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Boeing plays tough

This article from Reuters is an account of Boeing's reaction when union leaders reject Boeing's offer of a contract that would have eliminated pensions; Boeing announced that it is drawing up a short list of possible locations in which to build the 777x. The article illustrates bargaining and game theory. The short list raises the disagreement outcome for Boeing and reduces the disagreement outcome for the union. The short list also could be viewed as a threat or signal in sequential game.

Tax rates over the last 10 years

This posting is a good description of statistics about the effective average federal tax and transfer payment rates for various income classes since 2001. It would be a good introduction to a discussion on vertical equity. 

A positive review of "modest" increases in the minimum wage

This opinion from the NYT supports Obama's proposal to increase the minimum wage. It states that the evidence shows that the impact of modest increases in the minimum wage is insignificant and describes recent studies that provide a series of possible explanations. 

I wish that the effect was not limited to modest increases in the minimum wage. I wonder if, given the variations in employment driven by technological change, the business cycle, and demographics, statistical tests may not be able to identify the small change in employment that a modest increase in the minimum wage might cause. 

The evidence claiming that the minimum wage reduces employment opportunities suffers flaws as well. Opponents of minimum wage legislation often cite the high rates of unemployment of young people and African-Americans and the increase in these rates relative to our history before minimum wages. Perhaps other factors explain these rates and their increase.

PPACA v. markets

This article in the NYT describes why some professional living in New York will have to pay more under PPACA than they do when left to their own devices and free market exchanges. They have formed associations and purchased health insurance through the associations rather than as individuals. PPACA forces them to enroll as individuals. On the plus side, they will be able to children on their policies longer, face no consequences if they have or develop preexisting conditions, and not worry about how much insurance companies have paid in benefits over their lifetimes.  

The article is a good example of the effects of asymmetric information and a potential solution to it, the ingenuity of individuals and how they respond to incentives, and an unintended consequence of public policy.

Coke's experiment with vertical integration

Here is an article that I use when talking about vertical integration being motivated by a combination of relationship-specific investments and contracting costs. However, maybe the example was not good. Here is an update.

Pricing at Amazon

This article from the WSJ is a good introduction to pricing, the trade-off between volume and margins, and price discrimination on the Internet.

Do stores benefit from having sales on Thanksgiving?

This article from the WSJ describes the recent trend for stores to get a jump on Black Friday by starting sales on Thanksgiving. It is a good introduction to price discrimination, tie in sales, and cannibalization. It is also an example of a prisoner's dilemma that may reduce welfare.. 

SUMMARY: A trip with two shoppers in Albany shows that big chains like Wal-Mart are risking their customers' good will and cannibalizing later sales by pushing their "Black Friday" deals so aggressively into Thursday. "The moves are carefully calculated to help chains get ahead of online competitors that have successfully stolen a march on sales in the past couple of years, as well as outflank brick and mortar rivals in what has become essentially a zero-sum game for sales growth amid the sluggish economy."

CLASSROOM APPLICATION: The article offers an interesting twist on the models typically taught in principles and intermediate microeconomics. The article has elements of dynamic sales, timing in oligopolistic competition, and consumer preferences for purchase timing. The point in the article about cannibalization recognizes that BlackFriday demand is an economic substitute of Thanksgiving Day sales. Hence, if consumers purchase a product on Thanksgiving Day, they do not purchase it on Black Friday. With regard to retailers choosing whether to open on Thanksgiving Day, an interesting issue is whether competition drives them to do so. If consumers prefer not to leave their homes on Thanksgiving Day and retailers are not selling on the day to second-degree price discriminate (by offering a price-time menu), then the oligopolistic competition is driving retailers sell on a day that reduces consumer welfare.

QUESTIONS: 
1. (Introductory) Do consumers prefer to begin their Thanksgiving weekend shopping on Thanksgiving evening? Alternatively, would they prefer to begin the long-weekend shopping on Black Friday morning?

2. (Advanced) What factors pushed some retailers to move their Black Friday sales to Thanksgiving evening? Discuss competition from Internet retailers, competition among brick-and-mortar retailers, and the fact that Christmas is less than four weeks from Thanksgiving.

3. (Advanced) What is second-degree price discrimination? Are Thanksgiving evening and Black Friday early-morning sales a form of second-degree price discrimination in which to get the best prices consumers must fight the crowds and shop at unpleasant times?

Should fast lanes be free?

This article from the WSJ describes the move to impose a charge on drivers to use fast lanes. It is a good introduction to how to use price to address congestion and negative externalizes.

SUMMARY: Rush-hour drivers in congested U.S. cities are increasingly facing a stark choice: stay stuck in traffic or pay to get in the fast lane.

CLASSROOM APPLICATION: Driving on congested highways creates a negative externality; and pricing highway travel according to the amount of congestion improves economic efficiency. Instructors can create a simple scenario of a two-lane highway in which one lane has a fee and the other does not. Using this simple scenario, instructors can make students begin to consider the following issues about fast-lane pricing: the decision about which lane to travel depends in part on opportunity cost of time; sorting by travel time according to opportunity cost of time improves economic efficiency; and the price that maximizes state revenues from fast-lane pricing may not be the efficient price.

QUESTIONS: 
1. (Introductory) Does driving on a congested highway create a negative externality?

2. (Advanced) Suppose that adding a new driver to a fast lane reduces the wellbeing of drivers currently in the lane by $8, while deleting a driver from a substantially congested lane increases the wellbeing of drivers currently in this lane by $10. The greatest utility increase of any of the drivers currently in the congested lane from moving to the fast lane is $3. What is the greatest price a highway administration could charge for fast-lane driving that motivate any driver to shift from the slow lane to the fast lane? If those currently in the fast lane could veto any lane shift, what is the smallest payment they would accept for a shift into their lane? For an efficient lane shift, would those currently in the slow lane need to subsidize a lane shift?

3. (Advanced) Does fast-lane pricing improve economic efficiency? As the slow lane becomes more congested, should the price of the traveling in the fast lane increase?

4. (Introductory) Why are some drivers objecting to fast-lane pricing? Does the introduction of fast-lane pricing harm those who continue to drive in the slow lanes?

The wedding fix

This article describes the wedding industry and points out that it thrives on asymmetric information and price discrimination. Here is a posting on the author's blog with more analysis.

Obama wants to raise the minimum wage

This article describes Obama's support for an increase in the minimum wage to about $10. 

Want evidence that the rule of law promotes economic prosperity?

Compare this list of most corrupt nations with the standards of living there.

Is the typical economics curriculum ideal?

This article and the folks at the Institute for New Economic Thinking say "No" and offer alternatives.