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?

Online sales

This article in the WSJ discusses the profitability of online sales. It reports that shoppers continue to move to online purchases. It reports that many traditional retailers have lower profitability on online sales than in their stores and that "Primark, the European discount retailer that plans to open eight U.S. stores, has shunned online retailing altogether because it deems it unprofitable". 

Analyze this:
"If the e-commerce business was inherently so much more profitable, pure e-commerce companies would have higher margins," said Simeon Siegel, an analyst with Nomura.

"I don't care if customers buy online or in store," he said. "We're focused on sales."

"Another factor weighing on e-commerce margins is that online sales have a higher degree of variable costs." 

Questions to consider:

1. Do traditional retailers have a competitive advantage in online sales? If not, what is the future of traditional retailers? If so, what is the future of Amazon?

Hospital mergers

This opinion in the WSJ argues that mergers between hospitals create value. 

Summary from James Dearden: "Stand-alone hospitals have too few patients to thrive in the new era of population health management. The opinion piece addresses the three rationales for horizontal mergers: economies of scale or scope, improvements in the quality of service, and increased market power."

Input prices rise in the energy industry

This article from the WSJ reports that "Labor and capital costs have doubled over the last decade" for energy companies. It is a good introduction to supply and demand and derived demand for inputs. It is also a illustration of why the long-run supply in perfect competition might slope upwards.

If the document does not load correctly, do a Google search for the title.

SUMMARY: The energy industry loves to think big and tackle risky projects, but the number of those projects now underway is leading to soaring costs for people, materials and services.

CLASSROOM APPLICATION: Instructors can use the article to demonstrate that an increases in the demands for labor and capital cause short-run increases in wages and rental rates on capital. With increases in oil exploration and production, the demand for labor and capital increases. Therefore, in the short run, wages and rental rates on capital increase, thus increasing the short-run average cost of oil exploration.

QUESTIONS: 
1. (Advanced) What factors are causing the increased demand for labor and capital in the oil and gas industry?

2. (Advanced) What is the effect of the increased demand for labor and capital in the oil industry on the equilibrium wages and rental rates in this industry?

3. (Introductory) How will increased wages in the oil and gas industry affect the number of students majoring in chemical engineering and petroleum engineering?

Open all night

This article from the WSJ is a nice example showing why short-run marginal cost increases with output. It also is a good introduction for a discussion of what the firm considers when choosing its scale and the trade-off between reducing short-run marginal cost and risk.

Costs

Here is a nice video from the Kahn Academy on short-run costs.

Roll with the Flow

This video is cute and a good introduction to political economy. Who doesn't like a video where Hayek is a hero? The video also mentions Keynes and Bastiat. Some topics mentioned are: measurement of economic activity, invisible effects, opportunity cost. and the subjective nature of value. 

Ford's Response to Higher Fuel Mileage Requirements

This article in the WSJ describes how Ford is preparing to meet the new Federal mandates for fuel efficiency. It can be used to stimulate classroom discussion about strategy, costs, production, political economy, and supply and demand.

Apple Cuts Back Orders from Suppliers

This article in the WSJ describes how the slowdown in orders for iPhones is affecting Apple's suppliers. It shows nicely that the demand for inputs are derived from the demand for the final good. It also notes a problem for suppliers selling parts that are customized for Apple.

Detroit Responds to Fuel Mileage Mandates

This article in the WSJ describes what the automobile manufacturers are doing to meet the new Federal mandates for fuel mileage and the possible effects on the market for automobiles. It provides a good case study of cost-benefit analysis, the role of government, and externalities.