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Jason Welker

A Micro problem for the advanced Econ student | Welker's Wikinomics Blog - 5 views

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    I love that Harvard Economics professor Gregory Mankiw blogs, but I hate that has de-activated the comments on his blog. Yesterday he posted a question from his own Harvard introductory economics class.  Since he doesn't allow comments though, I cannot tell if I'm solving it correctly. So I will re-publish it here and ask my readers to solve the problem in the comment section. IB and AP students who have studied microeconomic should be able to put some of their basic algebra skills to work to solve this one.
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    I may be wrong, but initially profit maximizing P and Q are $7 and 3 at MC = MR with profit of $10.5. Subsequently at a world price of $6, domestic demand is 4 units, but the monopolist's profit maximizing Q becomes 5 units (at MC =P). Therefore he exports one unit and his profit becomes $9.5. Thus the answer is a bit unexpected. I am not sure, but if the world price is $7 then does he produce 6 units of which he exports 3 units, since domestic demand falls? That conclusion presumes that he acts as a perfect competitor in the world market, but probably he will find a way of gaining global monopoly power! Molly
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    I think I solved most of it...I look forward to the answer...:)
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    Molly, could you explain how you determined that at a world price of $6, the firm's profit maximizing Q would become 5 units? Why did we equalize P=MC to find the firm's output at a price of 6? I see why the firm becomes an exporter at a world price of $6 if they produce 5 units (since domestic Qs exceeds domestic Qd) but just not why we determine the firm's output by P=MC. Thanks!
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    I guess I am assuming that once there is free trade the monopolist has to act like a perfect competitor and at least in the world market is a price taker. It's a bit like the monopsonist who has to become a wage taker once there is an effective minimum wage. Consequently he employs more workers since his MFC equals the wage.
Jason Welker

YouTube - ACDCLeadership's Channel - 8 views

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    This AP Econ teacher from San Diego has some excellent review videos, "Economics in 60 Seconds" on his YouTube page. Check it out! "Mr. Clifford and ACDC Leadership is dedicated to creating interactive programs, lessons, and activities that make learning exciting."
Jason Welker

Economic View - A Dose of Skepticism on Government Spending - NYTimes.com - 5 views

  • the centerpiece is likely to be a huge increase in government spending
  • John Maynard Keynes
  • A main focus was how to avoid, or at least mitigate, the recurring slumps in economic activity.
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  • Economic downturns, Mr. Keynes and Mr. Samuelson taught us, occur when the aggregate demand for goods and services is insufficient.
  • Higher consumer spending expands aggregate demand further, raising the G.D.P. yet again. And so on. This positive feedback loop is called the multiplier effect.
  • these Keynesian prescriptions make avoiding depressions seem too easy.
  • each dollar of government spending can increase the nation’s gross domestic product by more than a dollar
  • The solution, they said, was for the government to provide demand when the private sector would not.
  • less than a third of the increase takes the form of private consumption and investment.
  • Professor Ramey estimates that each dollar of government spending increases the G.D.P. by only 1.4 dollars.
  • In practice, however, the multiplier for government spending is not very large
  • If you hire your neighbor for $100 to dig a hole in your backyard and then fill it up, and he hires you to do the same in his yard, the government statisticians report that things are improving.
  • it is unlikely that, having wasted all that time digging and filling, either of you is better off.
  • inefficient spending
  • bridges to nowhere,
  • increase in economic well-being.
  • a rigorous cost-benefit analysis of each government project.
  • To this day, we have yet to come to grips with how to pay for all that the government created during that era
  • a temporary crisis as a pretense for engineering a permanent increase in the size and scope of the government. Believers in limited government have reason to be wary.
  • tax cuts will be a larger piece of the Obama recovery plan than was previously expected.
Jason Welker

Economics of Disasters « Foundation for Teaching Economics - 4 views

  • This set of lessons looks at a variety of natural disasters – from the Black Death of the Middle Ages to Hurricane Katrina in our too-recent memory, to fears of avian flu pandemics that haunt the future – through the lens of economic analysis. The contexts were chosen to facilitate the teaching of economic reasoning principles not only in economics courses, but also in history and the other social studies disciplines. Each lesson addresses a question that reflects people’s compassionate reaction to news of disaster and develops one or two key tools of economic analysis in answering that question. Case studies of past disasters provide real-world illustrations.
  • disasters
  • This set of lessons looks at a variety of natural disasters – from the Black Death of the Middle Ages to Hurricane Katrina in our too-recent memory, to fears of avian flu pandemics that haunt the future – through the lens of economic analysis. The contexts were chosen to facilitate the teaching of economic reasoning principles not only in economics courses, but also in history and the other social studies disciplines. Each lesson addresses a question that reflects people’s compassionate reaction to news of disaster and develops one or two key tools of economic analysis in answering that question. Case studies of past disasters provide real-world illustrations.
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  • This set of lessons looks at a variety of natural disasters – from the Black Death of the Middle Ages to Hurricane Katrina in our too-recent memory, to fears of avian flu pandemics that haunt the future – through the lens of economic analysis. The contexts were chosen to facilitate the teaching of economic reasoning principles not only in economics courses, but also in history and the other social studies disciplines. Each lesson addresses a question that reflects people’s compassionate reaction to news of disaster and develops one or two key tools of economic analysis in answering that question. Case studies of past disasters provide real-world illustrations. Program Topics Introduction Addendum to Introduction Lesson 1: Are Disasters Good for the Economy? Lesson 2: When Disaster Strikes, What Can Markets Do? Lesson 3: When Disaster Strikes, What Can Government Do? Lesson 4: When Disaster Strikes, What Can We Do? Lesson 5: Are Disasters “A Disaster” for Lesson Planning? Activities
  • This set of lessons looks at a variety of natural disasters – from the Black Death of the Middle Ages to Hurricane Katrina in our too-recent memory, to fears of avian flu pandemics that haunt the future – through the lens of economic analysis. The contexts were chosen to facilitate the teaching of economic reasoning principles not only in economics courses, but also in history and the other social studies disciplines. Each lesson addresses a question that reflects people’s compassionate reaction to news of disaster and develops one or two key tools of economic analysis in answering that question. Case studies of past disasters provide real-world illustrations.
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    Lesson plans for the Economics classroom for teaching the effects of natural disasters
Jason Welker

LRB · John Gray · We simply do not know! - 0 views

  • The last two years, in which capitalism has suffered one of its periodic shocks, have given John Maynard Keynes a new lease of life. Events have demonstrated the limits of the theory that economies can be relied on to be stable if they are lightly regulated and otherwise left to themselves. There is now much talk of the paradox of thrift, whereby the rational choices of individuals can prove collectively ruinous, and of the need for government to counteract the inherently anarchic tendencies of markets. Keynes has been revived because he understood that markets are very often irrational. Unfortunately, few of those who urge that we go back to him seem to have understood why he believed this.
  • Apart from a brief postscript to one of the chapters and a few remarks in the preface, George Akerlof and Robert Shiller’s Animal Spirits was written before the current crisis. Yet, based on research undertaken over many years, it can be read as prefiguring the current disillusionment with economics. The trouble with prevailing theories, in Akerlof and Shiller’s view, is that they assume human beings are more rational than they actually are. ‘This book, which draws on an emerging field called behavioural economics, describes how the economy really works,’ they claim. ‘It accounts for how it works when people really are human, that is, possessed of all-too-human animal spirits.’
    • Jason Welker
       
      I took my students to hear George Akerlof speak in Zurich recently. His presentation of "Animal Spirits" was excellent and shed considerable light on the Macroeconomics we teach in AP and IB Economics classes.
  • ‘Just as Adam Smith’s invisible hand is the keynote of classical economics,’ they write, ‘Keynes’s animal spirits are the keynote to a different view of the economy – a view that explains the underlying instabilities of capitalism.’ Here they are endorsing the caricature of Smith propagated by neoliberal ideologues anxious to confer a distinguished patrimony on an illegitimate intellectual offspring.
    • Jason Welker
       
      Modern day free market advocates have hijacked Adam Smith's "invisible hand"...
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  • Shackle took Keynes’s argument a step further, and showed that no economic policy can ensure economic stability indefinitely. ‘Keynesian’ policies are no exception to this rule. Deficit financing and monetary expansion may have worked well in the conditions that existed after the Second World War. It is not clear that they will be so effective today, when globalisation has brought a freedom of capital movements that did not exist then.
    • Jason Welker
       
      Is old fashioned Keynesian fiscal stimulus enough to solve today's economic challenges?
  • Economics and politics are not separate branches of human activity, and economic life cannot be studied independently of social divisions and political conflicts among populations, along with their cultures and religions.
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    AP Macro and IB teachers should read this review of George Akerlof and Robert Schiller's book "Animal Spirits". There are some great points in this piece that can be brought into the AP or IB classroom with regards to the assumption of rational behavior and more importantly the Keynesian/Classical debate on Macroeconomic policy issues.
Jason Welker

Another Mankiw problem for the motivated Micro student! | Welker's Wikinomics Blog - 2 views

  • Harvard’s Greg Mankiw just keep them coming! Here’s another micro problem from the esteemed professor and textbook author’s blog. Several readers enjoyed challenging themselves with his last Micro problem, so I will re-publish Mankiw’s test question here to see if people can solve it in the comment section on this blog (sorry Professor Mankiw, you have comments turned off on your blog, so how are your readers to know if they have solved it correctly?)
  • The town of Wiknam has 5 residents whose only activity is producing and consuming fish. They produce fish in two ways. Each person who works on a fish farm raises 2 fish per day. Each person who goes fishing in the town lake catches X fish per day. X depends on N, the number of residents fishing in the lake. In particular, X = 6 – N. Each resident is attracted to the job that pays more fish. a. Why do you suppose that X, the productivity of each fisherman, falls as N, the number of fishermen, rises? What economic term would you use to describe the fish in the town lake? Would the same description apply to the fish from the farms? Explain. b. The town’s Freedom Party thinks every individual should have the right to choose between fishing in the lake and farming without government interference. Under its policy, how many of the residents would fish in the lake and how many would work on fish farms? How many fish are produced? c. The town’s Efficiency Party thinks Wiknam should produce as many fish as it can. To achieve this goal, how many of the residents should fish in the lake and how many should work on the farms? (Hint: Create a table that shows the number of fish produced—on farms, from the lake, and in total—for each N from 0 to 5.) d. The Efficiency Party proposes achieving its goal by taxing each person fishing in the lake by an amount equal to T fish per day and distributing the proceeds equally among all Wiknam residents. Calculate the value of T that would yield the outcome you derived in part (c).
  • e. Compared with the Freedom Party’s hands-off policy, who benefits and who loses from the imposition of the Efficiency Party’s fishing tax?
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    Okay, this time I want to get in on the action before all you smart people get this one right on your first try again! I will offer my answers, but withhold the explanations for further discussion once other people have had a chance to chime in. a) Productivity of additional fishermen falls on the lake due to the law of diminishing marginal returns. Fish farmers would not experience diminishing returns, since each farmer is given access to additional land (or in this case water) and capital, assuming each farmer has his own farm. On the lake, labor is the only variable resource. On farms, land and capital vary with labor, assuring marginal product remains constant as additional residents get into fish farming b) Without any government interference, 1 resident will farm fish, and four will fish on the lake. c) To maximize town's total output of fish, only two residents should fish on the lake, and three should farm fish. d) To yield the maximum output of fish for the town, the town should tax lake fisherman by 2 fish. T=2. e) The hands off policy would have yielded 2 fish per resident per day. The fishing tax will ultimately yield each resident 2.8 fish per day. Therefore everyone benefits. The two lake fisherman give up half their daily catch to the government, but get part of it back through the re-distributive plan. Who else has their own answers, or explanations of MY answers!!??
Jason Welker

So you want to be in charge of monetary policy? - 5 views

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    David Mayer sent this link through the AP Listserve. Looks great, I'm going to play it and see if it would work in my class
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