ECON 2106 -- Fall '08 Readings

Economics 2106 (Trandel) -- Fall 2008 Readings

The table below shows the "outside" readings for Trandel's ECON 2106 class.

Some of the readings are found through direct links.

To get to the articles that are labeled as "GIL", students have to go through the course-reserves system on the UGA Libraries web page. To access these readings:
* open up a new browser window,
* go to the UGA Libraries main page,
* under "Resources", click on "Course Reserves",
* click on "Search Course Reserves" in GIL, and
* select "Trandel" under Instructor.
* When the list of reading titles appears, click on the desired reading, and
* click on "Full Text Online".
* At this point, a password box will pop up. Type in the password that was given out in class.

If you don't have the password, you can access the readings in another (more time-consuming way). Those of you using an on-campus computer can use the UGA libraries page, click on GALILEO, and conduct a search of a "news" database using the title, author, and date given for each article. New York Times and Atlanta Journal-Constitution articles can be found through the Lexis-Nexis Academic database while Wall Street Journal articles can be found through the Factiva database. From a non-UGA computer you can do the same thing, as long as you have the appropriate password for off-campus access.

Find It	Citation	Economic Concepts	Comments
Exam I Readings
direct link (html)	"If God Were an Accountant ...: Whose Life Is Worth More, A Drug Dealer or a Prostitute" by Tim Harford. Slate. April 28, 2007.	limited resources, trade offs	In a world with limited resources, regulatory policies that "save lives" also have a cost -- they use resources that could instead be devoted to satisfying other wants and desires (including other types of life-saving regulations). To make intelligent safety/regulatory decisions, therefore, a society must somehow compare various alternatives. While some people might claim that a life is "priceless", that can't really be true -- we aren't willing to pay the cost needed to (for example) reinforce cars to such an extent that nobody ever dies in an auto accident. Saving a life must thus have a monetary "value" (less than infinity) that can be compared to the cost of a regulation. This article briefly discusses the idea of using people's own actions and decisions to assign a monetary value to a life (or to one additional year of life). The article also points out that once we have estimated the value of life, we can estimate the gain produced by improvements over time in life span.
direct link (html)	"Where the Buses Run on Time" by Austan Goolsbee. Slate. March 16, 2006.	incentives	Differences in incentives -- in this case in how bus drivers in Chile are paid -- influence the behavior of those drivers. In this particular case, the form of pay that is based more closely on "productivity" produces generally favorable results (although there are a couple negative side effects). As the author notes, perhaps more employment contracts should be written in ways that provide inentives for desirable behavior.
direct link (html)	"The Fruits of Their Labors" by Tim Harford. Slate. August 23, 2008.	incentives	This piece also looks how people's behavior responds to differences in how they are paid. In this case, "experiments" were conducted by using differing pay systems -- for both workers and managers -- at a fruit farm in Great Britian. The pay schemes originally used tended to encourage certain non-productive behaviors. Implementing new payment methods led to substantial increases in worker productivity. The results also indicated that the ability to increase their earnings motivated people to assign tasks, and to group themselves together, in ways that differed from what would have existed in the absense of a financial incentive.
direct link (html)	"Economic Scene: The Rapidly Changing Signs at the Gas Station Show Markets at Work" by Hal R. Varian. New York Times, August 24, 2006.	opportunity cost (and topics we'll cover later)	The first half of this column presents an argument that is entirely based on opportunity cost reasoning (although the author doesn't actually use the term). To see this, think about the author's description of the choice to be made by a gasoline-storage-tank owner. [Some of the other issues addressed in the column -- the role of price in allocating gasoline and the role of speculators -- are related to supply-and-demand issues we'll cover later in the semester.]
direct link (html)	"Economic Scene: When it comes to books, Internet selling has not led to uniformly low prices", by Virginia Postrel. New York Times, September 11, 2003.	demand, elasticity	This piece is a little dated, but I still like it because of the way it explicitly gives the figures needed to compute (both price and cross-price) elasticities. [The author also explains a bit about how such numbers were computed.] Specifically, this column looks at how the sales made by various on-line booksellers responded to price changes. One point worth noting is the author's comment on the link between how consumers respond to a price rise and how that price rise affects total spending (or revenue). [Sounds like class, right?] Here are a few additional issues. How was Amazon able to make their customers more "loyal"? Does it sound like Amazon would be able to maintain that customer loyalty, and how would doing so affect Amazon's profitablity? Finally, is it likely that other Web-based book sellers would ever be especially profitable?
Exam II Readings
direct link (html)	"Why People Believe Weird Things About Money" by Michael Shermer. January, 2008.	behavioral economics	This article describes some of the factors that seem to systematically affect human decision making, and make those decisions less "rational" than they might be. In particular, people are influenced by factors such as aversion to losses, regret, framing, and norms of fairness. Those who design policy programs, for example, will find it important to understand such motivations, and the field of economics has increasingly emphasized this sort of analysis. [Of all the material written on behaviorial economicsm, one of the reasons I particularly like this short piece is that it also describes situations in which standard economic theory does successfully describe behaviors -- certain animal behaviors as as well human actions. In particular, note how some researchers have investigated the preferences of capuchin monkeys. One could probably draw a monkey's indifference curves, right?]
direct link (pdf)	"Helping Americans Save -- Testimony of Richard H. Thaler" by Richard H. Thaler Testimony before the Joint Economic Committee of the U.S. Senate and U.S. House March 10, 2004.	behavioral economics	This piece provides more information about a plan -- which I briefly described in class -- designed to lead to increased rates of savings. The plan's designers, taking account of how people seem to make actual decisions, created a method that made it "easier" for people to save. To what extent did the savings decisions of workers who participated in the plan differ (over the long run) from those of their co-workers?
direct link (htm)	Pecan Production and Prices	supply and demand analysis	Supply movements -- caused by weather conditions -- affect market prices.
GIL	"Kicking the Cans -- Plymouth, Mass., Wreestles With 'Pay-As-You-Throw' Trash Fees by Robert Tomsho. Wall Street Journal, July 29, 2008.	willingness to pay, economic efficiency	Providing just about any good or service (in this case, garabge collection) creates costs. Historically, many cities have paid for garbage collection in a way that didn't make homeowners explicitly pay for the amount of the service they used. As a result, people didn't make decisions by comparing their willingness to pay for the item (their value for the good or service) against what it cost to provide the good or service. Such behavior means that (at least some) consumer actions will not be economically efficient. This article describes attempts to make people pay for garbage pick-up in a way that depends on how much trash they leave out for collection. Creating such a pricing system leads people to compare value and price. After making this comparison, people might decide to throw out less garbage. One way they could do so is by recycling more items. Unfortuantely, there's another way to reduce the amount of garbage left out for official pick up, and that alternate method is clearly a bad thing for the community. Even though instituting an explicit trash price has the potential to result in more economically efficient choices, some people oppose the system.
direct link	"Venezuela Scrambles for food despite oil boom" by Rory Carroll. The Guardian (UK) November 14, 2007.	government interventions (price ceilings) in the market	This is just a short note that describes some of the effects of the price ceilings imposed in Venezuela -- in spite of the fact that many residents of the country have more money to spend than ever, there are shortages of basic foods.
GIL	"Subsidies Keep Airlines Flying to Small Towns", by Jeff Bailey. The New York Times, October 6, 2006.	inefficient market interventions & government behavior (later)	This article provides an example of a government subsidy program (the Essential Air Service program) that increases the quantity produced of a good -- airplane travel out of various small airports -- above the amount that pure market forces would have created. Is there any serious economic justification for most of the subsidies provided? It certainly seems that the program reduces economic efficiency. [So, why does the program exist? Probably because of the incentives felt by those who serve in government. We'll consider those incentives later in the semester.] By the way, the Athens airport is measured as being 72 miles from Hartsfield-Jackson (read the article to see why that number matters); the subsidy paid to the air carrier that provides service in Athens has just been increased to $1,032,982 per year.
direct link (pdf)	"Paying the Price: How US farm policies hurt West African cotton farmers -- and how subsidy reform could help". Oxfam America, 2007.	government interventions (subsidies) in the market	The basic point was covered in class: the U.S. government subsidizes cotton production, the sale of that resulting cotton results in world prices that are lower than would otherwise be the case. Cotton growers in other countries are hurt. How big is this impact? Read the piece.
GIL	"Solution, or Mess? A Milk Jug for a Green Earth", by Stephanie Rosenbloom. New York Times, June 30, 2008.	firm costs	When presented in a Principles of Economics class, cost curves (I'll admit) don't seem like the most fascinating topic. Nonetheless, reductions over time in costs of production -- put another way, increases over time in productivity -- are very important to improvements in economic living standards. This newspaper story describes a recent innovation that has the potential to lower selling costs (but also has a couple (maybe temporary?) disadvantages). Note that the described situation is one in which a reduction in a seller's cost creates environmental benefits. [Later in the semester, we'll consider cases in which private gain and social benefit don't correspond.]
Exam III Readings
direct link (for now)	"Looking for Gold in Them Thar Trees -- Investors Rush Into Almonds, But Will They Stick Around as Prices Slip, Costs Rise?", by Malia Wollan. Wall Street Journal, September 6, 2007.	supply and demand shifts, entry	This article describes changes in the market for almonds (which are largely grown in California). As the article explains, there had been an increase in demand for almonds; this rise is mostly to a change in consumer preferences that was helped along by a marketing campaign. At the same time, there was a change in the number of acres devoted to almond production. [The desire of more people to grow almonds increased the demand for suitable land, and the prices of that land rose rapidly.] At the time the article was written, how have these various changes affected the market price of almonds? What might happen to the price in the future?
direct link (for now)	"As Housing Market Cools, Far Fewer Become Agents", by Katie Hafner. New York Times, September 7, 2007.	entry, exit, economic profits	According to economic theory, sellers won't be able to earn long-lasting profits in markets that can be easily enterred by new sellers/producers. The standard explanation for why profits will disappear over time is that entry causes prices to fall. This article reports on changes affecting residential real-estate agents. The "price" (the "commission") such realtors receive for their services has -- for reasons that we don't have to specify -- stayed fairly constant at 6% of the house's selling price. Given this fixed percentage, and given the large increases in new home prices that had been seen in many parts of the U.S., one might think that the average realtor in areas that had rapidly rising home prices would have experienced rapidly growing revenue. In most cases, this expectation would not be correct. The reason why most realtors haven't gotten rich is that real-estate sales is a market into which people can enter fairly easily. As a result, areas with hot real estate markets had so many agents that the average enterring realtor sold a very small number of houses. To use our economic jargon to ask a question based on the article: during the good years in the real-estate market, was the "marginal" entrant into the real-estate-agent business able to earn a positive economic profit? Now that real-estate markets have cooled off in many locations, is the entry into the realtor industry continuing? If not, what is happening? Is this consistent with basic economic reasoning?
direct link (for now)	"Do You Need a License to Earn a Living? You Might Be Surprised at the Answer", by Alan Krueger. New York Times, March 2, 2006.	importance of entry (or its absence)	We have emphasized that entry into a market tends, over time, to eliminate positive economic profits. Given this, occupational regulations that inhibit entry to a profession may allow the sellers of a good or service to hold onto positive profits longer than they could otherwise. Those restrictions on entry may be justified for other reasons (like public safety), but it seems likely that maintaining profits is at least part of the reason why existing sellers support the rules.
direct link (for now)	"Running Out of Planet to Exploit" by Paul Krugman. New York Times, April 21, 2008.	long-run supply curves	First off: this is an opinion column, and by asking you to read I'm not necessarily endorsing the author's conclusions. That said, the point I want to make is that the "three competing views" that Prof. Krugman discusses can be interpreted -- in the terminology of microeconomics -- as differing opinions about the steepness of the long-run supply curve of various goods. In other words, when there's a lasting increase in demand, can we expect that the market prices of food, oil, etc. will eventually fall back to approximately their old levels, or will market prices stay (even in the long run) considerably higher than they were. We'll eventually learn which alternative is more accurate. Note: the recent steep drop in the price of oil and other commodities doesn't really tell us anything about the shape of the future long-run supply curve. What's mostly happening now is the the world-wide economic slowdown is reducing current (and expected) demand for oil, and short-run market prices have fallen as a result. Btw, while I don't endorse every argument in the following, here's a more recent (and more lengthy) article about the current state of the oil market.
direct link (for now)	"Rubbermaid Wants to Be Less of a Commodity" by Stephanie Chen. Wall Street Journal, July 16, 2008.	product differentiation	As we've noted in class, being a seller in a perfectly-competitive market is not a lot of fun -- if all sellers have essentially equal costs, sellers will not be able to earn long-run profits. A more hopeful strategy for sellers is to differentiate their product -- to sell items that differ from those made by other producers. This article reports on the Rubbermaid company announcing differing plans for products like "outdoor trash cans and certain inexpensive storage bins" (products for which " 'the consumer's willingness to pay for innovation is low' ") as opposed to "more-innovative products" like "containers ... with vented lids to keep food fresher ...". In which market do you think Rubbermaid sees the potential to earn economic profits (in other words, in which market do they want to operate)?
Readings for the Final
direct link (for now)	"To Prove You're Serious, Burn Some Bridges", by David Leonhardt. New York Times, October 17, 2005.	game theory	The 2005 Nobel Memorial Prize for Economics was awarded to two academic specialists in game theory. One did technical, mathematical work. The other -- Thomas Schelling -- used (and developed) various game-theoretic concepts in order to address everyday (and easily-understood) issues. This column explains some of his insights. You'll note that some of the points described match up with concepts we covered in class.
GIL or direct link (pdf)	"One Answer to Global Warming: A New Tax", by N. Gregory Mankiw. New York Times, September 16, 2007.	externality policies	This is an opinion piece (rather than a news article) that calis for a tax (what economists traditionally call a "Pigouvian tax") on such externality-creating activities as driving or using electricity produced by burning fossil fuel. Imposing such a tax on uses of carbon-based fuel would alter consumer and firm behavior "in a multitude of ways". Note the reasons why Prof. Mankiw argues that a carbon tax is superior to both requirements to increase automobile-fuel efficiency or to establish a cap-and-trade (or "pollution permit") system. Prof. Mankiw also considers how a carbon-tax system might work internationally. One reason why this essay is a particularly interesting one is that it's written by a economist who previously headed President George W. Bush's Council of Economic Advisers. So -- this is an economist who isn't exactly a left-winger calling for a particular tax to be increased. Note, however, what Prof. Mankiw suggests that the government should do with its carbon-tax revenue collections.

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