Intro econ with experiment
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The document outlines various concepts related to economics, including diminishing returns, production possibilities frontier, and the effects of government roles in the economy. It presents experiments and quizzes to illustrate the impact of labor specialization, spillover benefits, and comparative advantage between countries. Additionally, it discusses the importance of trade and the circular flow of goods and services in economic systems.
Intro econ with experiment
- 1. Micro-quiz #1 Please answer the following question very briefly (3 min.): Imagine you are in charge of digging ditches in the Kingdom of Hardland. According to custom, you cannot acquire more shovels than you already have. > What would you expect to happen to the number of ditches you can dig in a day as you add more and more workers? > The custom changed, and you are now allowed to freely confiscate* as many shovels as you wish. How would this effect your answer above? * Hardland is not a very nice place for independent shovel owners ;-)
- 2. The Diminishing Returns Experiment: How does the number of foldits produced change as the number of workers increases? • Guinea pigs: – Timer (1 person) – Inspector (1 person) – Production teams (1, 2, 3, … persons) • Teams have a minute to discuss organization before starting. • Inspected foldits are counted and recorded. • The process is repeated with one more student. • Stop when output no longer rises with labor. • Repeat the experiment with the addition of one more stapler. Instructions for laborers: You are a production team producing foldits. A foldit is produced by folding a piece of paper in thirds and stapling it. Your goal is to produce as many as possible in one minute.
- 3. The Basics: • Scarcity: – What is scarce in your life? – Can the US produce everything that its citizens want? • The Production Possibilities Frontier (PPF): – Use a production possibilities curve to show the tradeoff that the United States government faces between spending on military goods (guns) and domestic spending programs for citizens (butter). – Which of the following would cause a shift in the production possibilities frontier, and how would it shift? (use the PPF above.) • An increase in the labor force from immigration • An increase in the capital stock • A change from producing more guns to producing more butter • An improvement in weapon technology • More efficient use of wasted resources • A genetically modified cow that produces much more milk
- 4. The Basics: • The Assumptions: – Why do we assume that individuals are rational when we know that people sometimes behave irrationally? – Why do we assume that individuals act in their own self-interest when we know that there are many examples of selfless acts? Or, is it in your own self-interest to sometimes behave altruistically? Why do some people behave less selfishly than others? – Why would it be difficult to draw any conclusions about relationships between variables if all other things were not held constant? (e.g.: Relationship between class attendance and high grades, practice and musical or athletic skills, defense spending and military success, grain production and fertilizer.)
- 5. The Basics: • Diminishing Returns: – What happens when you keep studying for many, many hours in a row? Is this an example of diminishing returns? Why? – Do all production processes have diminishing returns in the short run? – Do any production processes have diminishing returns in the long run? – Is the short run the same amount of time for every production process?
- 6. The Basics: • Spillover Benefits and Costs: – Most of you live in a relatively small area (dormitories) with relatively many people. • What kind of spillover costs do you experience? • Are there also spillover benefits? • Is this also true about living at home? – Why is education often considered to be a good with substantial spillover benefits? – Why has concern with spillover costs increased as world population has increased? – The market system depends on having little spillovers
- 7. The Basics: • The Reality Principle: – If you stuff your savings in your mattress rather than putting them into the bank, • What is happening to the nominal value of your savings? • What is happening to the real value? – If you have student loans, they do not accrue interest while you are still in school. • What is happening to the nominal value of the loan? • What is happening to the real value?
- 8. Micro-quiz #2 Please answer the following question very briefly (3 min.): An economy in which the government plays almost no role is known as a: (a) socialist economy. (b) centrally planned economy. (c) laissez-faire economy. (d) liberal economy (e) None of the above.
- 9. Comparative Advantage and Specialization: • Why don’t we all grow our own food and make our own clothes? • How can a large, rich country like the United States possibly gain from trading from a small, poor country like Guatemala? • My wife can do everything more efficiently than me. Should she do all the household chores? • In the fold-its experiment in the previous chapter, did we see gains from specialization?
- 10. The Circular Flow: • What if workers were not paid by firms? What would happen to the economy? • Could firms exist if there were no households? Could households exist if there were no firms? • In a factor market, who are the buyers? Who are the sellers? • In a goods market, who are the buyers? Who are the sellers?
- 11. The Role of Government: • How do the roles of government affect your day-to-day life? • How would your life be different if there were no government? • What regulation of business practices affects your life? • Will this be different when you get a job?
- 12. The Global Economy: • Where did your clothes come from? • Do you have with you something that is produced in the United States? • If the government imposes a tariff on imports of foreign clothing, who gains? Who loses? Would you gain or lose?
- 13. Specialization & Trade: Baconia and Muffinstan can produce either bacon or muffins. The table below shows the number of each good each country (with all its resources) can produce per hour 1. Does any country have an absolute advantage in any good(s)? How do you know? 2. Does any country have a comparative advantage in any good(s)? How do you know? 3. Explain why both countries could gain from trading. Muffins Bacon Baconia 200 200 Muffinstan 100 50