Sunday, February 27, 2011

Beef! It's Whats For Dinner

Do you know where your food comes from?  Take this interactive Flash animation quiz to find out. 

This is part of my logistics lecture to show how globalization is changing distribution channels.  This link was given in the National Business Education Association monthly journal for February, 2011, on page 43.  The article was co-written by Margaret O'Connor and William Egan.

In the interactive quiz linked above, a tomato mutates when you miss a question.  I missed 4 of 10.  One question I missed was on American preferences for genetically modified food.  The quiz stated, I think, that 81% of Americans do not approve of GM food.  If Americans don't approve, why do they buy it?  I thought only the European community disapproved of GM food.

There are many quizzes on this site.  This is only one.  I also want to say that using Flash animation forces one to learn so it might be good for class.

Monday, February 21, 2011

Gas Prices

This article says gas prices are going to rise due to middle east unrest.  Economic theory suggests that as the price of a good rises producers make more of it.  I think gas is inelastic in the short run and there are few alternatives for gas.  As a result of this exogenous rise in gas (crude oil input), resources will be diverted from the production of food into energy.  Many will stave like in 2008.  Alternative energy sources like Ethanol will see an increase in demand.  Energy prices will continue the long recession.

Education Returns

This graph represents how I think students learn.  The blue line shows that as teachers push kids to learn the students achieve a temporary boost in skills but then most of those skills are forgotten by the next day.  the pink line which approximates the SQRT(X) best fits the learning and forgetting.  I assume that the x axis is days of diligent effort by caring teachers.  Also, I drew these lines on a journal paper and the lines do not represent empirical research.

Shrinking Products

This video from Consumer Reports states the products are shrinking in a deft attempt to fool the consumer.

Products require huge production runs to achieve the lowest cost per unit. Also, these products have a huge amount of substitutes. For a manufacturer to shrink the size of their product would require a change in plant size which infers an elastic supply curve. I doubt this is the case for orange juice and toilet paper. Consumer Reports shows that the size of Scott's toilet paper is 12% less which is solid empirical evidence. But to generalize it to create hysteria and sell magazines is unethical reporting.

Thursday, February 17, 2011

Marginal Product

Marginal Product
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Today's lecture.

Taxes and Burden of Tax

Who Pays the Tax
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Clothing Prices to Rise

Clothing prices are expected to rise.  If you teach economics, you could use this to show a change in supply.  This article linked to in this blog predicts a 10% bump in prices citing a increase in resources. I don't see it happening since there are too many suppliers in the field with too many substitutes.  Since this is a change in the expected future price, we'll wait and see.

Wednesday, February 16, 2011

Sienfeld Economics

Here's a site that uses clips from the popular sitcom Sienfeld to make points about barriers to entry and monopoly power.

The barrier to entry for education is you need a license.  I don't necessarily agree that a license makes a better teacher.  Now with Google and iTunes U anyone can teach.  Teachers should expect to see some of the monopoly power deteriorate.

Monday, February 14, 2011

Marginal Rate of Substitution in Education

Will computers replace teachers in the classroom?  I think that as computers develop computers will be substituted for teachers to the point where the marginal rate of substitution is 1.

At first, when there are lots of teachers and few computers, a school district might give up 5 teachers to obtain 1 computer as shown in the graph.  As teachers become scarce, a school might only be willing to give up 3 computers to obtain one more computer.  So the rate of substitution is diminishing.

I can't believe that all teachers are the same as the model assumes, but in our school district, computers are substituted for textbooks, CDs and DVDs, and YouTube and iTunes U are used for instruction.  I "teach" an online class in logistics where all I do is facilitate instruction.  I understand the Phoenix University is the largest in the United States.  Here is a list of the top 10 online universities.  Of course, MIT and Yale offer many of their classes for free in open course ware.

As more and more instruction is digitized, computer instruction will replace teachers until the balance is 1.  Is it any wonder why students do not want to enter the teaching field any more?

Saturday, February 12, 2011

Cobb-Douglas Production Function

The original paper on the Cobb-Douglas Production Function is found here. A hearty thanks to Tim Schilling at MV=PQ for this paper. This paper comes at a time when I'm analyzing the returns to education using the same model. It's interesting to observe that the original function took L^.75 and K^.25 inferring that the returns are greater to labor. If this same model is applied to education, I think it can generally be said that the greatest growth potential is in the humans using the kapial. So just giving a computer to a kid who could care less is equivalent to giving me a power tool. In my hands, a power tool is a dangerous thing. As Emerson said, I think, "What lies before us is nothing compared to what lies within us." This function confirms this cliche about teaching.

I read in a Malcolm Gladwell article or book, that it takes 10,000 hours to become an expert on a subject. To me this infers that learning is a nonlinear function and subject to diminishing marginal returns. In my opinion, this quote shows that learning is gradual where the most returns come at the beginning. I also believe that there are diminishing marginal returns to kapital too. How many, books on Algebra does a kid need? Or how many ways does a student need to share information on the Internet?

I believe that the new tools of education both enhance education and heighten students learning. I just believe that kids are kids and are the same kids that I grew up with where it took hours and hours of hard work to learn and learning approximated the production function Y=AL^.75K^.25. Now to learn partial derivatives so I can prove it.

Thursday, February 10, 2011

Ceilings and Floors

The Theory of Interstellar Trade

The stand up economist, has a post to Paul Krugman's humorous article on the Theory of Interstellar Trade. The Cartoon Introduction of Economics, by Grady Klein and Yoram Bauman is superb. It covers microeconomics. Because of this book, I learned easier ways to teach hard concepts such as marginal decision making. My favorite part of the book was auctions.

Wednesday, February 09, 2011

Today's Lecture

Some very introductory notes about how responsive quantity demanded is to price.

Sunday, February 06, 2011

Why P=MC is Efficient

Students often have trouble understanding the efficiency condition, P=MC.  Maybe students would understand the concept if they used consumer's surplus to measure utility.  If you need a review of consumer's surplus, click here.  Assume, the P>MC.  The size of consumer's surplus will be smaller than when P=MC.  If you assume that economic actors seek to maximize utility, then the actions of consumers and producers will result in a condition that maximizes utility.  In order for utility to be maxed, P must equal MC, an efficient outcome.

In monopolized markets P>MC so utility is not maximized.  That means that resources that are used in the monopolized market could have alternate uses in a perfectly competitive market that would lead to a greater consumer's surplus and greater utility.  That's why monopolies are inefficient from society's viewpoint.

Saturday, February 05, 2011

How to Show Marginal Cost

One way to show the concept of marginal cost is to graph a total cost curve then show how the slope increases as more of the good is made.  This is shown with points A, B, C, and D.  Showing the marginal cost like this hammers home that the change in total cost is the marginal cost.  If you were to graph Points A, B, C, and D, you would find the familiar Nike swoosh that textbooks use to graphically show the marginal cost curve.

I like to show the dip in the total cost curve at point B to show how resources become specialized and costs actually decrease at this point.  Remember that your average total cost curve looks a "U".  The left side of the U shows that fixed costs are being spread out over output.  So the dip at Point B shows that costs beyond that point must be variable and as you add more and more of a variable input to a fixed, costs increase.  Note that the fixed costs are $10.

Friday, February 04, 2011

Unit Elastic Demand Curve

Suppose a firm faces a demand curve shaped by the following formula: Q = AP^-1. This curve would be unit elastic and so the total revenue at every point would be the same. This is a downward sloping curve that is convex to the origin. Since the firm can't compete on price, the firm is essentially a price taker. What market structure does this firm operate in?

My answer is that this firm must be an exception to our economic theory. So it's an anomaly. Since the firm will probably use non-price competition, I suggest that the firm is monocomp.

Tuesday, February 01, 2011

Consumer Equilibrium

I doubt if you'll find a better explanation than this on consumer equilibrium.