What helps students learn?

Individualized instruction and confidence building: http://qz.com/444250/we-cannot-rely-on-the-internet-to-teach-our-children/.

Education

Decision rights and information flows

The beginning of this article on the NBA draft discusses decision rights and information flows, two of the three pieces in the Rational Actor Paradigm. What are the incentives?

Labels: Rational Actor Paradigm

Why Google spends more to hire and what they buy

This review of a book in the WSJ describes Google's hiring practices. After reading it you may ask How well your employer screens prospective employees. Here are some highlights.

1. "The biggest predictor of whether you'll succeed, Laszlo Bockoutlines in 'Work Rules!,' is how you fare in a sample work test. 
2. "... Google wants generalists. The company prefers 'clever and curious over someone who actually knew what he was doing.' In other words, they want people who will try something new.
3. "Top performers are doing well where they are; odds are they are enjoying it and being suitably rewarded. Google therefore strives to identify those top people—those passive job seekers who aren't thinking about applying to work at Google (or often anywhere else)—and cultivating them, sometimes over years.
4. "... while Google spends more than most on recruiting, it spends far less on training. Top people need less training. 
5. "Recruiters at top companies, who are usually inundated with résumés, often limit where they recruit from and the avenues from which to apply. Mr. Bock says that's a mistake: The right policy is to increase access; just have smarter filters. In Google's case, this involves using an internal tool called qDroid that provides interviewers with pre-formulated questions. Alongside administering the all-important sample work test, Google strongly recommends that its interviewers assess for cognitive ability, conscientiousness (will an applicant see a job through to completion?) and leadership. Notably, Mr. Bock writes that the company today prefers 'to take a bright, hardworking student who graduated from the top of her class at a state school over an average or even above-average Ivy League grad' because Google prioritizes resilience and overcoming hardship."

Game theory in the movie business

The 'Summer' Blockbuster That Debuts in March
by: Ben Fritz
Apr 01, 2015
Click here to view the full article on WSJ.com
TOPICS: Game Theory
SUMMARY: What makes a "summer" movie? As Hollywood churns out more big-budget "tentpoles," a packed calendar from May-to-August means more such films are being released in March and April. The article makes several interesting points about the economics of movie release dates. First, as more movies are crammed into the summer months, studios will push "tentpole" movies into less-popular movie-going times. Second, the exhibition industry prefers to spread releases out more evenly throughout the year than do the movie studios. Third, the summer months are a popular release time in part because kids are off from school and can go to movies during weekdays.
CLASSROOM APPLICATION: Students can examine optimal release dates and the game played by studios in choosing release dates.
QUESTIONS: 
1. (Advanced) Suppose the revenue per movie during the summer months as a function of the number of movies exhibited during these months, x_s, is 200-5*x_s; and the revenue per movie during winter months as a function of the number of movies during these months, x_w, is 100-5*x_w. Two studios, A and B, must decide number of films to release during the summer months, x_sA and x_sB respectively, and number to release during the winter months, x¬_wA and x_wB respectively. Each studio has a total of 20 films to release. In a game in which the studios simultaneously decide release periods, what is the Nash equilibrium number of films released during the summer months?

2. (Advanced) Why are studios packing more movies into the summer months and at the same time releasing more "tentpole" movies in the early spring?

3. (Introductory) Why does the movie exhibition industry prefer to spread releases out more evenly throughout the year than do the studios?

Reviewed By: James Dearden, Lehigh University

Label: Game theory

Is streaming a good way to monetize songs?

The Numbers. Selling Songs for a Song? Scrutinizing the Streaming Model
by: Michael Driscoll
Mar 28, 2015
Click here to view the full article on WSJ.com
TOPICS: Contracts
SUMMARY: The Numbers: Ever since Spotify put a number on the price of one stream of a song, the music industry has debated whether the figure is fair.
CLASSROOM APPLICATION: Students can evaluate the royalties earned by artists from compact disc sales and streaming services. One interesting point in the article is in the comparison of artist royalties from compact disc sales and streaming on a per listen basis. Furthermore, an interesting question is whether streaming services expand the market of listeners who pay for music or whether these services steal customers from the markets for downloads and CD sales.
QUESTIONS: 
1. (Introductory) Use the data in the article to calculate the number of listens (i.e., a break-even point) in which the royalties generated from streaming music equals the royalties generated from compact disc sales.

2. (Advanced) Does music streaming expand the market of paid listeners? Discuss the empirical issue of whether streaming services expand the market of listeners who pay for music or whether these services steal customers from the markets for downloads and CD sales.

3. (Advanced) Explain whether the comparison of the royalties from streaming music and compact disc sales be on a song-to-song basis.

Reviewed By: James Dearden, Lehigh University

Cali's water "crisis"

Jerry Brown recently issued an executive order seeking a mandatory 25 percent reduction in use of water in CA and other restrictions designed to reduce water use in the future. Economists see a simplier and more efficient solution to the "crisis": increase the price of water.

Click here to read a post in the blog by Marginal Revolution.
Click here for an opinion from Bloomberg.

Of course, for this solution to work someone must be able to measure how much water a customer uses. One reason for the crisis is that many areas in California either do not have meters or have installed them only recently. The results are predictable.

"In steamy Sacramento, where half of the homes still don't have water meters, residents use 279 gallons a day per capita -- almost triple the 98 gallons that residents of foggy San Francisco use." Click here to read more.

Soybeans vs. corn

This article in the WSJ shows how farmers are responding to lower prices for corn. The shift from corn to soybeans is an example of exiting one market with sub-normal returns and existing another market where the returns are higher.

Labels: Long-run equilibrium

Is "free" music good business?

This article reports the debate over when the music industry benefits when companies like Spotify offer free subscriptions to people to listen to music.

Labels: Information goods, Pricing

Adidas and strategy

This article reports that the CEO of Adidas announced a three-pronged approach to revamp Adidas.

1. Increase speed to market
2. Focus on 6 cities
3. Give consumers and athletes more input into the design process.

The CEO forecast sales growth near 10% and profit growth of 15% for each year between 2016 and 2020.

Here are some questions to consider.

1. Do the changes comprise an (component of) effective strategy?
2. Does the stock market agree?
3. Are the CEO's forecasts reliable?
4. Does the stock market agree?

Barbie Doll pricing in the printer industry

This article reports the link between cheap printers and expensive ink.

Minimum wage

This opinion reports the effects of recent hikes in minimum wage in the Bay area.

1. Higher prices in restaurants.
2. Restaurants closing.
3. Restaurants eliminating tips.

Minimum wage

This article reviews many academic studies of the impact of minimum wage. The conclusions are:

1. The range of estimates of the effects of the minimum wage on employment is wide.
2. The preponderance of the evidence points to disemployment effects;, i.e., an increase in minimum wage leads to less employment.
3. the evidence for disemployment effects seems especially strong for the least-skilled groups.
4. "We view the literature—when read broadly and critically—as largely solidifying the conventional view that minimum wages reduce employment among low-skilled workers, and as suggesting that the low-wage labor market can be reasonably approximated by the neoclassical competitive model."

Supply and demand at work in the labor market

Here are some additional questions:

1. How does an increase in the demand for restaurant meals affect the extra revenue generated by an additional worker?
2. How would the change in the extra revenue generated affect the demand for workers?
3. How would the change in demand affect the equilibrium wage?

Wages Rise at Restaurants as Labor Market Tightens 
by: Eric Morath and Jeffrey Sparshott
Feb 28, 2015
Click here to view the full article on WSJ.com

TOPICS: Labor Markets

SUMMARY: Wage growth is breaking out in an unexpected corner of the U.S. economy: the nation's restaurants and bars. Food-service employment has surged since the recession ended six years ago.

CLASSROOM APPLICATION: Students can use supply and demand for unskilled workers to evaluate the effect of increased demand on the wages of these workers. The article makes two interesting points for instructors to emphasize. First, skilled workers with restaurant jobs are frequently looking for work in other fields. Hence, the market for skilled workers employed in the restaurant industry could be broader than just the restaurant industry, while the market for unskilled workers employed in the industry could be dominated by the industry. Second, rising pay at restaurants "doesn't necessarily translate into higher wages at call centers or in banking," said Kevin Kliesen, economist at the Federal Reserve Bank of Kansas City. Rising wages for servers, dishwashers and cooks typically are a result of strong demand for labor in other fields, not a leading indicator signaling that pay will grow more broadly.

QUESTIONS: 
1. (Introductory) What factors are driving the increased demand for restaurant meals?

2. (Advanced) What factors are driving the increased wages in the restaurant industry for unskilled workers? What factors are driving the increased wages in the restaurant industry for skilled workers?

3. (Advanced) How do economists determine whether to establishments, possibly in different industries, are in the same labor market for attracting skilled workers? Is the market for skilled labor employed in the restaurant industry broader than the market for unskilled labor employed in restaurant industry?

Reviewed By: James Dearden, Lehigh University

Supply and demand in action in the steel market

Here are some additional questions?

1. How does an increase in the Yen/dollar exchange rate (the dollar is stronger relative to the Yen) affect the dollar price of steel imported from Japan?
2. How does the change in the dollar price of steel imported from Japan affect the US demand for steel produced in the US?
3. How does the change in demand for steel produced in the US affect the equilibrium price of steel produced in the US?
4. How do the changes affect the supply of automobiles produced in the US?

U.S. Steel Prices Tumble in February
by: John W. Miller
Feb 27, 2015
Click here to view the full article on WSJ.com

TOPICS: International Trade

SUMMARY: A stronger dollar helped spur a sharp rise in steel imports, flooding the U.S. market with low-priced products and sending steel prices in the nation in February to their lowest level in nearly 5½ years.

CLASSROOM APPLICATION: Students can evaluate the effect of an increase in the value of the dollar and also the decreased demand for steel from the U.S. oil and gas industry on steel prices in the U.S. They can also evaluate the effect of the decrease in U.S. steel prices on the profits of companies that assemble autos in the U.S. and on U.S. consumers.

QUESTIONS: 
1. (Introductory) What is the effect of an increase in the value of the dollar on U.S. imports of steel?

2. (Advanced) What is the effect of an increase in the value of the dollar on steel prices in the U.S.?

3. (Advanced) What is the effect of the recent events in the market for steel on the profits of U.S. steel companies as well as the profits of U.S. companies that purchase steel?

Reviewed By: James Dearden, Lehigh University

Supply and demand in action in the used car market

The article is a great application of supply and demand.

1. What is happening to the supply of used Leafs? Why?
2. What is happening to the demand for used Leafs? Why?
3. How would these changes affect the equilibrium price of used Leafs?

Resale Prices Tumble on Electric Cars
by: Christina Rogers
Feb 27, 2015
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: With gasoline prices down 33% from a year ago and buyers cooling toward electric vehicles, Nissan dealers worry that weak demand for used electric Leaf cars will put a flood of used models on the market.

CLASSROOM APPLICATION: Students can use supply and demand to examine the effect of lower gasoline prices and federal incentives to purchase new electric vehicles on the demand for new and used plug-in electric vehicles. Instructors can highlight that new and used versions of a vehicle are economic substitutes and that a decrease in the price of one reduces the demand for the other. Another interesting point noted in the article is about the effect of decreased used-car prices on the profits of auto leasing companies. Students can evaluate the relationship between used-car prices and equilibrium lease rates.

QUESTIONS: 
1. (Introductory) What factors are driving the decreased demand for used plug-in electric vehicles?

2. (Advanced) How does the sale price of an automobile coming off a lease affect the profit of the company that leased the car? In turn, how do these resale prices affect lease rates?

3. (Advanced) How does the demand for used plug-in vehicles affect the equilibrium prices of new plug-in vehicles?

Reviewed By: James Dearden, Lehigh University

SAP cuts jobs

This article from Bloomberg reports that SAP is cutting jobs. It describes how the software market is shifting from sales to cloud-based licensing.

Is free education really free?

President Obama recently proposed to make two years of community college free for students. He said, "What I’d like to do is to see the first two years of community college free for everybody who’s willing to work for it."

Here are some questions. 

1. Is the opportunity cost zero for a student going to college if the government pays the tuition?
2. Is the opportunity cost zero for colleges providing the courses if the government pays the tuition?
3. Is the opportunity cost zero of "work[ing] for it"?
4. Is the opportunity cost zero of verifying that a student has a C+ average, that the student is making "steady progress", that "community colleges ... offer academic programs that fully transfer credits to local public four-year colleges and universities or training programs with high graduation rates that lead to in-demand degrees and certificates [and] ... adopt 'promising and evidence-based institutional reforms' to improve student outcomes"?
5. What happens to the quantity of other goods and services produced when colleges and the IRS hire more instructors, staff, and administrators, buy more computers and supplies, and rent or build more buildings to provide additional education and tax services? 
6. Who pays any of the costs above if they are greater than zero?

Pay apps

This article summarizes the 5 different apps on 2 different platforms.

Obamacare

Here is the Skimm's guide to Obamacare.

Keep it simple

This post from BBC outlines the three key ingredients for a successful merger and four ways to organize a company.

Supply and demand in action

The article in Reuters reports that reducing the penalty for adultery affects the market for condoms.

Why don't luxury hotels provide "free" Internet?

The Middle Seat. Pay for Wi-Fi? Only at a Luxury Hotel
by: Scott McCartney
Feb 19, 2015
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 

TOPICS: Pricing

SUMMARY: High-end hotels are fighting hard to be the last place left on Earth where you have to pay for wireless Internet connections.

CLASSROOM APPLICATION: Students can analyze the reason why high-end hotels charge for Wi-Fi connections while lower-end hotels do not. The article draws the analogy between these hotel Wi-Fi charges and airline baggage fees. The related video states, "For the hotels, it lets them advertise a lower rate and then hit you with the upcharge when you get there." The most interesting point in the article for students to analyze: "Wi-Fi has become the most prevalent hotel upcharge, slapped onto bills where business travelers know their companies will pay and affluent leisure travelers are less price sensitive.... They charge at premium properties but not at budget inns because price-sensitive chains have made free Wi-Fi a perk to attract customers, and all want to stay competitive."

QUESTIONS: 
1. (Advanced) What is the relationship between the price elasticity of demand for a hotel and whether it charges for Wi-Fi?

2. (Advanced) Why are businesses willing to pay Wi-Fi upcharges while price-sensitive pleasure travelers are not?

3. (Advanced) What is "add-on pricing"? Is an add-on price posted like a hotel rate is posted? Is Wi-Fi upcharge an example of add-on pricing?

4. (Introductory) Is free Wi-Fi at high-end hotels an effective loyalty inducement?

Supply and demand in action

This post connects lower fuel prices to growth in airline travel.

Price ceiling for Uber?

This post examines the link between surge pricing and the ability to obtain transportation during states of emergency. It could be good way to start a class on the impact of price ceilings.

Supply and Demand in Action

This post describes what happens when lower interest rates increase the demand for housing.

Supply and demand in action

This post describes what happens when consumers shift from buying houses to renting apartments.

CBO's recent analysis of the proposal to increase the minimum wage

The CBO estimates that the impact of raising the minimum wage to $10.10 on employment ranges from a slight decrease to a loss of 1 million jobs. The best estimate is implementation would reduce employment by 500,000 (and increase the unemployment rate by about 0.3%).

"Many more low-wage workers would see an increase in their earnings. ... The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO's estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates."

A reason to ban computers in the classroom?

This post on the Marginal Revolution blog and this report from Boston.com say that students learn better when they take notes by hand than when they take them with a computer. The post has a links to a report on the study by VOX and the original study.

What good are economists?

This opinion says economists have created tremendous value and wealth for the economy.

Mixed strategies at the Big Game

This opinion does a nice job describing mixed strategy equilibrium and suggests that Pete Carrol's decision to pass with 26 seconds to play in the recent Big Game may have been the result of an optimal mixed strategy.

Net neutrality is the new black

FCC to Propose Strong 'Net Neutrality' Rules
by: Gautham Nagesh
Feb 03, 2015
Click here to view the full article on WSJ.com
TOPICS: Internet, Regulation
SUMMARY: FCC Chairman Tom Wheeler wants to expand his agency's authority over broadband providers, regulating them tightly like telecommunications firms and fully embracing the principle known as "net neutrality." Related Article 1: Obama's prod came after a secretive effort led by two aides who built a case to toughen 'net neutrality' rules after meetings with online activists, Web startups and traditional telecom giants. Related Article 2: FCC Chairman Tom Wheeler unveiled a proposal that would subject mobile and fixed broadband providers to stricter, utility-like regulations on how they treat traffic over their networks.
CLASSROOM APPLICATION: Students can evaluate the effect of net neutrality regulation on competition among content providers.
QUESTIONS: 
1. (Advanced) What is 'net neutrality'? What are the rationale for net neutrality? Discuss barriers to the entry of content providers.

2. (Advanced) What is the distinction between retail space owners setting higher rents in the busiest shopping areas and broadband providers charging content providers by the speed in which their content is displayed? Answer the question in the context of barriers to entry of retailers and content providers. Also, consider vertical integration issues in which retail space owners also own retail shops and Internet service providers are content providers as well.

3. (Introductory) Should the federal government regulate the Internet?

Reviewed By: James Dearden, Lehigh University

RELATED ARTICLES: 
FCC Chairman Proposes Utility-Like Regulation for Broadband Internet
by Gautham Nagesh
Feb 04, 2015
Page: A1

How White House Thwarted FCC Chief on Internet Rules
by Gautham Nagesh and Brody Mullins
Feb 04, 2015
Page: A1

Labels: ebusiness

Australia reconsiders its minimum wage

After reading this article students might consider whether low economic growth, high minimum wage, or a combination drives up the unemployment rate?

The Outlook. Australia Weighs Whether Its Minimum Wage Is Too High
by: Rachel Pannett
Jan 27, 2015
Click here to view the full article on WSJ.com
TOPICS: Labor Markets
SUMMARY: The Outlook: Higher minimum-wage supporters in the U.S. often point to Australia as a low-unemployment country with one of the world's highest pay floors. Now, joblessness in Australia is rising, and some are calling for a decadelong slowdown in increases to the minimum wage.
CLASSROOM APPLICATION: Students can evaluate the effect of an increase in a country's minimum wage on the country's employment level.
QUESTIONS: 
1. (Advanced) What is the effect of an increase in a minimum wage on employment levels? Does the answer depend on the price elasticities of demand and supply for labor?

2. (Introductory) What are possible explanations for increases in Australia's minimum wage being contemporaneous with high employment levels in the country?

3. (Advanced) The column notes the relationship between the rate of increase in a country's minimum wage and its inflation rate. Why is it important to compare the increase in a country's minimum wage and its inflation rate?

Reviewed By: James Dearden, Lehigh University

An example of how an increase in cost reduces supply and induces exit

More Beekeepers Sour on Profession as Winter Die-Offs Continue
by: Tennille Tracy
Jan 24, 2015
Click here to view the full article on WSJ.com
TOPICS: Microeconomics
SUMMARY: Increasing numbers of beekeepers are considering early retirement or are being forced out of business as honey bees continue to die at alarming rates.
CLASSROOM APPLICATION: Students can evaluate the effect of declining bee populations on the costs to beekeepers of providing pollination services and honey, the prices of pollination services and honey, and the exit of beekeepers from the industry.
QUESTIONS: 
1. (Advanced) What is the effect of the increased death rates of bees on the cost of providing pollination services? What is the effect of the shift in the cost function on the equilibrium price of pollination services?

2. (Advanced) What is the effect of the increased death rates of bees on the price of food products that rely on pollination?

3. (Introductory) What is the effect of the increased death rates of bees on the profits of beekeepers? What is the effect of the change in profit on exit from the beekeeping industry?

Reviewed By: James Dearden, Lehigh University

A good example of the income effect

Cheaper Heating Oil Fuels Billions in Savings in Northeast
by: Jon Kamp
Jan 16, 2015
Click here to view the full article on WSJ.com
TOPICS: Oil Markets
SUMMARY: On top of the savings Americans are reaping from cheaper gasoline, plummeting oil prices stand to bring residents in the Northeast billions more in savings this winter when they fill up their home heating-oil tanks.
CLASSROOM APPLICATION: The article has three interesting points about economics. First, students can examine the effect on household budgets of decreasing in heating oil prices. Second, they can investigate the decision by households whether to switch heating systems from oil to natural gas or vica versa. Third, the can examine the reason why a decrease in heating oil prices positively affects the profits of regional oil dealers.
QUESTIONS: 
1. (Advanced) For heating oil delivery services, is heating oil itself part of the marginal cost of delivering oil? How does a decrease in the wholesale price of heating oil affect the marginal cost function of heating oil delivery services?

2. (Advanced) How does a decrease in the wholesale price of home heating oil affect the equilibrium retail price? How does the answer depend on the price elasticities of demand and supply? Is the demand for home heating oil perfectly price inelastic? The article hints at the answer to this last question. What is the effect of a decrease in the wholesale price of oil on the equilibrium producer surplus?

3. (Introductory) How do expected oil and natural gas prices affect the decision of homeowners whether to switch heating systems from oil to natural gas or vice versa?

Reviewed By: James Dearden, Lehigh University

--

Edward Millner, Professor

Department of Economics, Virginia Commonwealth University

Snead Hall, B3145

301 West Main Street, Richmond VA, 23284-4000

804.828.1718

I never teach my pupils. I only attempt to provide the conditions in which they can learn.

- Albert Einstein

Another depressing assessment of learning at college

A money quote: "'Colleges are increasing their attention to the social aspects on campus to keep students happy; there is not enough rigorous academic instruction,' he said."

WSJ article

TOPICS: Education
SUMMARY: Four in 10 U.S. college students graduate without the complex reasoning skills to manage white-collar work, according to the results of a test of nearly 32,000 students.
CLASSROOM APPLICATION: If complex reasoning skills is a form of human capital, then instructors can present the improvements in complex reasoning skills during the four years of college as improvements in human capital. One issue for students to investigate is the relationship between improvements in human capital during the college years and the initial position at the beginning of the freshman year.
QUESTIONS: 
1. (Introductory) Why is the ability of managers to reason through complex problems important to businesses?

2. (Advanced) Are students who begin college with poor complex reasoning skills more likely than students who begin college with good complex reasoning skills more likely to improve these skills during their college years?

3. (Advanced) The article notes the possibility of "selection bias" in estimating the scores of college freshmen and seniors. What is selection bias? Why is it important to statistically correct for selection bias when comparing the test scores of freshmen and seniors?

Reviewed By: James Dearden, Lehigh University

Supply and demand in action or price discrimination?

The Middle Seat. Airline Fare Riddle: One Route, Two Prices
by: Scott McCartney
Jan 08, 2015
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 
TOPICS: Price Discrimination, Supply and Demand
SUMMARY: Airlines charge different prices for the same round-trip ticket depending on where you start your trip, a study conducted for The Wall Street Journal shows.
CLASSROOM APPLICATION: Students can evaluate whether airlines setting different prices for the same round-trip ticket depending on the where flyers start their trips is an example of price discrimination. In some cases the price differences is an example of price discrimination: "Some cities have more buyers of last-minute tickets at higher prices, which drives up the average for tickets sold in one direction over another, a Delta spokesman said." In other cases, it is due to limited capacity and increased demand: "A United spokesman said holiday travel periods drive demand directionally, pushing fares higher."
QUESTIONS: 
1. (Advanced) Define third-degree (i.e., multi-market) price discrimination. Consider the case in which flights from New York to London and from London to New York are not full. Suppose the flight from New York to London is more expensive. Is this example of third-degree price discrimination?

2. (Advanced) Define second-degree price discrimination. Business travelers, who have a more price-inelastic demand, sometimes reserve flights at the last minute, while leisure travelers plan ahead. Is the case in which an airline raises the price of a flight as its date approaches an example of second-degree price discrimination?

3. (Introductory) Is the following case about travel between the mainland and Hawaii an example of price discrimination? A United spokesman said holiday travel periods drive demand directionally, pushing fares higher. "There may be fewer deeply discounted seats available on preholiday Hawaii-bound flights because of the increased demand by mainland travelers," he said.

Reviewed By: James Dearden, Lehigh University

Supply and demand in action in the long run

Food 'Accelerators' and the $10 Bag of Pasta
by: Erica E. Phillips
Jan 07, 2015
Click here to view the full article on WSJ.com
TOPICS: Entry into the food industry, Production
SUMMARY: As tastes shift toward specialty foods, more "food startups" are entering the market. Nearly $570 million in venture capital has been invested in such firms over the past five years, a financial database shows.
CLASSROOM APPLICATION: Students can evaluate three issues with regard to the specialty food industry. First, with an increase in demand for locally-sourced, organic food, specialty producers are entering the market. Second, there are entry costs, in particular the costs involved with passing public health inspections. The article reports that Los Angeles County, in particular, is setting appropriate, lower-cost health standards for small food producers. Third, the article notes the construction of a food production center, L.A. Prep, to house as many as 50 businesses. Presumably, the center will provide economies of scale.
QUESTIONS: 
1. (Introductory) What is the effect of the increased demand for locally-sourced, organic food on the prices of this type of food?

2. (Advanced) What is the effect of the increased demand for locally-sourced, organic food on entry into this segment of the food industry? What is the effect of entry into this segment on the prices of locally-sourced, organic food?

3. (Advanced) Will the producers of locally-sourced, organic food remain small?

Reviewed By: James Dearden, Lehigh University

Supply and demand in action

The Numbers. Why Gas Feels Cheap : and Why It's Not, Historically Speaking
by: Jo Craven McGinty
Jan 13, 2015
Click here to view the full article on WSJ.com
TOPICS: Consumption, Oil Markets, Supply and Demand
SUMMARY: The Numbers: Gas prices are now more than a dollar below the 2014 average, a level that is cheap relative to a recent run of record highs but not yet near the 17-year stretch from 1986-2003. The column reports not only on the historical prices of gasoline, but also on consumer responses to lower gasoline prices, the effect of lower prices on the U.S. economy, automobile purchases, and decisions about hydraulic fracturing. Related article: The downturn in energy prices has triggered debate over whether Texas simply got lucky in recent years or whether it hit on an economic playbook that other states could emulate.
CLASSROOM APPLICATION: Students can evaluate the consumer response to lower gas prices. The Numbers column reports that the typical consumer will spend about $600 less per year on gasoline with a $1 per gallon decrease in its price. "Spending less at the pump means having more money for other goods and services." With regard to automobile purchases in particular, consumers response very quickly to changes in gasoline prices in terms of the types of automobiles they purchase. With lower gasoline prices, consumers will rush back to larger, low-mileage vehicles.
QUESTIONS: 
1. (Advanced) What is the effect of a decrease in the price of gasoline on the value of imported goods and services in the U.S.?

2. (Advanced) What is the effect of a decrease in the price of gasoline on the size and fuel efficiency of automobiles purchased?

3. (Introductory) What are the possible effects of the decline in oil prices on the Texas economy?

Reviewed By: James Dearden, Lehigh University

A great example of derived demand

Good Times Run Out for Sand Producers
by: Dan Molinski
Jan 02, 2015
Click here to view the full article on WSJ.com
TOPICS: Oil Markets, Production, Supply and Demand
SUMMARY: Sand producers have enjoyed strong demand thanks to hydraulic fracturing, but analysts say not all of them are ready for the downturn that will come with the plunge in crude-oil prices. Related article: U.S. Steel said it will idle plants in Ohio and Texas and lay off 756 workers, becoming one of the first big U.S. industrial casualties of the recent collapse in global oil prices.
CLASSROOM APPLICATION: The article offers a case of a derived demand for an input into a production process. Students can use supply and demand for sand to evaluate the effect of a decrease in oil prices on the demand for sand. Students can also evaluate the labor and extraction rate decisions made by sand mining companies.
QUESTIONS: 
1. (Advanced) What is "derived demand"? Is the demand for sand derived from the demand for oil?

2. (Introductory) What is the effect of a decline on hydraulic fracturing on the equilibrium price of sand?

3. (Advanced) How are sand-mining companies responding to an anticipated decline in hydraulic fracturing?

Reviewed By: James Dearden, Lehigh University

Would community college be "free" under Obama's proposal

President Obama's recently proposed to make two years of community college free for students. He said, "What I'd like to do is to see the first two years of community college free for everybody who's willing to work for it."

1. Is the opportunity cost zero for a student going to college if the government pays the tuition?


2. Is the oppoirtunity cost for colleges providing the courses zero if the government pays the tuition?


3. Is the opportunity cost of "work[ing] for it" zero?


4. Is the opportunity cost of verifying that a student has a C+ average, that the student is making "steady progress", that "community colleges ... offer academic programs that fully transfer credits to local public four-year colleges and universities or training programs with high graduation rates that lead to in-demand degrees and certificates [and] ... adopt 'promising and evidence-based institutional reforms' to improve student outcomes' zero?


5. Who pays any of the costs above if they are greater than zero?