1. Opportunity Costs
1.1
A Matter of OpportunitiesThe lack of alternative opportunities reduces the cost or enhances the attraction of a given action. On the other hand, the abundance of alternative opportunities increases the cost or reduces the attraction of a given action.
1.2
Opportunities PayJob security of American workers whose opportunity costs are higher but whose labor productivity is no higher than foreign workers will be increasingly threatened by foreign competition.
1.3
The Case for SweatshopsSweatshops in low wage countries supplying goods to American companies may offer better paying jobs than other local firms.
1.4
Why Do Immigrants Own Inner-City Stores?Inner city stores attract immigrant owners who are risk takers and have lower opportunity costs of alternative employment.
1.5
Windfall ProfitUnexpected market gain resulting from uncontrolled circumstances might serve as incentives to correctly allocate scarce resources.
1.6
Identifying comparative advantageHow to plot production possibilities curve (frontier) and identify comparative advantage in a two-persons two-goods economy.
1.7
Generating combined production possibility curveExplain comparative advantage and derive a combined production possibility curve (frontier) from two linear PPCs using Flash animation.
1.8
Higher output under partial specializationPartial specialization based on comparative advantage leads to higher total output.
2. What Price Means and Does
2.1
Price Signals as Guides for Resource AllocationHigh prices for scarce resources ensure that these resources will be used for only high-valued purposes.
2.2
Supply and demandNarrated lecture on supply and demand curves and price determination under free market.
2.3
Demand elasticity and total revenueA linear downward-sloping demand curve has a range of demand elasticities and an inverted U-shaped total revenue curve under single pricing.
2.4
Happy Hogging!Price hikes in anticipation of shortages can lead to re-allocation of scarce resources to higher-valued uses.
2.5
Is a Fine a Price?A fine which normally connotes shame can be confused with a price which connotes right if a fine is not properly implemented.
2.6
Should parking be free?Narrated lecture comparing total benefits under free vs paid parking when parking spaces are scarce.
2.7
Excess Demand Blues - Scalpers profit from ticket shortageExcess demand generated by low concert ticket price created profitable opportunity for scalpers.
2.8
Rent CeilingRent control in Boston, MA has led to most apartments charging rent right up to the price ceiling. The effective rent is actually higher if under-the-table payments are included.
2.9
Sugar DaddyUS subsidies to domestic sugar cane and sugar beet growers have resulted in huge collateral damage to domestic industries and overseas producers.
2.10
Underground SinsHigh sales tax on cigarettes inadvertently encouraged underage smoking and reduced tax revenues.
3. Types of Goods
3.1
There Are no Widgets - Types of GoodsThe law of supply and demand applies differently depending on the exact types of goods.
3.2
Rivalry and Excludability in GoodsGoods can be classified by their consumption rivalry and ability to exclude non-payers.
3.3
Private goods vs. public goodsNarrated lecture on the difference between private goods and public goods. Demand schedules for private goods and public goods are generated using Flash animation.
3.4
Drinking ExperienceStarbucks commands premium prices for its lifestyle coffee because of its status cachet.
3.5
Streaming RevenuesMany companies earn more revenues from selling replacement parts than selling the complementary products.
3.6
Systems Competition and Network EffectsA dominant network based on a near universal standard can internalize a great deal of system externality to the benefits of network users and can persist even in the face of technically superior competing networks.
3.7
Tuned outThe popularity of iPods locks in customer loyalty to the closed iPod-iTunes portable music playing system.
3.8
Roemer's Law of DemandSupply may induce its own demand where a third party practically guarantees reimbursement of usage.
3.9
Complements and SubstitutesComplements and substitutes illustrate the difference between changes in quantity demanded vs changes in demand.
3.10
More Money, More OptionsFast food are inferior goods that are used more when income is low. "Sit down" restaurant meals are normal goods that are consumed more when income is high.
3.11
Rent CeilingRent control in Boston, MA has led to most apartments charging rent right up to the price ceiling. The effective rent is actually higher if under-the-table payments are included.
4. Production Costs
4.1
A Matter of CostsThe rate at which variable cost changes in the short run is related to the nature of the fixed cost.
4.2
The Law of Diminishing ReturnsThe law of diminishing returns can be represented by a S-shaped production curve in the short run.
4.3
Cost curves under increasing and diminishing returnsUnder increasing returns, high fixed cost and low variable cost lead to persistently declining average total cost. The market can accommodate only one firm. Under decreasing returns, low fixed cost and rapidly rising variable cost lead to U-shaped average total cost. The market can accommodate many firms.
4.4
From production function to cost functionDerive the total variable cost from the total product curve using Flash animation.
4.10
From AFC and AVC to TCAverage total cost can be derived from adding AFC and AVC together or directly from total cost.
4.11
Labor on CallFlexible work scheduling to match customer traffic is one effective way to transform labor from a fixed cost into a variable cost in the retail business.
4.12
Untangling Marginal vs Average ValueWhen average value is falling, marginal value is below it. And when average value is rising, marginal value is above it.
5. Single-pricing Searchers
5.1
Maximization and Optimization at the MarginOptimizing at the margin can bring about static economic efficiency.
5.2
Price Searchers, Price Discriminators, and Price TakersThe uniqueness of products affects the pricing power of sellers.
5.3
Generating TR and MR for single-pricing searcherTotal revenue and marginal revenue can be derived from linear demand curve under single pricing for the price searcher.
5.4
Profit maximization for single-pricing searcherCompare profit-maximizing conditions using total revenue and total cost curves with those using marginal revenue and marginal cost curves for single-pricing searchers.
5.5
Measure Profit with P and ATC Positive Profit for Single-pricing SearcherMeasure profit with P and ATC - positive profit for price searcher.
5.6
Profit and Output when P = MC for Single-pricing SearcherWhen P = MC under single pricing, profit and output will be lower than when MR = MC.
5.7
Measure Profit with P and ATC No Profit for Single-pricing SearcherMeasure profit with P and ATC No profit for single-pricing searcher.
5.8
Fund Raising at the MarginThe MR = MC profit maximization rule could be applied to fund raising.
6. Price discriminators
6.1
Total revenue under single pricing vs price discriminationGenerate total revenue curves under single pricing vs perfect price discrimination.
6.2
Marginal revenue under single pricing vs price discriminationGenerate and compare marginal revenue under single pricing vs perfect price discrimination.
6.3
Profit maximization under single pricing vs price discriminationOutput is higher and profit is higher under perfect price discrimination vs single pricing.
6.4
Surplus under Single-pricing vs Price DiscriminationComparing economic surplus under single pricing vs price discrimination.
6.5
Profit maximization under high fixed cost single pricing vs price discriminationHigh fixed cost might not be profitable for single pricing and yet be profitable under price discrimination.
6.6
Flexible PricingThe Internet has made it possible to replace fixed pricing with flexible pricing based on changing supply and demand conditions. Spot pricing will lead to a more efficient market with winners and losers.
7. Price takers
7.1
Total revenue and total cost of the price takerTotal revenue and total cost of the price taker when the firm's demand curve is horizontal.
7.2
Profit maximization for the price takerGenerate marginal revenue curve (MR) from total revenue curve (TR) and marginal cost curve (MC) from total variable cost (TVC) and locate maximum profit output with MR and MC using Flash animation.
7.3
Short-run supply curve for price takerShort-run supply curve for the price taker is its marginal cost curve above the shut-down point.
7.4
Firm vs industry output under free entryExcessive entry under perfect competition reduces firm profit and firm output.
7.5
Noodle Price-hike ConspiracyPrice hike is difficult to sustain in commodity business with many competitors.
8. Market Structure and Pricing Strategy
8.1
Market structure taxonomyMarket structure depends on the uniqueness of the products, barrier to entry, and scale economy. Specifically, the more unique the product, the higher the entry barrier, and the larger the scale economy is, the greater the pricing power.
8.2
Pricing and economic surplusPricing affects how economic surplus is distributed between consumers and producers and thus the incentive and resources to come up with innovative products.
8.3
How Much Is Anything Worth?Price must cover cost for business survival but its level above cost varies with the product life cycle.
8.4
Flexible PricingThe Internet has made it possible to replace fixed pricing with flexible pricing based on changing supply and demand conditions. Spot pricing will lead to a more efficient market with winners and losers.
8.5
Captive CustomersPrison inmates must pay much higher fees for using pay phones installed by exclusive phone carriers chosen by the state.
8.6
Capping the SkyDeath-postponing cancer drugs command high prices because of the third-party payment health insurance system.
8.7
Noodle Price-hike ConspiracyPrice hike is difficult to sustain in commodity business with many competitors.
8.8
Virtual ScalpingSports teams and other entertainment promoters use online secondary ticket auction market to compete with scalpers while sticking to uniform pricing for the primary market.
9. Market Structure and Competitive Strategy
9.1
Competitive StrategyStatic efficiency in mature products may be good for consumers in the short run, but dynamic efficiency in innovative products is what drives the economy and elevates consumer welfare in the long run.
9.2
From Brands to Generics - No Monopoly, No CompetitionBy providing incentives for brand-name drug companies to fund expensive R&D, temporary patents for expensive blockbuster drugs inadvertently lead to cheaper generic rivals when the patents expire.
9.3
Battles of StandardsWinners in the battle among proprietary standards can keep out competitors and lock in existing customers
9.4
Systems Competition and Network EffectsA dominant network based on a near universal standard can internalize a great deal of system externality to the benefits of network users and can persist even in the face of technically superior competing networks.
9.5
Extreme Image MakeoverThe successful emergence of once-slighted digital cameras has reshuffled the cast of major players in the photography business.
9.6
Beating the Pirates to the Punch BowlThe low marginal cost of reproducing DVD movies has made it difficult to stamp out the bootleg DVD business in China.
9.7
Bottom FishingRecession and bear stock market provide an environment for the fittest firms to expand and consolidate at the expense of weaker competitors.
9.8
Loss-leader EconomyLoss leaders might conceal punishing fee traps for the unwary myopic consumers.
9.9
Niche CompetitionMass customization using e-commerce and digital production technology has brought uniquely different products to suit individual tastes and a new component (niche competition) to the conventional textbook market structure.
9.10
Shadow BrandingStore brands gain competitive advantage by free-riding on name brands brand recognition and R & D.
9.11
Tuned outThe popularity of iPods locks in customer loyalty to the closed iPod-iTunes portable music playing system.
10. Property Rights and Externality
10.1
Property Rights and ExternalityTransferable and enforceable property rights encourage investment and high-valued uses.
10.2
Spillovers Are Not Always ExternalitiesExternal costs or benefits exist only if property right has not been clearly defined and/or when the negotiation or enforcement cost exceeds damage.
10.3
External cost and external benefitThe existence of external cost and external benefit leads to misallocation of resources.
10.4
Tragedy of the commonsNarrated lecture on over-exploitation of commons resources due to unlimited entry.
10.5
Licensing TextbooksUnbundling the intellectual content from the physical embodiment of textbooks might lower the prices of textbooks.
10.6
Fished Out!By assigning fishing quotas to individual fisherman, Iceland has solved the problem of over-exploitation typically associated with open access to common-pool resources.
10.7
Making Animal Conservation PayPeople will conserve wildlife if they have a financial stake in it.
10.8
Owners, Keepers?Stronger property rights may reduce overexploitation of natural resources that require little upfront capital investment, but may lead to faster exploitation of resources that require substantial upfront capital investment.
10.9
Patently DeadlyGranting patents to biotechnology discoveries encourages inventions but could delay the introduction of competing products.
10.10
Right Makes MightThe right to transfer private property has led to windfall gain to right owners and better allocation of scarce resources, such as water and power.
11. Market Intervention and Regulation
11.1
Market Intervention and RegulationMarket regulation may be justified under some circumstances to increase economic efficiency.
11.2
Licensed to Kill?One-size-fits-all occupational licensing often makes entry difficult for the less educated and basic services too expensive for low-income consumers.
11.3
Too Much Vitamin C?Legacy habit of central planning has led to antitrust charges against Chinese vitamin C oligopoly.
11.4
What Makes Rights?Temporary property rights created out of sympathy or a preference for insiders over outsiders might become politically entrenched.
11.5
Strange Bedfellows!Government regulation might protect the tobacco industry from ruinous lawsuits.
11.6
Regulation vs price discrimination under natural monopolyEven if ATC is entirely above the demand curve where not even a single-pricing monopoly would want to produce, price discrimination could still ensure profit for the natural monopoly without any government regulation.
11.7
Blocked ExitInefficient firms in mature industries often are preserved for political reasons long after they should have exited the market.
11.8
Byrding for ProfitU. S. shrimpers use anti-dumping protection to resist competitive pressure from more efficient Asian shrimp farmers and to gain defacto subsidy.
11.9
Milked to OrderMilk price support has discouraged vertical integration in the milk industry that might have led to cheaper milk for and lower tax on milk consumers.
11.10
The Trustbusters' New ToolsEconometric analysis of store checkout scanners' data can directly predict whether a proposed merger will raise prices.
11.11
Yellow Cabs, Red TapeTransferable fixed-supply permanent taxi licenses result in high taxi fare and poor service with only normal return to current license owners.
12. Income Distribution
12.1
Income DistributionIn the U. S., the top income group has been gaining relative to the rest of the population due to globalization, but the belief in upward mobility is still strong.
12.2
Glamour vs HardshipMost glamorous jobs have high average income but low median income while most bread-and-butter jobs have median income that is very close to the average income.
12.3
The Economics of SuperstarsJoint consumption technology combined with imperfect substitution of consumer preferences can lead to outsized rewards to a few superstars in mass entertainment businesses.
12.5
Global Labor MarketLabor is increasingly globally sourced due to aging populations and lagging labor productivity in developed countries.
12.6
The Truncated Job LadderThe job ladder that has been truncated from the bottom and from the top means longer formal education to get to the bottom of the ladder and more limited promotion prospects once on the ladder.
12.7
Choose Your Parents CarefullyMarital sorting can increase wage inequality and lead to lower economic growth over generations by concentrating the life-chance advantage of better educated people.
12.8
Legacy CurseThe legacy of high union wages and benefits progressive measures has become part of a vicious circle of market-share erosion for old-time U.S. car makers.
12.9
The Insecurity of Job SecurityLife-time job security with generous fringe benefits have increased youth unemployment by discouraging French employers to hire new workers and encouraging them to substitute capital for labor.
12.10
The Seduction of Cheap LaborCheap immigrant labor has kept labor-intensive lettuce farming in America that should perhaps have been offshored or mechanized.
12.11
The Truncated Job LadderThe job ladder that has been truncated from the bottom and from the top means longer formal education to get to the bottom of the ladder and more limited promotion prospects once on the ladder.
13. Information
13.2
Choice ParalysisToo many choices might lead to decision paralysis due to information overload.
13.3
Crystal BallBetter information on risky events may lead to market failure due to adverse selection.
13.4
Lemon LaunderingPoorly informed consumers usually end up getting stuck with lemon products which are passed around to avoid capital loss.
13.5
May the Best Brand Win!Because well-known brands can signal quality and integrity amid consumer ignorance, brands could stabilize market share and enhance brand-owners' ability to charge premium prices.
13.6
Yes, Boss.The prevalence of yes persons is due to the difficulty of objectively assessing the contribution of white-collar work and the bosses human desire to hear confirming information.
14. Games people play
14.1
Games Are Serious and UbiquitousIn game-theoretic situations, organization and coordination are needed to ensure the compatibility of individual and group interests.
14.3
Fat NationThrough innocent pursuit of self-interests, Americans have grown fat with the food industry.
14.4
Tipping the ScalesTipping for service is a social custom that traps everybody into a collective inferior position.
14.5
Aborting White FlightAn ethnically integrated neighborhood may not come about or persist if it is not reinforced by deliberate intervention.
14.6
6.3 Brides for Seven BrothersSex-selective abortions in China, South Korea, and Taiwan have resulted in excess of male over female births.
14.7
Insurance at RiskGenetic test results on fatal diseases could lead to adverse selection of membership in life and health insurance if unfavorable results are concealed from insurers.
14.8
Joint Liability as Loan CollateralThe Grameen Bank in Bangladesh uses joint liability as a screening device to overcome insufficient information on the soundness of individual loan projects and to circumvent the dangers of providing loans without collateral among the poor.
14.9
Lemon LaunderingPoorly informed consumers usually end up getting stuck with lemon products which are passed around to avoid capital loss.
14.10
The Blind Leading the BlindAn informational cascade occurs when people blindly follow the early movers, but can be quickly reversed in the light of trusted information.
15. Tastes and Preferences
15.2
Unsinkable Sunk CostHealth club usage patterns clearly show that members are emotionally attached to sunk cost even though most economists think that rational incremental decisions should only compare marginal benefit with marginal cost.
15.3
Doing It Now or LaterPeople who believe that they will procrastinate when faced with immediate costs and prematurely appropriate immediate rewards may counteract this tendency sometimes to their own benefits.
15.4
Life by defaultPresent bias and inertia lead to low enrollment in 401(k) retirement plans even though employer matching of employee contribution is quite generous.
15.5
The Evolution of Defectors and CooperatorsThere is selective advantage in being always honest even when it may be disadvantageous to do so at times.
15.7
The Origin of Predictable BehaviorEconomic behavior is predictable largely because bounded rationality leads people to adopt rules of thumb which display greater regularity than does optimization.
15.8
Happiness - Absolute or Relative?If happiness depends on one's relative wealth, one will never be absolutely happy as long as there are others who are even richer.
15.9
Statistical VictimsWhen identifiable victims are involved, people are willing to spend disproportionally more resources to save a few lives rather than spending the same amount to save a much larger number of statistical victims.
16. Free-market Solutions
16.1
Free-Market SolutionsFree-market solutions can minimize cost and rent dissipation of market interventions and regulation.
16.2
Dying for Money?Compensated physician-assisted death could reduce end-of-life health care expenditures and reduce pain and suffering.
16.3
Guilt-free PollutionPaying lower-cost avoiders to reduce pollution could reduce the total cost of pollution control.
16.4
Making Animal Conservation PayPeople will conserve wildlife if they have a financial stake in it.
16.5
Load PricingPeak-load pricing can lower electric bill and increase business profitability by inducing household consumers to shift their consumption from higher-rate peak period to lower-rate slack period.
16.6
Congestion PricingRoad tolls that vary directly with congestion have reduced peak-hour traffic volume in Singapore and Stockholm by forcing commuters to internalize congestion cost.
16.7
Fished Out!By assigning fishing quotas to individual fisherman, Iceland has solved the problem of over-exploitation typically associated with open access to common-pool resources.
16.8
Green TaxTaxing nonrenewable resources instead of labor income would create more jobs and encourage conservation while reducing pollution.
16.9
The Right to Pollute?Pollution credits convert the atmosphere from a commons into private property. They can reduce pollution if the pollution cap is lower than the unrestricted total and lower the costs of reducing pollution if credits can be sold from low-cost avoiders and high-cost avoiders.