Ten Key Principles of Economics

1. Everything has a cost. There is no free lunch. There is always a trade-off.
2. Cost is what you give up to get something. In particular, opportunity cost is cost of the tradeoff.
3. One More. Rational people make decisions on the basis of the cost of one more unit (of consumption, of investment, of labor hour, etc.).
4. Incentives work. People respond to incentives.
5. Open for trade. Trade can make all parties better off.
6. Markets Rock! Usually, markets are the best way to allocate scarce resources between producers and consumers.
7. Intervention in free markets is sometimes needed. (But watch out for the law of unintended effects!)
8. Concentrate on productivity. A country’s standard of living depends on how productive its economy is.
9. Sloshing in money leads to higher prices. Inflation is caused by excessive money supply.!!
10. Caution: In the short run, falling prices may lead to unemployment, and rising employment may lead to inflation.



Monday, September 28, 2009

Hair Dyeing Fad Reflects Recession


Dyed hair is making a comeback. L'Oréal, the world's no.1 hair dye manufacturer, saw the sales of its hair color products surge some 30 percent in September compared to a year earlier. The sales of unusual dye including red, copper and metallic colors soared 47 percent. Experts make connections between the trend and the recession. A beauty specialist said people seek to escape reality in a recession, and dyed hair offers a kind of fantasy image. During the 1997-98 Asian financial crisis, dyed hair was also fashionable. More middle-aged people also dye their hair in an effort, experts say, to look younger and stand a better chance in the depressed job market.
It is a global phenomenon. The U.K. Telegraph called the phenomenon a "gold rush" and quoted celebrity hairdresser Andrew Barton as saying that many people are dyeing their hair blond to find an antidote to the depression. In the U.S., the term "hair dye index" was newly coined to show the link between the economy and dyeing hair. People's hair color becomes lighter as economy worsens. Hair dyeing is a counter-cyclical economic indicator roughly synonymous with an inferior good.

Saturday, September 19, 2009

World's Top Brands Take On A Little Tarnish

Is The Market As We Teach It Even Relevant Anymore?

A Race Michigan Does Not Want To Win

The Coyotes Are Raising Their Fees

Since the 1980s, so-called “coyotes” have charged higher and higher fees to smuggle Mexicans across the American’s southwestern border, even in the midst of a recent decline in demand for their services..

Mexican Migration To The U.S. In Decline

The level of border apprehensions of undocumented immigrants seems to be a pretty good indicator of what will happen to the overall American job market six months later.

Here is an assignment that would work with this and the post above on Mexican "Coyotes".

PRICING ISSUES AROUND MEXICAN IMMIGRATION

In the space provided below, use your understanding of marginal analysis and how prices are determined to discuss the flow of Mexican immigrants (legal and illegal) to the U.S. over the last twenty years. In so doing answer the following questions:

1. What has been the incentive over the years for Mexican citizens to find the means to emigrate to the U.S.?
2. What has been the incentive of American employers to hire these workers (legal and illegal)?
3. Why have the emigration trends that were so strong in the 1990s faded recently?
4. What types of businesses and entrepreneurs have benefited from the flow of humans across the border?
5. How have the conditions of the “coyote” business changed recently and what impact have they had on the pricing structure?
6. What should the U.S. do about the millions of illegal immigrants that reside in our country? Use cost/benefit analysis to explain.

We're All Entrepreneurs

A Business Week article that speaks volumes to our students. Click on the title to access the story.

If You Like Indicators, Keep Your Laggards and Leaders Separate

So much of the casual conversation I hear about the direction of the economy is downright confused — not only because the economy is legitimately confusing, but because people don’t know what metrics to keep their eye on, and especially because they jumble their leading and lagging indicators. A leading indicator fortells of an approaching change and a lagging indicator confirms the change has begun. The stock market could still recover as unemployment remains high. Wall Street will just want some signs that the prospects for the labor market aren’t getting far worse. In downturns during the past 60 years, the S&P 500 index has hit bottom an average of four months before a recession ended and about nine months before unemployment hit its peak. So say it to yourself three times over — and say it especially to your confused friends: the stock market is a leading indicator; unemployment is a lagging indicator. In other words: markets move fast and assimilate lots of information and are therefore somewhat predictive; layoffs are messy, unappealing, and above all take some time to unfold — as does the hiring that eventually replaces them. This doesn’t mean that the recent market uptick means the recession is easing up, nor does it mean that recent high unemployment numbers aren’t relevant. It does mean, however, that the two metrics lie in different columns when assessing where things are heading.

Calls To Tax Junk Food

As the battle over health care rages on, more people are focusing on consumer behavior and personal choice as a culprit behind escalating costs. There are many people who believe that if junk food consumption was reduced so would the pressures on our health system. Sin taxes on cigarettes have been a successful tool in discouraging smoking, could taxes on sugary sodas and snacks be a disincentive to consume. Opponents to this idea cite that excise taxes are regressive and would place additional pressures on the finances of low-income citizens. In addition, the difficult economy has led people to seek cheaper food sources which are often times the type of product targeted by this tax. Click on the link above and weigh in on this issue which seems to be gaining momentum.

Assignment that can accompany this reading:

HOW TO RESOLVE THE HEALTH CARE CRISIS?

Washington D.C. is currently wrestling with the age-old problem of how to provide affordable health care to every American without bankrupting our future and burying the issue under a pile of governmental bureaucracy. No one denies the facts that we inadequately deliver the service as we are woefully inefficient with our spending and far too many citizens find the necessity well beyond their reach. There are numerous suggestions on how to deliver health insurance differently but there is remarkably little discussion on how to impact demand. An obesity epidemic plagues our country and everyone understands that excessive weight creates a series of health problems that put debilitating pressures on our health care system. The article suggests a new tax that is gaining in popularity and is modeled after the highly successful “sin” tax on cigarettes.

In an essay, respond to the following points:

• What is the issue presented in this article?
• What are the arguments supporting the implementation of this tax?
• What are the arguments against the implementation of this tax?
• Using evidence from the article, express your view on whether this is a good or bad idea.
• How much of a role should personal responsibility play in the health care debate and what are some other ways in which personal behavior can be altered to reduce excessive demand and expensive procedures?

Your Parents Must Love You!!

In a classic example of marginal thinking, cost/benefit analysis, and opportunity cost data has been recently released revealing a surprising increase in time dedicated to child care during the 1990s. It's interesting for two reasons: first it reversed a trend began in the 1960s of shrinking time parents were dedicating to the rearing of their children and secondly, it occurred in a decade when the value of labor was increasing dramatically. The data seems to indicate that college educated adults were willing to sacrifice their income generating hours at an accelerated pace precisely at the point in which they were most valuable. Click on the link above to access the reason for this lunacy and reflect on the balance of work and parenting during your own childhood.

How Did Economists Get It So Wrong?

America and Its Deficits: Are We Broke Yet?

America and Its Deficits: Are We Broke Yet?

The Alphabet Soup Of Economic Recovery

This article reviews the variety of letters used to symbolize speculation on the type of recovery America has in store.