A collaborative blog for Principles of Microeconomics taught by Edward Millner @ Virginia Commonwealth University.
Tuesday, August 30, 2016
What happens to price when barriers to entry exist?
Monday, August 29, 2016
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
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?
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
Thursday, August 25, 2016
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?
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?
Friday, August 19, 2016
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
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?
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
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?
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
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?
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
Friday, August 12, 2016
Is Trump wrong on trade?
Opinion. Trump Gets It Wrong: Trade Is a Winner for Americans
by: Robert B. Zoellick
Aug 08, 2016
Click here to view the full article on WSJ.com
by: Robert B. Zoellick
Aug 08, 2016
Click here to view the full article on WSJ.com
TOPICS: International Trade
SUMMARY: Lower taxes on imports from trade deals save the average U.S. household about $10,000 a year.
CLASSROOM APPLICATION: Instructors can use the article to highlight the benefits of lowering import barriers: lower prices for consumer and intermediate goods. Instructors can also present the short-term costs to economic welfare of workers displaced by increased foreign competition due reductions in import barriers.
QUESTIONS:
1. (Introductory) What are the benefits to a country of lowering barriers to imports?
2. (Advanced) What is the 1930 Smoot-Hawley Act? What was the effect of the Smoot-Hawley Act and tariffs imposed by other countries during this period on employment levels in the U.S.?
3. (Advanced) What are the benefits of the free-trade agreements that the U.S. has signed?
4. (Advanced) Is international trade a zero-sum game in the sense that the benefits to a country of exporting goods equals the losses to the countries importing those goods?
1. (Introductory) What are the benefits to a country of lowering barriers to imports?
2. (Advanced) What is the 1930 Smoot-Hawley Act? What was the effect of the Smoot-Hawley Act and tariffs imposed by other countries during this period on employment levels in the U.S.?
3. (Advanced) What are the benefits of the free-trade agreements that the U.S. has signed?
4. (Advanced) Is international trade a zero-sum game in the sense that the benefits to a country of exporting goods equals the losses to the countries importing those goods?
Reviewed By: James Dearden, Lehigh University
Tuesday, August 9, 2016
Why has the US lost manufacturing jobs: globalization or productivity growth?
Monday, August 8, 2016
Cash v. camps for refugees
http://qz.com/750020/the-deceptively-simple-economic-case-for-giving-refugees-cash-not-stuff/ makes the case that giving refugees cash helps more than giving them "stuff". Voluntary choice allows them to build better lives.
Monday, August 1, 2016
Good summary of the effect of minimum wage
http://www.frbsf.org/economic-research/publications/economic-letter/2015/december/effects-of-minimum-wage-on-employment/
Here is a money quote: "... a reasonable estimate based on the evidence is that current minimum wages have directly reduced the number of jobs nationally by about 100,000 to 200,000, relative to the period just before the Great Recession.
Here is a money quote: "... a reasonable estimate based on the evidence is that current minimum wages have directly reduced the number of jobs nationally by about 100,000 to 200,000, relative to the period just before the Great Recession.
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