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

TPP

Here are two opinions.

Con: http://www.cnn.com/2015/10/07/politics/hillary-clinton-opposes-tpp/

Pro: https://www.whitehouse.gov/sites/default/files/docs/20150408_trade_innovation_growth_brookings.pdf and http://gregmankiw.blogspot.com/2015/03/an-open-letter.html.

Here is more evidence that economists generally agree that the benefits of free trade outweigh its cost: http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_d68906VNWqVmiGN

Why I don't recycle much

http://www.nytimes.com/2015/10/04/opinion/sunday/the-reign-of-recycling.html?_r=0

A money quote:

"Trying to turn garbage into gold costs a lot more than expected. We need to ask ourselves: What is the goal here?"

Externalities

What is the best way to become a millionaire in Africa?

http://qz.com/494469/africa-is-minting-millionaires-but-the-poor-arent-getting-any-richer/

Wealth of Nations

Revised smog regulations

http://www.nytimes.com/2015/10/02/us/politics/epa-to-unveil-new-limit-for-smog-causing-ozone-emissions.html?_r=0

Externalities

Universal basic income

Is this a better alternative to minimum wage? http://www.fastcoexist.com/3040832/world-changing-ideas/a-universal-basic-income-is-the-bipartisan-solution-to-poverty-weve-bee?partner=qznewsletter

Price controls

Law of supply in action

The law of supply is that the quantity supplied increases as price increases and decreases as price decreases. The announcement by Shell that it is ceasing exploration in offshore Alaska illustrates that the effects on the quantity supplied may not be obvious immediately but, instead, may take years to appear."'Shell will now cease further exploration activity in offshore Alaska for the foreseeable future.'" "[W]hile it had found 'indications' of oil and gas, 'these are not sufficient to warrant further exploration' in the area."

Here is another account that states more explicitly the effect of lower oil prices on drilling and exploration.

Here are two follow-up questions.

1. What will happen (or fail to happen) to the supply of gas and oil in the future as a result of Shells' decision?
2. Would the indications of oil and gas be more likely to be sufficient to warrant further exploration when the price of oil is $100 per barrel or when the price is $40 per barrel? 

Is a market failure better than government intervention?

Critics of Free Market Shouldn't Overreach
by: Greg Ip
Sep 24, 2015
Click here to view the full article on WSJ.com

TOPICS: Behavioral Economics

SUMMARY: It has been a good month for free-market skeptics. In Britain a socialist is the Labour Party leader. Pope Francis condemns markets for "extreme consumerism." Economists are joining them, writes Greg Ip.

CLASSROOM APPLICATION: Instructors can introduce the issue of whether markets lead to unscrupulous behavior or whether markets promote economic efficiency, and whether policy makers in an attempt to correct market failure would be subject to their own behavioral biases. The need for policy intervention in market relies not only the traditional economic arguments based on market power of sellers, asymmetric information, and transactions costs, but also on the behavior of consumers. "Behavioral economics goes further, arguing that people systematically make decisions that economists consider irrational. They save too little for retirement, eat too much fatty food, or don't exercise enough because they put too little value on the future. They pay inflated prices or accept inferior products because of personal biases, limited information or inertia." However, "While the insights of behavioral economics are now broadly accepted, applying them in a practical way isn't straightforward."

QUESTIONS: 
1. (Advanced) Define "behavioral economics." What are examples of non-optimizing consumer behavior? What are examples from studies in behavioral economics that have led to appropriate market regulations?

2. (Advanced) Does evidence that consumers do not maximize by systematically undervaluing future savings from more efficient cars, homes, and appliances imply that government regulation of the energy efficiency of these products is needed to promote economic efficiency? If so, what intervention would correct for consumer behavior?

3. (Introductory) What are examples of government regulators interjecting their biases when setting economic policy?

Reviewed By: James Dearden, Lehigh University

The market system

Want to help the poor people of the world?

Essay. Trade-Offs for Global Do-Gooders
by: Bjorn Lomborg
Sep 19, 2015
Click here to view the full article on WSJ.com

TOPICS: Cost Benefit Analysis

SUMMARY: Cost-benefit analysis suggests the best way to cut world poverty-a focus on expanding trade and preschool while ending fossil-fuel subsidies. "Over the past year, the Copenhagen Consensus Center, the think tank that I direct, asked 82 leading economists to work out exactly how much good could be achieved by investing in the 169 solutions that the U.N. will endorse in a few days. We asked them, in short, to use the standard tools of economics to calculate the costs and benefits of achieving each target."

CLASSROOM APPLICATION: Students can examine whether benefit per dollar spent is an appropriate measure to determine the value on an economic program. Instructors can also present economic methodology for measuring economic benefits of social programs. Value of a statistical life is one measure of the economic benefit of a program that extends life expectancy.

QUESTIONS: 
1. (Advanced) Is media attention a useful guide for the world's problems that deserve the most urgent attention? Are campaigners, activists, and celebrities useful guides?

2. (Advanced) Is benefit per dollar spent an appropriate measure to evaluate and rank economic policies?

3. (Introductory) What criterion should be used to rank projects to aid the world's most-disadvantaged people?

Reviewed By: James Dearden, Lehigh University

Wealth of nations

Cap and trade

Here are two articles that describe China's proposals to reduce pollution emissions. The proposal call for some type of cap and trade program.
http://www.latimes.com/world/asia/la-fg-china-global-warming-20150924-story.html

http://www.bloomberg.com/news/articles/2015-09-25/china-said-to-plan-pollution-trading-expansion-to-cut-emissions 

Surge pricing = equilibrium?

http://newsroom.uber.com/2015/09/the-effects-of-ubers-surge-pricing/

Supply and demand in action