openness with supportive domestic policies, trade can play its full role in driving increased and widely shared prosperity."

What cartels do

http://www.bloomberg.com/news/articles/2016-09-28/opec-said-to-agree-on-first-oil-output-cut-in-eight-years

The next question is, "Will the countries abide by the agreement or produce more than they promised?"

How do people reduce the quantity demanded for products that they need to live?

http://money.cnn.com/2016/09/24/technology/diy-epipen-affordable-alternatives/index.html

Supply and demand in action in the beef industry

Why Grass-Fed Beef Is on a Roll
by: Ellen Byron and Sarah Nassauer
Sep 21, 2016
Click here to view the full article on WSJ.com

TOPICS: Adverse selection, Supply and Demand

SUMMARY: Once a niche luxury, grass-fed beef is showing up in ballpark burgers and on Wal-Mart shelves. People splurge on the leaner meat despite questions about its labeling and flavor.

CLASSROOM APPLICATION: Students can examine the reasons for the increased demand for grass-fed beef. They can also discuss whether adverse selection is an issue in the industry, which leads for the call from some grass-fed beef producers for strict labeling standards.

QUESTIONS: 
1. (Introductory) Why are people willing to pay more for grass-fed beef than for conventional beef?

2. (Introductory) What is the effect of the increased demand for grass-fed beef on the equilibrium price and quantity of grass-fed beef?

3. (Advanced) Define adverse selection. Would the grass-fed beef market be subject to adverse selection?

4. (Advanced) Why do grass-fed beef producers with strict standards call for strict grass-fed beef certification?

Reviewed By: James Dearden, Lehigh University

Morals and free trade

Main Street. Milton Friedman's Morals
by: William McGurn
Sep 20, 2016
Click here to view the full article on WSJ.com

TOPICS: International Trade

SUMMARY: As Trump and Clinton bang the drums for tariffs and renegotiated deals, where's the popular voice for trade?

CLASSROOM APPLICATION: Students can discuss the ethics of free trade and barriers to trade. In doing so, they can develop ethical criteria (e.g., Pareto efficiency, various equity concepts, and maximizing a country's economic welfare) that could be used to evaluate whether a country should promote free trade.

QUESTIONS: 
1. (Advanced) Milton Friedman would ask by what right should an American be prevented from buying a lawful good or service if he found a better price from someone overseas? Where's the morality of keeping a worker from selling the product of his labor to someone who happens to live in another country?

2. (Advanced) Is it ethical for a developed country to place tariffs on products imported from low-wage developing countries? What ethical criteria could be used to answer this question?

3. (Introductory) What are the benefits of trade? What are the negatives?

Reviewed By: James Dearden, Lehigh University

Supply and demand in action in the heavy equipment industry

Heavy-Equipment Glut Weighs on Machine Makers
by: Bob Tita
Sep 19, 2016
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: Used machinery is flooding the secondhand market, piling more pain on equipment makers battling slack demand amid a global commodities slump.

CLASSROOM APPLICATION: Students can evaluate the decision by construction firms whether to purchase, rent, or lease machines. They can also evaluate the effect of an increased supply of used machines on the demand for, and equilibrium price of, new machines.

QUESTIONS: 
1. (Advanced) What is the effect of an increased supply of used machines on the demand for, and equilibrium price of, new machines?

2. (Advanced) What is the effect of a strong dollar on the amount of machinery sold abroad by U.S. manufacturers?

3. (Advanced) What is the effect of growth of the rental business on the supply of late-model machinery?

4. (Introductory) Why do manufacturers prefer to sell machinery than to lease it?

Reviewed By: James Dearden, Lehigh University

Supply and demand in action in the migrant-trafficking industry

Bulgaria and Smugglers Escalate Their Migrant-Trafficking Battle
by: Drew Hinshaw
Sep 17, 2016
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: In Bulgaria beefed-up border controls aimed at reducing the illegal smuggling of people into Europe have brought new risks, scaring part-time amateurs out of a business they once dominated and turning trafficking over to a monopoly of professional smugglers.

CLASSROOM APPLICATION: Students can evaluate the effect of police crackdown of human smuggling on the supply of smuggling services. They can also evaluate the types of smugglers who exit the industry and the types who remain as a result of the crackdown.

QUESTIONS: 
1. (Advanced) What is the effect of Bulgaria's stepped up efforts aimed at reducing illegal migration on the supply of those willing to traffic people? What is the effect on the price of smuggling?

2. (Advanced) What is the effect of the crackdown on the types of smugglers who exit the industry and the types who remain?

3. (Introductory) Why does the shift to using pricier cars to traffic humans make police work more dangerous?

Reviewed By: James Dearden, Lehigh University

What happens when supply decreases?

http://www.cnbc.com/2016/09/19/gasoline-prices-spike-after-alabama-pipeline-leak.html

Also:

Pipeline Break Lights a Fire Under Gasoline Prices Across Southeast
by: Nicole Friedman and Alison Sider
Sep 20, 2016
Click here to view the full article on WSJ.com

TOPICS: Environmental Issues, Supply and Demand

SUMMARY: Gasoline prices have surged across the Southeast, as the partial closure of a major pipeline has left some gas stations scrambling for fuel and many drivers stuck in lines to fill their tanks.

CLASSROOM APPLICATION: Students can evaluate the effect of a supply disruption in the gasoline market on gasoline prices. They can also consider the effect of the nimby status of energy infrastructure on possible disruptions and environmental disasters of an aging infrastructure.

QUESTIONS: 
1. (Advanced) How does the expectation that gas stations will run out of fuel in the near future on the possibility that the stations will run out of fuel immediately?

2. (Introductory) What is the effect of the partial closure of the Colonial pipeline on gasoline prices in the affected areas?

3. (Advanced) What is a "nimby"? Are energy infrastructure facilities nimbies? What problems will the nimby classification create for U.S. energy supply?

Reviewed By: James Dearden, Lehigh University

Shortages lead to price hikes! Who knew?

http://money.cnn.com/2016/09/16/investing/gasoline-prices-shortage-pipeline-leak/index.html

Yea for a tax on carbon

This opinion in the Washington Post says that the time has arrived for a tax on carbon. Here is the money quote:

"But it would be better to encourage people to buy cleaner cars and cut out unnecessary trips all at once — in fact, it would be better to establish a policy that encouraged individuals and businesses to account for the environmental impacts of driving, turning on the light switch, buying clothes or doing anything else that involves fossil fuels. This policy is a steadily rising carbon tax. A carbon tax would put a lower ceiling on national gasoline use without more aggressive regulatory interventions. It would also encourage every other piece of the economy to green up over time, starting with those for whom doing so is cheapest. This is why it is also the least expensive path to lowering the country’s carbon dioxide emissions."

Supply and demand in action in the Prius market

Toyota's Prius Pays Price for Cheap Gasoline
by: Sean McLain
Sep 07, 2016
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 

TOPICS: Supply and Demand

SUMMARY: Toyota's Prius is topping the sales charts in Japan but is struggling in the U.S. as relatively cheap gasoline prices dent the car maker's efforts to present itself as the leader of an environmentally-friendly future.

CLASSROOM APPLICATION: Students can examine factors that affect the demand for the Toyota Prius. In doing so, they can evaluate the effect of the success of the Prius on the number and type of competitive products.

QUESTIONS: 
1. (Advanced) Is gasoline an economic substitute of hybrid and electric cars? What is the relationship between the price of the gasoline and the demand for hybrids and electric cars?

2. (Introductory) Why do hybrids sell well in Japan?

3. (Advanced) Interpret the statement "Toyota's Prius is partly a victim of its own success."

Reviewed By: James Dearden, Lehigh University

Supply and demand in action in the food market

This article states:

"The trend is being fueled by an excess supply of dairy products, meat, grains and other staples and less demand for many of those same products from China and elsewhere due to the strong dollar. Lower energy costs for transportation and refrigeration also are contributing to sagging food prices, say economists."

1. What is excess supply and why does it lead to lower prices?
2. Does supply and demand analysis predict that less demand would lead to lower prices? What happens to quantity traded?
3. Does supply and demand analysis predict that lower energy costs would lead to lower prices? What happens to quantity traded?

Food Price Deflation Cheers Consumers, Hurts Farmers, Grocers and Restaurants

by: Heather Haddon and Julie Jargon
Aug 30, 2016
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: Consumers' glee at the supermarket checkout over lower food prices isn't shared by all: Farmers, grocers and restaurateurs are feeling the pinch of cheap milk, beef and corn prices on their incomes. Related article: U.S. farm incomes will hit their lowest point this year since 2009, the Agriculture Department forecast, deepening pain in the Farm Belt amid declining commodity prices.

CLASSROOM APPLICATION: Using supply and demand, students can evaluate the effect of a decrease in demand and decrease in (marginal) cost of food production on the equilibrium price of food. They can critically evaluate whether a decrease in demand and a decrease in marginal cost have opposite effects on food prices.

QUESTIONS: 
1. (Advanced) Does an increase in supply and a decrease in demand for a product each lead to a decrease in the product's equilibrium price?

2. (Advanced) What is the effect of lower energy costs for transportation and refrigeration on food prices? What is the effect of those lower costs on the profits earned by farmers?

3. (Introductory) Why are farmers exiting the food industry?

Reviewed By: James Dearden, Lehigh University

The lure of protectionism

This opinion discusses reasons that popular opposition to free trade is growing: https://www.bloomberg.com/view/articles/2016-09-01/the-lure-of-protectionism-will-grow.

What happens to price when barriers to entry exist?

http://slatestarcodex.com/2016/08/29/reverse-voxsplaining-drugs-vs-chairs/

Expectations about the future drive up the price of oil

U.S. Oil Prices Rise to Seven-Week High
by: Nicole Friedman
Aug 20, 2016
Click here to view the full article on WSJ.com

TOPICS: Oil Markets

SUMMARY: Oil prices posted a third weekly gain Friday as the potential for a production-freeze deal among major producers outweighed concerns about ample inventories.

CLASSROOM APPLICATION: The article informs students about futures markets. Students analyze the determinants of supply and demand in an oil futures market, and then examine causes of shifts in supply and demand.

QUESTIONS: 
1. (Advanced) What is a "futures market"? What factors caused the prices of oil futures to increase?

2. (Advanced) How would an expected agreement among OPEC members to cut oil exports affect oil futures markets?

3. (Introductory) What factors indicate that oil producers could take steps to stabilize prices?

Reviewed By: James Dearden, Lehigh University

Why is EpiPen expensive?

This opinion in the WSJ pinpoints well the reason that Mylan has been increasing the price of its EpiPen: :the steady Mylan rise is hard to read as anything other than inevitable when a billion-dollar market is cornered by one supplier."

The writer also questions the wisdom of Hillary Clinton's claim that "the EpiPen price hikes show the need for price controls" and her proposal to "require drug makers to 'prove that any [increases in price] are linked to additional patient benefits and better value.'” Should we require Nike to to prove that any increase in price are linked to additional benefits and better value when they sell running shoes?

This opinion is critical of increases in the minimum wage

Review & Outlook. Seattle's Minimum-Wage Education 
by: Editorial Staff
Aug 15, 2016
Click here to view the full article on WSJ.com

TOPICS: Labor Economics

SUMMARY: When a wage floor goes up, hours worked and employment go down.

CLASSROOM APPLICATION: The article informs students about the effect of an increase in the minimum wage on employment levels. The article also notes the difficulty economists have in disentangling the effect of changes in the demand and supply for labor and the effect of the minimum wage on employment levels.

QUESTIONS: 
1. (Advanced) What is the effect of an increase in the minimum wage on employment? How does the answer depend on the wage elasticities of demand for labor?

2. (Advanced) How would economists disentangle the effect of changes in the demand and supply for labor and the effect of the minimum wage on employment levels?

3. (Introductory) According to the editorial, what is the best route to higher wages?

Reviewed By: James Dearden, Lehigh University

What is the opportunity cost of keeping a store open?

Macy's Fix for Department Store Woes: Fewer Stores
by: Suzanne Kapner
Aug 12, 2016
Click here to view the full article on WSJ.com

TOPICS: Microeconomics

SUMMARY: Macy's said it would close 100 stores, admitting that some locations were worth more as real estate than retail outlets as shoppers continue to spend more online and at discount chains.

CLASSROOM APPLICATION: Students can examine Macy's rationale for closing stores, the effect of the closings on Macy's share prices. They can also characterize the opportunity cost of locating Macy's in mall retail space.

QUESTIONS: 
1. (Advanced) What would Macy's announcement that the company is closing stores result in higher share prices? Why would the announcement result in higher share prices of competitors?

2. (Advanced) Does the following statement speak to the opportunity cost of locating Macy's department stores in retail spaces? Does the statement imply that the Macy's being closed are unprofitable in an accounting sense? "Most of these stores are underperformers or in weak locations" but the company also will close a few locations because "desirability as a redevelopment opportunity exceeds their value to us as a retail store," Macy's finance chief, Karen Hoguet, told analysts Thursday.

3. (Introductory) Why is Macy's closing stores? What is the effect of the opportunity to purchase clothes online on the demand for clothes sold at brick and mortar stores?

Reviewed By: James Dearden, Lehigh University

Supply and demand in action in the market for farmland

Farmland Prices Fall in Central U.S.
by: Jesse Newman
Aug 12, 2016
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: The price of farmland dropped across much of the Farm Belt in the second quarter, Federal Reserve reports showed on Thursday, as the global commodity rout weighs on crop prices and farmers' incomes.

CLASSROOM APPLICATION: Students can use supply and demand for farmland to analyze the effect of decreases in crop prices on the demand for, and ultimately the price of, farmland. They can also examine the effect of decreased crop prices on the demand by farmers for loans.

QUESTIONS: 
1. (Introductory) Is the demand for U.S. farmland derived from the demand for U.S. crops?

2. (Advanced) "While the June bumps in corn and soybean prices provided an opportunity for some farmers to boost their revenues, they did not seem to alter the overall trend in farmland values," said David Oppedahl, senior business economist at the Chicago Fed. Why did short-term increases in crop prices not affect the farmland prices?

3. (Advanced) What is the effect of decreased crop prices on the loan default rates and the demand for loans by farmers?

Reviewed By: James Dearden, Lehigh University