Last semester in my principles of microeconomics course, one of my teaching assistants (TAs) caught some of our students cheating on problem sets.
I use Mankiw’s Principles of Microeconomics when teaching that course. Because that textbook is widely used, it is perhaps no surprise that the solutions to book problems are (illegally) available online. And because I assign end-of-chapter problems as homework, it is perhaps no surprise that a few unscrupulous enterprising students would use those solutions to prepare their answers to problem sets.
What is more surprising is that some of those students would do so in plain view, in a common area next to the lecture hall where I taught that course. One student even copied the solution manual’s answers verbatim in her homework. Continue reading →
There is nothing more basic than food. Food is the biggest of the essentials of life, our biggest industry, our most frequently indulged pleasure, and perhaps the greatest cause of disease and death. Despite its importance, food is often taken for granted, especially by academics, who have long considered food matters to be too coarse for scholarly attention.
From Warren Belasco’s introduction to his book Food: The Key Concepts, which I will be using as one of the core readings in the food policy course I am teaching next semester. The emphasis is mine. Continue reading →
Given the popularity of my post on the trading game earlier this semester, I thought I should discuss another experiment I run in my principles of microeconomics class to get them to learn the rudiments of economics. This one is even simpler to run–all you need is a deck of cards.
Once again, I didn’t invent anything, as I rely on Charles Holt’s instructions for a market experiment, which you can find here (pages 2 to 5; link opens a .pdf document).
The idea is pretty simple: I split the class into two groups (i.e., buyers and sellers), and I assign each buyer a willingness to pay (WTP) and each seller a willingness to accept money (WTA) for one unit of some imaginary commodity. Those values must be kept secret.
Once students have been assigned to buyers or sellers and have received their valuation for the imaginary commodity, I tell them that they have five minutes to go out there and try to find the best deal for themselves.
For example, if a student is a buyer whose WTP is $5, she should only accept trading offers from sellers whose WTA $5 or less. Indeed, if she meets a seller whose WTA is $6, the minimum acceptable price for that seller exceeds the buyer’s maximum acceptable price, and no trade occurs.
Ideally, a buyer should seek to pay the lowest possible price, and a seller should seek to receive the highest possible price.
For example, if our buyer whose WTP is $5 meets a seller whose WTA is $2, the buyer wants to pay a price that is as low as possible, and the seller wants to receive a price that is as high as possible. Given their individual valuations, however, the only range of price for which a trade is possible is the $2 to $5 range.
Valuations have to be kept secret all along so as to make sure that trading parties do not take advantage of one another. This is like when you buy a house: You don’t start with your highest offer, and you make sure not to reveal your true valuation to the seller to make sure that you pay as little as possible for the house.
What’s in a Price?
Here is the really important part of the experiment, however: As trades occur, the price at which each trade occurs is recorded by the experimenter and announced to the whole class. This is so remaining buyers and sellers know what price is feasible. In other words, to simulate the fact that on most markets, prices are known and serve as a useful signal to market participants.
When I run that experiment, we usually play three to five rounds of the game. For each new round, I assign students to a group different from the one they were previously assigned to, and I give them a new valuation.
If you use a specific valuation structure, it is relatively easy to plot what supply and demand would look like. I use the exact valuation structure found in Holt’s instructions, so my experimental market should look like this:
And lo, we usually hit the $5- to $7-price range as early as the first round!
Once we are done trading, I show students the graph above to show them that one could predict their (aggregate) behavior. This is usually when students truly get how markets operate, and how prices are determined by the interplay between buyers’ WTP and sellers WTA for a commodity.
Next year, I am thinking of tweaking the experiment by making it incentive compatible by giving students one unit of something relatively cheap (e.g., candy) for each unit of surplus they get. Thus, if our buyer whose WTP is $5 meets a seller whose WTA is $2 and they agree on a price of $3, the buyer would get two pieces of candy (WTP – Price = $5 – $3 = $2), and the seller would get one piece of candy (Price – WTA = $3 – $2 = $1).
The following excerpt is from Eugen Weber’s Peasants into Frenchmen (1976), in which the author describes the modernization of France between 1870 and 1914:
“By 1919 even the high mountains had been won over. At Bêne, near Tour-de-Carol, the ruins of an unfinished oven still stood a few years ago where the owner of Esteva’s farm began to build one in that year and left it uncompleted: mute witness to one of the great revolutions of our century. By that time, only 7 or 8 percent of the family budget went for bread, against nearly 40 percent in 1800 and 20 percent in 1850.”
Discuss the above excerpt in light of our discussion of food and nutrition in developing countries. Continue reading →
Refer to the figure above, and consider the unitary agricultural model and the case where the Separation Property (Singh et al., 1986) holds, which we discussed in lecture.
The household produces a quantity of a staple crop, where denotes a household’s labor allocation and denotes its endowment of land, which we assume fixed in this case. The household consumes a quantity of the staple crop. The household also has an endowment of labor time , which it allocates among on-farm labor , leisure , and market labor , though do note that the household can also hire in labor if it needs to, and that hired labor is denoted . The household faces wage and staple price .
Pick one of the following three changes in the household’s economic circumstances:
An increase in the household’s labor endowment, possibly as a result of one of the household’s children attaining adulthood. In other words, the household’s preference structure for consumption and labor remains the same, but the household simply has more labor time,
An increase in the price of the staple paired with a decrease in the prevailing wage, or
The adoption of better soil fertility management practices.
Illustrate the change you choose in a graph, and discuss its consequences for the household. Make sure your answer completely describes what happens to the economic circumstances of the household and provides some intuition (or brief explanations) as to why variables change the way they do as a consequence of the change you pick. Continue reading →