Sunday, November 29, 2009

Drill on Natural Monopoly

A worksheet for your students to complete on natural monopoly is here.

Please download and make comments.

A Quote You Can Use

"A nickle ain't worth a dime anymore."

This quote is attributed to Yogi Berra. I assume it refers to the reduced purchasing power of money. Currently, the CPI stands at 212. If you divide the price of a gallon of gas at Kum and Go currently, $2.54/2 equals $1.27. That means that a gallon of gas cost about a buck and a quarter in 1982. That sounds right. I am not sure if inflation is eroding my purchasing dollar.

Friday, November 20, 2009


Question 1 Reffonomics -

Real interest rate equals nominal interest rate minus the expected rate of inflation. An increasing real interest rate means that my investment will enable me to buy more real goods in the future. I would only invest in new technology if I felt the investment would allow me to consume more in the future then I could now. An increase in the price level would erode my investment if the nominal interest rate did not impute these expectations.

I believe the answer to this question is "A". Expectations of future growth such as new technology increase the demand for loanable funds. This would shift the demand to the right and increase the real interest rate from r to r2 in the graph. B is incorrect because higher inflationary expectations decreases the real interest rate. C is incorrect because it's not illustrated on this graph. I believe a decrease in consumption would lower the price level and the expected inflation and increase the real rate. However, this is not what the question asks. D is incorrect because a decrease in budget deficits will increase the supply of loanable funds, shift the supply to the right and the real rate would be lower. E is incorrect because an increase in savings would shift the supply curve to the right and decrease the real interest rate.

The full test can be found at Scroll down to Monetary and Fiscal Policy and make sure you sign the guest book. This site is highly recommended

Thursday, November 19, 2009

Women in the Labor Force--TIME

The State of the American Woman is a provocative Special Report in TIME. TIME reports that in 1970 3% of women were lawyers and 8% of women were doctors. In 2008, those figures are 32% and 28% respectively. Women are increasing in proportion in professional occupations.

In addition, there are now 3.3 million married couples in which the wife is the sole earner. This is up from 2.4 million in 1970.

Women prefer occupations like law and medicine whereas men prefer construction and trades. As the economy has shifted from a manufacturing base to a service base, women have filled those professional positions.

Tuesday, November 17, 2009

Pure Monopoly and Price Discrimination

TIME Quick Facts -- Women in Labor Force

These facts are from the October 26, 2009, issue of Time. The special report is, The State of the American Woman.

[1] In 1971,the town of Red Oak, Iowa, opened a child-care center. It closed a few months later for lack of customers. Today, there are five child care centers for a population of 5,683.

Item 1 is evidence that women are working more. I think that all individuals weight the opportunity cost of staying home versus working. With innovations in appliances such as microwave ovens, vacuums, dish washers, and dryers, the value of staying home is less. In other words, the cost of not working is greater. A Prisoner's Dilemma will result if a mother stays home to raise their children and all other mothers go to work. A mother will have to go to work.

[2] There were 7 Female TV-news correspondents at ABC, CBS, and NBC out of 153 in 1972. In 2009 there are 95 out of 252 or 38%.

Item 2 is evidence that sector shifts in consumption have created new opportunities for women. As society changes from print media to digital, women are preferred to men for news delivery.

[3] On average, women consume 344 more calories per day than they did in 1974. Today, 61% are overweight, compared with 41% in the 1970s.

Item 3 shows that more fuel is needed to meet a demanding day. Also, food is relatively cheaper now than in the 70s especially carbohydrates. When stress levels are high, many eat. So women must be in more stressful occupations.

Sunday, November 15, 2009

Per Unit Tax for a Perfectly Competitive Firm

When a per-unit tax is placed on a firm, the tax acts like a variable cost and so the marginal cost curve shifts to the left.

Disparity Gains in Pay

Time reports that in 1972 men earned $46, 956 and women earned $27, 169. In 2008, men earned $46, 367 and women earned $35, 745.

As a percentage, in 1972 women earned 58 cents per $1 a man earned. In 2008, the percentage was 77 cents.

The graph shows that women have closed the wage gap, but still lag behind men. Note that earning for men have also decreased by 12.5% while women's earning have increased by 31.5%. What accounts for the changes in the relative disparity?

One reason is the change from manufacturing to service sectors. Men usually select blue-collar careers and trades where women perfer professional occupations. The decline in manufacturing is world wide. Even in a recession, firms still need doctors and accountants--the jobs now filled by women.

Monday, November 09, 2009

How Does a Change In FC affect MC

When fixed costs are decreased, how does the marginal cost curve change? In this lesson you will see why a change in fixed costs does not change the marginal cost.

Saturday, November 07, 2009

Duration of Unemployment

Fantastic graphs are here.

As the length of unemployment lengthens, unemployment benefits expire. Workers have an incentive to find work. The graphs show that the unemployment rate is increasing which means workers are not finding employment.

Monday, November 02, 2009

Marshmellows, Mischel, and Success

A long-time reader shares these links about delayed gratification and success. The first link is from the New Yorker, DON'T The Secret of Self-Control.

The second link is to a TED Talk Video.

The link is clear that later success depends on investment in human capital now. Has anyone studied the economics of changing tastes and preferences so that we can change student behavior?

Sunday, November 01, 2009

Characteristics of the Unemployed

This data is taken from the Bureau of Labor Statistics.

In every case except Asian Men, the unemployment rate was greater for men. That is, in every sub-group, men experienced a higher rate of unemployment than women. My research tells me that women take jobs that are not subject to cyclical changes. Women take accounting jobs, for example. These jobs are still needed even in a recession. Women choose professional occupations like dentistry that are independent of seasonal demand.

My advice for those wishing to be insulated from changes in consumer demand.

Marshmellow Test

A follow-up to yesterday's post is the Mashmellow Test by Walter Mischel. Thanks goes to reader Chrissy Rudd for the tip.

If success in school is a function of delayed gratification, then teachers should be willing to structure teaching to give immediate knowledge of results. Teachers should allow students to grade most of their own work, use computer assisted instruction, and use audience response systems in their lectures. Teachers should constantly monitor behavior to direct student involvement by walking around the room and giving one-minute praises.

If you are a teacher, what do you do to provide immediate and effective feedback to your students?