Tuesday, January 27, 2015

Income Effect

On Saturday, I fill up with gas and buy a doughnut. Now as gas prices have fallen, I find myself buying two donuts. Is the extra doughnut I buy due to the income or substitution effect? Standard textbooks say that since donuts are a small part of my budget, the extra doughnut is all substitution. I think that I'm getting an income effect too as I used to spending $X amount of money on a Saturday morning.

Monday, January 26, 2015

Oil Prices

This cartoon suggests that the oil companies are on the inelastic portion of their demand curve. So as prices decrease so does total revenue. If this is true, then gas is produced in a competitive industry since no monopoly would ever produce on the inelastic portion of their demand curve.

Friday, January 16, 2015

Gary Becker on Discrimination

The article originally published in Capital Ideas is here. A brief introduction:
In the 1950s, few economists thought of phenomena such as racial discrimination as under their purview. That changed in 1957, when Gary S. Becker, Professor of Economics and of Sociology at the University of Chicago and at Chicago Booth before his death in 2014, published The Economics of Discrimination, a book based on his 1955 PhD thesis. Becker’s analysis would extend the reach of economics, and completely reshape the field—and social-science research in general, but it took decades to do so. “For several years it had no visible impact on anything,” he later recalled. “Most economists did not think racial discrimination was economics, and sociologists and psychologists generally did not believe I was contributing to their fields.”
Mr. Becker used economics to look at social institutions and the incentives surrounding.

Wednesday, January 14, 2015

Microeconomics From The Authors of Marginal Revolution

I've always wished I could study economics from Tyler Cowen and Alex Tabarrok and here's my chance. If you are interested too, here's a link to the course.

Monday, January 12, 2015

Gas Tax

The following is part of an editorial by Charles Krauthammer:
For 32 years I’ve been advocating a major tax on petroleum. I’ve got as much chance this time around as did Don Quixote with windmills. But I shall tilt my lance once more. The only time you can even think of proposing a gas tax increase is when oil prices are at rock bottom. When I last suggested the idea six years ago, oil was selling at $40 a barrel. It eventually rose back to $110. It’s now around $48. Correspondingly, the price at the pump has fallen in the past three months by more than a dollar to the national average of about $2.18 per gallon. As a result, some in Congress are talking about a 10- or 20-cent hike in the federal tax to use for infrastructure spending. Right idea, wrong policy. The hike should not be 10 cents but $1. And the proceeds should not be spent by, or even entrusted to, the government. They should be immediately and entirely returned to the consumer by means of a cut in the Social Security tax.
My simple thoughts: 1. FICA also has a employer's share. If you reduce the employee's share, what do you do with the employer? So is there crowding out? 2. Increasing employment compensation might have perverse effects. That is, giving more unemployment benefits might prolong unemployment spells. 3. The government doesn't set the price of gas. 4. Decreasing the consumption of gas might be good for the environment, but bad for the economy. 5. All of the points above said, I think the idea has merit.

Sunday, January 11, 2015

Income and Substitution Effects

Suppose that there are only two goods that Juan buys: Donuts and Fritters. The price of a Donut is $2 and the price of a Fritter is $1. There are actually two prices for the donuts and the fritters. There are the absolute prices and the relative prices. The relative price is amount of the good that is given up and the absolute price is the dollar price. The table below shows you what I mean: The rest of the document is here. This is for a lecture on demand for my class.

Thursday, January 08, 2015

Cheap Oil and Employment

I think there's another loser than Wall Street commodities traders and stock shorters.  Those working in the oil extraction industry will find that the fall in oil prices will cost them their job.  This is because the price that the producers receive is less than the marginal cost of employing workers.  Companies will now find it more profitable to produce less.  This is not greed, but simply an equilibrium condition.  a nice article is here.

The cartoonist who drew this cartoon, is one of my favorites.

For years I have been writing a paper on using cartoons in education.  Many people don't take cartoons seriously.  As some of you might know, the attack on Charlie Hebdo in France left four cartoonists dead and 20 wounded.

The cartoon on the left is a tribute to those men and women who value freedom of speech with their lives.  I would like to add that I don't agree with the work the cartoonists completed, but I would defend their right to produce it.