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?