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Name:

Economics 202
NELC
Take Home Exam 1
Spring 2006
Covers Material & Topics in Part One (Chapters 1 ? 4) of Text

Multiple Choice ? each question worth 5 points for a total of 100 points.

1 Stephanie sees Y occur soon after X. She concludes that X is the cause of Y. Stephanie is concluding that

a) association is causation.
b) all other things are not equal.
c) the fallacy of composition is not correct.
d) positive economics is more nearly relevant than normative economics.
e) There is not enough information to answer the question.

2 Which of the following pairs of goods would most likely be compliments?

a) butter and margarine.
b) peanuts and peanut butter.
c) DVDs and DVD players.
d) Hiking boots and tennis shoes.
e) All of the above.

3 At many colleges and universities the price of a student's education is paid

a) exclusively by the student.
b) exclusively by the taxpayers.
c) exclusively by private donors.
d) partly by the student, partly by taxpayers, and partly by private donors.

4 On a supply and demand diagram, equilibrium is found

a) where the supply curve intercepts the vertical axis.
b) where the demand curve intercepts the horizontal axis.
c) where the demand and supply curves intersect.
d) at every point on either curve.

5 The minimum wage is an example of

a) a price door.
b) a price wall.
c) a price floor.
d) a price ceiling.

6 Efficiency implies that

a) all consumers' wants are satisfied.
b) no advance in technology will occur in the future.
c) the attainable region is greater than the unattainable region.
d) gains are impossible in one area without losses in another.
e) all of the above.

7 If goods are not rationed according to price, it follows that

a) they won't get rationed at all.
b) something will ration the goods.
c) first-come-first-served will necessarily be the rationing device.
d) there will be surpluses in the market.
e) none of the above.

8 An increase in the expected price of corn would likely

a) increase both the demand and supply of corn.
b) decrease both the demand and supply of corn.
c) increase the demand but decrease the supply of corn.
d) increase the supply but decrease the demand for corn.

9 Opportunity cost is the value of

a) the next best forfeited alternative.
b) the chosen alternative.
c) a free good.
d) an economic good.

10 At a price below equilibrium price, there is

a) a surplus.
b) a shortage.
c) excess supply.
d) sub-equilibrium.
e) none of the above.

11 You can determine the consumers' surplus if you know the

a) price received.
b) the maximum buying price.
c) price paid.
d) b and c.
e) a and b.

12 An "increase in demand" means that

a) the demand curve has shifted to the left.
b) price has declined and consumers want to purchase more of the good.
c) the demand curve has shifted to the right.
d) the price of the good can be expected to decline, assuming supply stays constant.

13 Choice is a consequence of

a) opportunity cost.
b) formulating hypotheses.
c) scarcity.
d) none of the above.

14 An "increase in the quantity demanded" means that

a) the demand curve has shifted to the right.
b) the supply curve has shifted to the left.
c) the price has declined and consumers therefore want to purchase more of the good.
d) given supply, the price of the good can be expected to rise.

15 Through war, many of the factories in country 1 are destroyed and many of its people are killed. As a result, the country's

a) production possibilities frontier (PPF) after the war is probably farther away from the origin than its PPF before the war.
b) PPF after the war is probably closer to the origin than its PPF before the war.
c) PPF after the war is probably the same PPF as before the war.
d) ability to produce goods and services has increased.

16 Which of the following pairs of goods would be most likely to be substitutes?

a) pasta and pasta sauce.
b) butter and margarine.
c) chips and salsa.
d) tires and automobiles.

17 The joke about it taking eight economists to change a light bulb ? one to screw in the build and the other seven to hold everything else constant ? is a joke about how economists

a) use the ceteris paribus assumption.
b) fail to deduce conclusions from their assumptions.
c) confuse association with causation.
d) would much rather construct theories than test them.

18 The synonym economists commonly use for "additional" is

a) capital
b) rational.
c) marginal.
d) economic.

19 In economics, scarcity implies

a) disutility.
b) utility.
c) choice.
d) ceteris paribus.

20 The amount of one good that is forfeited in order to produce more of another good is called

a) transaction costs.
b) specialization.
c) efficiency.
d) opportunity cost.
e) none of the above.

Short Essay (use back of exam pages)

1 (8 points) Describe the difference between positive and normative economics.

2 (9 points) Discuss the differences between the socialist and capitalist views of the role of prices in the economy.

3 (8 points) Explain how the study of economics might be beneficial to a history major..

This post originally appeared on an external website

Name:

Economics 202
NELC
Take Home Exam 2
Spring 2006
Covers Material & Topics in Part Two (Chapters 5 ? 6) of Text

Multiple Choice ? each question worth 5 points for a total of 100 points.

1 The civilian non-institutional population consists of everyone in the population who is

a) at least 16 years of age, in the armed forces, or institutionalized.
b) at least 16 years of age.
c) not in the armed forces.
d) not institutionalized.
e) b, c, and d

2 Gross Domestic Product (GDP) is the total market value of all

a) final goods and services produced annually within a country's borders.
b) final and intermediate goods and services produced annually within a country's borders.
c) intermediate goods and services produced annually within a country's borders.
d) final goods and services produced every month within a country's borders.

3 "Full employment" is said to exist when the unemployment rate equals

a) zero.
b) the cyclical unemployment rate.
c) the structural unemployment rate.
d) the natural unemployment rate.

4. If a person did at least one hour of work as a paid employee during the survey week, how is she classified?

a) as an employed person.
b) as not in the labor force.
c) as an unemployed person.
d) none of the above.

5 Which of the following will NOT lead to a leftward shift in the AS curve?

a) an increase in wage rates.
b) an increase in the prices of non-labor inputs.
c) an increase in productivity.
d) an adverse supply shock.

6 What does annual economic growth refer to ?

a) annual increases in GDP
b) annual increases in consumption spending
c) annual increases in investment spending
d) annual increases in Real GDP
e) none of the above

7 A recession is always a part of a

a) contraction
b) recovery
c) detraction
d) remission

8 To macroeconomists, investment is mainly the purchases of goods and services

a) by businesses.
b) to hold as wealth, such as gold coins or art.
c) by foreign countries.
d) in the period previous to the period being studied.

9 A person is unemployed if he

a) is a member of the civilian labor force, out of work, and actively seeking work.
b) is 15 years old and seeking his first job.
c) is out of work, available for work, but not actively seeking work.
d) all of the above.

10 A dynamic, changing economy will

a) experience frictional and structural unemployment.
b) experience only cyclical unemployment.
c) have zero unemployment.
d) have no natural unemployment.

11 Who is unanticipated inflation likely to help?

a) Lenders
b) Borrowers
c) All consumers
d) All producers

12 Inflation can be defined as

a) an increase in the purchasing power of money.
b) a decrease in the purchasing power of money.
c) no change in the purchasing power of money
d) an increase in real income.

13 What is the proper sequence of the phases of a business cycle?

a) peak, contraction, trough, expansion, recovery.
b) peak contraction, recovery, trough, expansion.
c) peak, contraction, trough, recovery, expansion.
d) contraction, peak, trough, recovery, expansion.
e) recovery, trough, peak, expansion, contraction.

14 Assuming that they are actively seeking employment, which of the following categories of people would be considered unemployed?

a) Those who were fired from their job.
b) Those who resigned from their job.
c) New entrants into the job market
d) All of the above are correct.

15 One measure of the inflation rate is the

a) sum of the CPIs of adjacent years.
b) percentage change in the CPI of adjacent years.
c) percentage change in the Real GDP of adjacent years.
d) GDP minus Real GDP in a year.

16 Persons who are retired or engaged in own-home housework are considered to be in which of the following categories?

a) in the civilian labor force
b) not in the labor force
c) employed
d) unemployed

17 Real GDP is GDP

a) in current-year prices.
b) in base-year prices.
c) in GDP-prices.
d) in that year's prices.

18 Norman just brought shares of stock in Amazon.com for $1,000 and paid a $45 commission to his broker. How did this affect GDP?

a) It had no impact on GDP.
b) GDP increased by $45.
c) GDP increased by $995.
d) GDP increased by $1,000.
e) GDP increased by $1,045.

19 Leisure is

a) a good that is not counted in GDP.
b) a good that is counted in GDP.
c) neither a good nor a bad, and it is not counted in GDP.
d) a bad as far as economists are concerned, because it is not tangible.

20 An example of income received but not earned is

a) government transfer payments.
b) undistributed profits.
c) compensation of employees.
d) rental income.
e) a and c.

Short Essay (use back of exam pages)

1. ( 8 points) List and describe the three different types of unemployment..

2. ( 8 points) Describe what the term "full employment" means to an economist.

3. (9 points) Describe the difference between GDP and GNP.

This post originally appeared on an external website

Name:

Economics 202
NELC
Take Home Exam 4
Spring 2006
Covers Material & Topics in Part Four (Chapters 11 ? 14) of Text

Multiple Choice ? each question worth 5 points for a total of 100 points.

1 If the Fed purchases government securities from commercial banks, the reserves of the banking system will immediately
a) increase by the amount of the purchase.
b) increase by more than the amount of the purchase.
c) remain constant.
d) decrease by the amount of the purchase.
e) decrease by more than the amount of the purchase.

2 Transaction costs are best defined as the
a) various costs of different goods and services.
b) cost of one good in terms of another; that is, the price of apples in terms of oranges.
c) costs involved in borrowing money from someone, that is, the interest that must be paid for the use of someone else's money.
d) costs associated with the time and effort necessary to make an exchange.

3 Which of the following illustrates a barter transaction?
a) A bushel of oranges is traded for a bushel of apples.
b) Someone buys a pizza for the special price of $4.
c) Someone buys a house of $100,000.
d) A car dealer gives a free plane ticket to each new car buyer.

4 If market interest rates increase, the prices of existing bonds will
a) decrease.
b) not change.
c) increase.
d) decrease if Real GDP decreases and increase if Real GDP increases.

5 Money evolved out of the self-interested actions of
a) economists.
b) governments.
c) a few kings and queens.
d) individuals.
e) none of the above.

6 When the Fed purchases securities from a member of the public with a check that is cashed,
a) reserves increase.
b) currency in circulation increases.
c) the money supply increases.
d) b and c.
e) all of the above.

7 Can a one-time increase in the supply of money cause one-shot inflation?
a) Yes, because it shifts the aggregate demand curve rightward.
b) No, because it cannot shift the aggregate demand curve rightward.
c) Yes, because it shifts the aggregate demand curve leftward.
d) Yes, because it shifts the aggregate supply curve rightward.

8. When the Fed increases the required-reserve ratio, a bank's
a) excess reserves are unaffected.
b) excess reserves are increased.
c) excess reserves are decreased.
d) required reserves are decreased.
e) b and d.

9 If market interest rates increase, the prices of existing bonds will
a) decrease.
b) not change.
c) increase.
d) decrease of Real GDP decreases and increase if Real GDP increases.

10 Which of the following is false?
a) Banks cannot print money.
b) Banks can create checkable deposits by extending loans.
c) Banks must maintain a certain percentage of their total (checkable) deposits in reserve form.
d) Checkable deposits is a larger component of M1 than currency.
e) Today, in the United States, gold is money.

11 An individual buys a bond for $50 and sells it one year later for $70. What is the rate of return that this individual has received?
a) 10%
b) 20%
c) 30%
d) 40%

12 Changes in the money supply affect
a) expected inflation rates.
b) actual inflation rates.
c) the supply of loans.
d) a and b.
e) a, b and c.

13 When the Fed conducts open market operations, the impact of the buying or selling of bonds will include changes in

a) the money supply.
b) interest rates.
c) the expected rate of inflation.
d) a and c.
e) a, b and c.

14 Non-activists favor
a) the use of fiscal policies to manage the economy.
b) the use of monetary policies to manage the economy.
c) fine tuning.
d) rules for conducting monetary and fiscal policies.

15 As the opportunity cost of holding money decreases,m the quantity demanded of money
a) increases.
b) decreases.
c) remains unchanged.
d) increases, then decreases.
e) decreases, then increases.

16 A gold standard tries to
a) stabilize the price level over time.
b) reduce political and economic interference in the money supply process.
c) change the money supply at a specific rate.
d) a and b.
e) all of the above.

17 In the equation of exchange, the letter "V" stands for
a) variance.
b) validity.
c) volume.
d) velocity.

18 As the interest rate falls, the quantity
a) demanded of money falls.
b) demanded of money rises.
c) supplied of money rises.
d) supplied of money falls.

19 The simple quantity theory of money predicts that if
a) the money supply rises by $200, then GDP falls by $200.
b) GDP rises by $400, then money supply rises by $400.
c) the money supply rises by 10 percent, then the price level rises by 10 percent.
d) the money supply falls by $300, then GDP rises by $300.

20 Unanticipated inflation clearly redistributes buying power from
a) borrowers to lenders.
b) lenders to borrowers.
c) some borrowers to other borrowers.
d) some lenders to other lenders.

Short Essay (use back of exam pages)

1 (8 points) Explain how a change in the money supply can affect the following in the short run:

a (2 points) The supply of loanable funds.

b (2 points) Real GDP.

c (2 points) The price level.

d (2 points) The expected inflation rate.

2 (9 points) Describe the process by which banks create money.

3 (8 points) What is money?

This post originally appeared on an external website

Name: _________________

Economics 202
NELC
Exam 5 (Text Chaps 15 ? 16)
Spring 2006

Multiple Choice ? 5 points each for a total of 100 points:

1 An increase in labor productivity without an increase in the labor force leads to _______ real economic growth.

a. absolute, but not per-capita
b. per-capita, but not absolute
c. absolute and per-capita
d. neither absolute nor per-capita

2 Generally, what must be sacrificed in order to build more capital now is

a. Real GDP now.
b. consumption now.
c. Real GDP in the future.
d. consumption in the future.

3 The frequent use of economic policies to counteract economic movements deemed to be undesirable is called.

a. course tuning.
b. fine-tuning.
c. course adaptation.
d. fine adaptation.

4 _______________ rights refer to the range of laws, rules, and regulations that define rights for the use and transfer of resources.

a. Individual
b. Constitutional
c. Property
d. Economic
e. none of the above.

5 An increase in nominal GDP

a. is absolute real economic growth
b. is per-capita economic growth
c. is both per-capita and absolute real economic growth.
d. may be neither absolute nor per-capita real economic growth.

6 In the 1970s, the U.S. Economy experienced

a. stagflation.
b. low inflation and low unemployment.
c. high inflation and low unemployment.
d. b and c.
e. none of the above.

7 "Absolute real economic growth" is ___________ from one period to the next.

a. an increase in nominal GDP.
b. an increase in Real GDP.
c. an increase in Real GDP per person.
d. a decrease in the unemployment rate.

8 Stagflation consists of

a high inflation and high interest rates.
b. low inflation and high unemployment.
c. high inflation and high unemployment.
d. high unemployment and an economy in a deep recession.

9 According to the real business cycle theory, business cycle contractions begin as a result of changes in

a. the self-interest of politicians.
b. decreases in business investment.
c. decreases in the growth rate of the money supply.
d. decreases in the economy's capacity to produce.

10 Technological advances make it possible to

a. produce goods without using any resources.
b. obtain the same output by using more resources.
c. obtain the same output by using fewer resources.
d. lower labor productivity.

11 New classical economists build their theories upon

a. adaptive expectations.
b. inflexible wages and prices.
c. rational expectations.
d. the assumption that it takes a long time for markets to achieve equilibrium values.

12 Industrial policy is ___________ political corruption because it picks out _______

a. susceptible to, certain businesses to aid.
b. susceptible to, nationwide regulations to tighten or relax.
c. immune from, certain businesses to aid.
d. immune from, nationwide regulations to tighten or relax.

13 The original (1958) Phillips curve stated that

a. unemployment and money wage rates move in the same direction.
b. unemployment and money wage rates move in opposite directions.
c. there is an inverse relationship between price inflation and unemployment.
d. there is a direct relationship between price inflation and unemployment.

14 The simultaneous occurrence of high inflation and high unemployment is called

a. recession.
b. disinflation.
c. stagflation.
d. "fooling".

15 Deregulation is primarily a ____________-side policy meant to ________ PPF.

a. demand; expand the economy's
b. demand; bring the economy closer to its
c. supply; expand the economy's
d. supply; bring the economy closer to its

16 According to the original Phillips curve, the cost of reducing the unemployment rate in the short run is a

a. fall in Real GDP.
b. fall in nominal GDP.
c. lower rate of price inflation.
d. higher rate of wage inflation.

17 "Watering the green spots" is a phrase one hears when discussing

a. property rights.
b. taxes.
c. monetary policy.
d. industrial policy.
e. new growth theory.

18 The original (1958) Phillips curve

a. showed that stagflation is inevitable.
b. showed the tradeoff between the use of monetary and fiscal policy.
c. has never been used as an important economic policy tool.
d. suggested a tradeoff between wage inflation and the unemployment rate.

19 The frequent use of economic policies to counteract economic movement seemed to be undesirable is called

a. course tuning.
b. fine-tuning.
c. course adaptation.
d. fine adaptation.

20 Stagflation is the simultaneous occurrence of

a. low inflation and high unemployment.
b. high inflation and low unemployment.
c. low inflation and low unemployment.
d. high inflation and high unemployment.

Short Essay (use back of exam pages)

1. (8 points) Describe the policy ineffectiveness proposition (PIP). Be sure to state which economic theory the PIP is associated with and the assumptions that are necessary for this argument to hold.

2. (8 points) List and describe four factors that can contribute to economic growth.

3. (9 points) How does discovering and implementing new ideas cause economic growth?

by air navigator Jan 20, 2006

Economics 202 - NELC
Spring 2006

Assignment 1 (Chapters 1 ? 4)

Read chapters 1 ? 4 in your book and the article (What You Need to Know About the Minimum Wage by Shawn Ritenour) below than answer the following questions.

1 a (5 points) Explain how the price of a good is determined by supply and demand in a market.

b (5 points) When employers purchase labor services from workers the price of the labor services is refereed to as a wage. Certis paribus, is the price (wage) employers pay for labor services also determined by supply and demand just like apples in a grocery store? Explain why or why not.

2 (10 points) Suppose local educators argue that teachers' salaries are too low. At the same time it is said that the school district received 750 applications for 5 new openings. Are salaries too low?

3 (10 points) The Ritenour article refers to absolute poverty and relative poverty. Explain what these two types of poverty are and how they differ. Also, is it possible to design policies to alleviate absolute poverty? Why or why not? Is it possible for government policies to reduce or eliminate relative poverty? Why or why not?

4 According to the Ritenour article:

a (5 points) Who, specifically, are the people who work in low paying jobs that are affected by the minimum wage?

b (5 points) In terms of economic responsibilities how do the majority of these people differ from the majority of American workers who earn more than minimum wage?

5 (10 points) According to the Ritenour article, how does the imposition of a minimum wage law harm unskilled worker and young workers just entering the market without skills? Also, what types of job skills needed for all types of work can be learned by new workers when they take a low skill job at a place like McDonalds? Why are such skills important for future success?

This post originally appeared on an external website

by air navigator Jan 20, 2006

Name: _____________________________________

Assignment 2
Part II ? Chapters 5- 6
Economics 202 ? Macro
Spring 2006

Read Chapters five and six in your text and the article entitled America's Job Puzzle: A Labour Market that Works, by Gerald Baker. (NOTE: Contact instructor for copy of article.) Then answer the following questions.

1 (10 points) Draw an appropriate diagram to represent the business cycle and label each of the five phases. Provide a brief description of each phase.

2 (10 points) Describe the difference between GDP and GNP.

3 (10 points) According to the Baker article, how is the rise of temporary workers and job training programs for people who are structurally unemployed helping to relieve the pressure of rising demand for workers? Draw a graph showing how the rise in the number of temporary workers and newly trained workers is keeping wage rates from rising despite the increase in demand by employers for workers.

4 (10 points) What are the new types of flexible wage schemes that employers are using and how do these work to enable businesses to increase productivity without incurring inflationary wage increases? How do you as a consumer feel about flexible wage schemes? How do you as an employee (or potential employee) feel about flexible wage schemes? Identify some advantages and disadvantages of flexible wage schemes from an employee's point of view.

5 (10 points) Baker does not discuss the role of immigration (legal or illegal) in easing the pressures of the labor shortage. How does immigration act to increase the supply of labor and keep wages from rising and fueling inflation? Based on the facts presented in the article do you think that employers are hiring immigrants because they work for less or because there is no one else available to work? Explain. In your opinion, if the economy stopped growing and demand for labor stopped increasing, would people from abroad still want to immigrate to the U.S. for work? Explain your answer.

This post originally appeared on an external website

This post originally appeared on an external website

Economics 200 CRN 28101

Spring 2006

Assignment 6

Read the attached article entitled The Alleged China Threat by Robert Murphy and answer the questions below.

Each question is worth 10 points for a total of 50 points.

1 (10 points) Professor Murphy uses the example of his trade deficit with McDonald's to illustrate his point that there is nothing unnatural about America's trade deficit with China. I presume that Murphy has children and, based upon my experience of taking my wife and two sons to McDonald's periodically to eat, I assume he spends $20 - $30 per trip to McDonald's with his family. Since McDonald's obviously does not buy anything from Professor Murphy, how can he continue to run this trade deficit with McDonald's year after year and what, if any, threat does this trade imbalance pose to the Murphy household's financial stability? Will Murphy eventually be forced to quit his job as an economics professor and go to work at McDonald's (i.e., export his services to McDonald's) in order to keep the dollar value of what he buys from McDonald's in balance with the dollar value of what he sells (his labor) to McDonald's? Explain.

2 (10 points) I don't know Murphy or his wife. But let's assume for a moment that Mrs. Murphy initially stayed home to raise the children, cook the meals and take care of the house. Then assume that once the children were in school, Mrs. Murphy took a job outside the home and that is when the family began stopping at McDonald's for dinner one or two nights a week. Is the family better off or worse off now that Mrs. Murphy has had her hours as the Murphy family's cook reduced? What if, instead of Mrs. Murphy taking a job outside the home, Professor Murphy got a raise and that is when the family began going to McDonald's for dinner a couple of nights a week. Has the family been harmed because Mrs. Murphy has had her hours as family cook reduced without any compensating job outside the home to make up for the hours lost? With her lighter workload at home (now that the family is dining out at McDonald's more frequently) does Mrs. Murphy have more time and energy available to seek work outside? Explain.

3 (10 points) How are the trade deficits and surpluses accumulated by the Murphy household in their trade with the outside world balanced? How is this similar or different from the trade deficits between the U.S. and the rest of the world?

4 (10 points) What is meant by the term "Fair Trade"? Are American consumers better off or worse off economically when the Chinese government taxes its people and uses the proceeds to subsidize the price of Chinese goods so that American consumers do not have to pay as much for these goods? Explain your answer.

5 (10 points) What is meant by the statement that the Yuan is "undervalued"? Would you, as a consumer, be better off or worse off economically if the Chinese government stopped actions to manipulate the value of the yuan and let the market determine its value? Explain your answer.

This post originally appeared on an external website

Economics 200 CRN 28101

Spring 2006

Assignment 5

Read the attached article entitled "Rolling Back Government: Lessons from New Zealand" by Maurice P. McTigue and answer the questions below.

Each question is worth 10 points for a total of 50 points.

1. In the article the author states that the main problem with government subsidies is that they make people dependent upon the government. Why is this dependency bad for an economy? How do people react to dependency?

2. Why was France upset with Ireland when Ireland changed its corporate tax rate? How was France hurt by the Irish action? What should France have done to meet the challenge posed by Ireland?

3. In the article the author states that when the reform government in New Zealand was first elected they identified three problems: "too much spending, too much taxing and too much government". How did the government of New Zealand cut spending, cut taxes and reduce government?

4. In the past couple of decades Ireland has gone from being the poorest nation in Western Europe to one of the richest. Meanwhile France has stagnated economically. Read the author's comments on France and Ireland and give an explanation as to why Ireland is booming while France struggles with unemployment.

5. What reforms did the government make in education and why, according to the author did these reforms work?

Rolling Back Government: Lessons from New Zealand

Maurice P. McTigue

Maurice P. McTigue is a distinguished visiting scholar at the Mercatus Center at George Mason University, where he directs the government accountability project. Previously, he was a member of the New Zealand Parliament and New Zealand?s ambassador to Canada, and was closely involved in New Zealand?s deregulation of labor markets, deregulation of the transportation industry, and restructuring of the fishing industry through the creation of conservation incentives. He also served as Minister of Employment, Minister of State Owned Enterprises, Minister of Railways, Minister of Works and Development, Minister of Labour and Minister of Immigration. Among his many honors, Mr. McTigue is a recipient of the Queen?s Service Order, bestowed by Queen Elizabeth II in a ceremony at Buckingham Palace. In the U.S., he was recently appointed to the Office of Personnel Management Senior Review Committee, formed to make recommendations for human resources systems at the Department of Homeland Security. He also sits on the Performance Management Advisory Committee for the Commonwealth of Virginia.

The following is adapted from a lecture delivered on February 11, 2004, on the Hillsdale campus, during a five-day seminar on ?The Conditions of Free-Market Capitalism,? co-sponsored by the Center for Constructive Alternatives and the Ludwig von Mises Lecture Series.

Rolling Back Government: Lessons from New Zealand

If we look back through history, growth in government has been a modern phenomenon. Beginning in the 1850s and lasting until the 1920s or ?30s, the government?s share of GDP in most of the world?s industrialized economies was about six percent. From that period onwards ? and particularly since the 1950s ? we?ve seen a massive explosion in government share of GDP, in some places as much as 35-45 percent. (In the case of Sweden, of course, it reached 65 percent, and Sweden nearly self-destructed as a result. It is now starting to dismantle some of its social programs to remain economically viable.) Can this situation be halted or even rolled back? My view, based upon personal experience, is that the answer is ?yes.? But it requires high levels of transparency and significant consequences for bad decisions ? and these are not easy things to bring about.

What we?re seeing around the world at the moment is what I would call a silent revolution, reflected in a change in how people view government accountability. The old idea of accountability simply held that government should spend money in accordance with appropriations. The new accountability is based on asking, ?What did we get in public benefits as a result of the expenditure of money?? This is a question that has always been asked in business, but has not been the norm for governments. And those governments today that are struggling valiantly with this question are showing quite extraordinary results. This was certainly the basis of the successful reforms in my own country of New Zealand.

New Zealand?s per capita income in the period prior to the late 1950s was right around number three in the world, behind the United States and Canada. But by 1984, its per capita income had sunk to 27th in the world, alongside Portugal and Turkey. Not only that, but our unemployment rate was 11.6 percent, we?d had 23 successive years of deficits (sometimes ranging as high as 40 percent of GDP), our debt had grown to 65 percent of GDP, and our credit ratings were continually being downgraded. Government spending was a full 44 percent of GDP, investment capital was exiting in huge quantities, and government controls and micromanagement were pervasive at every level of the economy. We had foreign exchange controls that meant I couldn?t buy a subscription to The Economist magazine without the permission of the Minister of Finance. I couldn?t buy shares in a foreign company without surrendering my citizenship. There were price controls on all goods and services, on all shops and on all service industries. There were wage controls and wage freezes. I couldn?t pay my employees more ? or pay them bonuses ? if I wanted to. There were import controls on the goods that I could bring into the country. There were massive levels of subsidies on industries in order to keep them viable. Young people were leaving in droves.

Spending and Taxes

When a reform government was elected in 1984, it identified three problems: too much spending, too much taxing and too much government. The question was how to cut spending and taxes and diminish government?s role in the economy. Well, the first thing you have to do in this situation is to figure out what you?re getting for dollars spent. Towards this end, we implemented a new policy whereby money wouldn?t simply be allocated to government agencies; instead, there would be a purchase contract with the senior executives of those agencies that clearly delineated what was expected in return for the money. Those who headed up government agencies were now chosen on the basis of a worldwide search and received term contracts ? five years with a possible extension of another three years. The only ground for their removal was non-performance, so a newly-elected government couldn?t simply throw them out as had happened with civil servants under the old system. And of course, with those kinds of incentives, agency heads ? like CEOs in the private sector ? made certain that the next tier of people had very clear objectives that they were expected to achieve as well.

The first purchase that we made from every agency was policy advice. That policy advice was meant to produce a vigorous debate between the government and the agency heads about how to achieve goals like reducing hunger and homelessness. This didn?t mean, by the way, how government could feed or house more people ? that?s not important. What?s important is the extent to which hunger and homelessness are actually reduced. In other words, we made it clear that what?s important is not how many people are on welfare, but how many people get off welfare and into independent living.

As we started to work through this process, we also asked some fundamental questions of the agencies. The first question was, ?What are you doing?? The second question was, ?What should you be doing?? Based on the answers, we then said, ?Eliminate what you shouldn?t be doing? ? that is, if you are doing something that clearly is not a responsibility of the government, stop doing it. Then we asked the final question: ?Who should be paying ? the taxpayer, the user, the consumer, or the industry?? We asked this because, in many instances, the taxpayers were subsidizing things that did not benefit them. And if you take the cost of services away from actual consumers and users, you promote overuse and devalue whatever it is that you?re doing.

When we started this process with the Department of Transportation, it had 5,600 employees. When we finished, it had 53. When we started with the Forest Service, it had 17,000 employees. When we finished, it had 17. When we applied it to the Ministry of Works, it had 28,000 employees. I used to be Minister of Works, and ended up being the only employee. In the latter case, most of what the department did was construction and engineering, and there are plenty of people who can do that without government involvement. And if you say to me, ?But you killed all those jobs!? ? well, that?s just not true. The government stopped employing people in those jobs, but the need for the jobs didn?t disappear. I visited some of the forestry workers some months after they?d lost their government jobs, and they were quite happy. They told me that they were now earning about three times what they used to earn ? on top of which, they were surprised to learn that they could do about 60 percent more than they used to! The same lesson applies to the other jobs I mentioned.

Some of the things that government was doing simply didn?t belong in the government. So we sold off telecommunications, airlines, irrigation schemes, computing services, government printing offices, insurance companies, banks, securities, mortgages, railways, bus services, hotels, shipping lines, agricultural advisory services, etc. In the main, when we sold those things off, their productivity went up and the cost of their services went down, translating into major gains for the economy. Furthermore, we decided that other agencies should be run as profit-making and tax-paying enterprises by government. For instance, the air traffic control system was made into a stand-alone company, given instructions that it had to make an acceptable rate of return and pay taxes, and told that it couldn?t get any investment capital from its owner (the government). We did that with about 35 agencies. Together, these used to cost us about one billion dollars per year; now they produced about one billion dollars per year in revenues and taxes.

We achieved an overall reduction of 66 percent in the size of government, measured by the number of employees. The government?s share of GDP dropped from 44 to 27 percent. We were now running surpluses, and we established a policy never to leave dollars on the table: We knew that if we didn?t get rid of this money, some clown would spend it. So we used most of the surplus to pay off debt, and debt went from 63 percent down to 17 percent of GDP. We used the remainder of the surplus each year for tax relief. We reduced income tax rates by half and eliminated incidental taxes. As a result of these policies, revenue increased by 20 percent. Yes, Ronald Reagan was right: lower tax rates do produce more revenue.

Subsidies, Education, and Competitiveness

What about invasive government in the form of subsidies? First, we need to recognize that the main problem with subsidies is that they make people dependent; and when you make people dependent, they lose their innovation and their creativity and become even more dependent.

Let me give you an example: By 1984, New Zealand sheep farming was receiving about 44 percent of its income from government subsidies. Its major product was lamb, and lamb in the international marketplace was selling for about $12.50 (with the government providing another $12.50)per carcass. Well, we did away with all sheep farming subsidies within one year. And of course the sheep farmers were unhappy. But once they accepted the fact that the subsidies weren?t coming back, they put together a team of people charged with figuring out how they could get $30 per lamb carcass. The team reported back that this would be difficult, but not impossible. It required producing an entirely different product, processing it in a different way and selling it in different markets. And within two years, by 1989, they had succeeded in converting their $12.50 product into something worth $30. By 1991, it was worth $42; by 1994 it was worth $74; and by 1999 it was worth $115. In other words, the New Zealand sheep industry went out into the marketplace and found people who would pay higher prices for its product. You can now go into the best restaurants in the U.S. and buy New Zealand lamb, and you?ll be paying somewhere between $35 and $60 per pound.

Needless to say, as we took government support away from industry, it was widely predicted that there would be a massive exodus of people. But that didn?t happen. To give you one example, we lost only about three-quarters of one percent of the farming enterprises ? and these were people who shouldn?t have been farming in the first place. In addition, some predicted a major move towards corporate as opposed to family farming. But we?ve seen exactly the reverse. Corporate farming moved out and family farming expanded, probably because families are prepared to work for less than corporations. In the end, it was the best thing that possibly could have happened. And it demonstrated that if you give people no choice but to be creative and innovative, they will find solutions.

New Zealand had an education system that was failing as well. It was failing about 30 percent of its children ? especially those in lower socio-economic areas. We had put more and more money into education for 20 years, and achieved worse and worse results.

It cost us twice as much to get a poorer result than we did 20 years previously with much less money. So we decided to rethink what we were doing here as well. The first thing we did was to identify where the dollars were going that we were pouring into education. We hired international consultants (because we didn?t trust our own departments to do it), and they reported that for every dollar we were spending on education, 70 cents was being swallowed up by administration. Once we heard this, we immediately eliminated all of the Boards of Education in the country. Every single school came under the control of a board of trustees elected by the parents of the children at that school, and by nobody else. We gave schools a block of money based on the number of students that went to them, with no strings attached. At the same time, we told the parents that they had an absolute right to choose where their children would go to school. It is absolutely obnoxious to me that anybody would tell parents that they must send their children to a bad school. We converted 4,500 schools to this new system all on the same day.

But we went even further: We made it possible for privately owned schools to be funded in exactly the same way as publicly owned schools, giving parents the ability to spend their education dollars wherever they chose. Again, everybody predicted that there would be a major exodus of students from the public to the private schools, because the private schools showed an academic advantage of 14 to 15 percent. It didn?t happen, however, because the differential between schools disappeared in about 18-24 months. Why? Because all of a sudden teachers realized that if they lost their students, they would lose their funding; and if they lost their funding, they would lose their jobs. Eighty-five percent of our students went to public schools at the beginning of this process. That fell to only about 84 percent over the first year or so of our reforms. But three years later, 87 percent of the students were going to public schools. More importantly, we moved from being about 14 or 15 percent below our international peers to being about 14 or 15 percent above our international peers in terms of educational attainment.

Now consider taxation and competitiveness: What many in the public sector today fail to recognize is that the challenge of competitiveness is worldwide. Capital and labor can move so freely and rapidly from place to place that the only way to stop business from leaving is to make certain that your business climate is better than anybody else?s. Along these lines, there was a very interesting circumstance in Ireland just two years ago. The European Union, led by France, was highly critical of Irish tax policy ? particularly on corporations ? because the Irish had reduced their tax on corporations from 48 percent to 12 percent and business was flooding into Ireland. The European Union wanted to impose a penalty on Ireland in the form of a 17 percent corporate tax hike to bring them into line with other European countries. Needless to say, the Irish didn?t buy that. The European community responded by saying that what the Irish were doing was unfair and uncompetitive. The Irish Minister of Finance agreed: He pointed out that Ireland was charging corporations 12 percent, while charging its citizens only 10 percent. So Ireland reduced the tax rate to 10 percent for corporations as well. There?s another one the French lost!

When we in New Zealand looked at our revenue gathering process, we found the system extremely complicated in a way that distorted business as well as private decisions. So we asked ourselves some questions: Was our tax system concerned with collecting revenue? Was it concerned with collecting revenue and also delivering social services? Or was it concerned with collecting revenue, delivering social services and changing behavior, all three? We decided that the social services and behavioral components didn?t have any place in a rational system of taxation. So we resolved that we would have only two mechanisms for gathering revenue ? a tax on income and a tax on consumption ? and that we would simplify those mechanisms and lower the rates as much as we possibly could. We lowered the high income tax rate from 66 to 33 percent, and set that flat rate for high-income earners. In addition, we brought the low end down from 38 to 19 percent, which became the flat rate for low-income earners. We then set a consumption tax rate of 10 percent and eliminated all other taxes ? capital gains taxes, property taxes, etc. We carefully designed this system to produce exactly the same revenue as we were getting before and presented it to the public as a zero sum game. But what actually happened was that we received 20 percent more revenue than before. Why? We hadn?t allowed for the increase in voluntary compliance. If tax rates are low, taxpayers won?t employ high priced lawyers and accountants to find loopholes. Indeed, every country that I?ve looked at in the world that has dramatically simplified and lowered its tax rates has ended up with more revenue, not less.

What about regulations? The regulatory power is customarily delegated to non-elected officials who then constrain the people?s liberties with little or no accountability. These regulations are extremely difficult to eliminate once they are in place. But we found a way: We simply rewrote the statutes on which they were based. For instance, we rewrote the environmental laws, transforming them into the Resource Management Act ? reducing a law that was 25 inches thick to 348 pages. We rewrote the tax code, all of the farm acts, and the occupational safety and health acts. To do this, we brought our brightest brains together and told them to pretend that there was no pre-existing law and that they should create for us the best possible environment for industry to thrive. We then marketed it in terms of what it would save in taxes. These new laws, in effect, repealed the old, which meant that all existing regulations died ? the whole lot, every single one.

Thinking Differently About Government

What I have been discussing is really just a new way of thinking about government. Let me tell you how we solved our deer problem: Our country had no large indigenous animals until the English imported deer for hunting. These deer proceeded to escape into the wild and become obnoxious pests. We then spent 120 years trying to eliminate them, until one day someone suggested that we just let people farm them. So we told the farming community that they could catch and farm the deer, as long as they would keep them inside eight-foot high fences. And we haven?t spent a dollar on deer eradication from that day onwards. Not one. And New Zealand now supplies 40 percent of the world market in venison. By applying simple common sense, we turned a liability into an asset.

Let me share with you one last story: The Department of Transportation came to us one day and said they needed to increase the fees for driver?s licenses. When we asked why, they said that the cost of relicensing wasn?t being fully recovered at the current fee levels. Then we asked why we should be doing this sort of thing at all. The transportation people clearly thought that was a very stupid question: Everybody needs a driver?s license, they said. I then pointed out that I received mine when I was fifteen and asked them: ?What is it about relicensing that in any way tests driver competency?? We gave them ten days to think this over. At one point they suggested to us that the police need driver?s licenses for identification purposes. We responded that this was the purpose of an identity card, not a driver?s license. Finally they admitted that they could think of no good reason for what they were doing ? so we abolished the whole process! Now a driver?s license is good until a person is 74 years old, after which he must get an annual medical test to ensure he is still competent to drive. So not only did we not need new fees, we abolished a whole department. That?s what I mean by thinking differently.

There are some great things happening along these lines in the United States today. You might not know it, but back in 1993 Congress passed a law called the Government Performance and Results Act. This law orders government departments to identify in a strategic plan what it is that they intend to achieve, and to report each year what they actually did achieve in terms of public benefits. Following on this, two years ago President Bush brought to the table something called the President?s Management Agenda, which sifts through the information in these reports and decides how to respond. These mechanisms are promising if they are used properly. Consider this: There are currently 178 federal programs designed to help people get back to work. They cost $8.4 billion, and 2.4 million people are employed as a result of them. But if we took the most effective three programs out of those 178 and put the $8.4 billion into them alone, the result would likely be that 14.7 million people would find jobs. The status quo costs America over 11 million jobs. The kind of new thinking I am talking about would build into the system a consequence for the administrator who is responsible for this failure of sound stewardship of taxpayer dollars. It is in this direction that the government needs to move.

Copyright ? 2004

Reprinted by permission from IMPRIMIS,
the monthly journal of Hillsdale College
(www.hillsdale.edu).

This post originally appeared on an external website

Economics 200 - CRN 28101
Spring 2006

Test 4

Part 1: Multiple Choice Questions 5 points each:

1 The standard assumption in economic analysis is that firms attempt to maximize
A. sales.
B. profits.
C. costs.
D. reliability.
E. production.

2 Opportunity cost is
A. the variable cost a firm incurs by increasing output one unit.
B. the value of the best alternative use of a firm's resources.
C. the output opportunities a firm gains when average fixed costs decline.
D. another name for explicit costs.
E. the difference between fixed cost and variable cost.

3 For a monopolist the Golden Rule of Output Determination is to set the output rate at the point where marginal revenue equals
A. price.
B. marginal cost.
C. profits.
D. output.
E. zero.

4 Experience with public regulation of monopolies indicates that
A. on the average, regulated prices are clearly lower than unregulated prices of the same item.
B. regulation provides a stronger set of incentives than competitive markets for firms to increase efficiency.
C. a decision to base a fair rate of return on either historical cost or replacement cost yields the same pricing result.
D. most public utility regulation should be in the hands of federal rather than state commissions.
E. if a firm is guaranteed a fixed amount of profit, it will be less efficient than if its profits depend on how efficiently it operates.

5 An advantage of proprietorship is that the owner is faced with
A. complete control.
B. easy-to-obtain financing.
C. unlimited liability.
D. limited liability.
E. lower tax rates than those applicable to a partnership.

6 A market consisting of many firms producing a homogeneous product, having complete knowledge of relevant information, no power over the product's market price, and low barriers to entry is characteristic of
A. perfect competition.
B. monopoly.
C. monopolistic competition.
D. oligopoly.
E. none of the above.

7 A consumer buying food and clothing is in equilibrium when the marginal
A. utilities of food and clothing equal the total utilities of food and clothing.
B. utility of the last dollar spent on food equals the marginal utility of the last dollar spent on clothing.
C. utilities of both goods are the same.
D. utilities of both goods are the greatest.
E. utility of food equals the price of food and the marginal utility of clothing equals the price of clothing.

8 In a given year in the production function of a typical college or university, a tenured faculty member would be an example of
A. a fixed input.
B. a variable input.
C. an expendable input.
D. an average input.
E. a marginal input.

9 One of the major long-term effects of rent controls in New York City has been
A. an increase in the average size of an apartment.
B. the creation of above-average profits for landlords.
C. the creation of surpluses of affordable housing units.
D. a rapid increase in the rate of New York's population growth.
E. the abandonment of buildings, reducing the number of rental units available to consumers.

10 The Golden Rule of Output Determination for a perfectly competitive firm is to
A. choose the output rate at which price is greatest.
B. choose the output rate at which price equals marginal cost.
C. produce to the point of diminishing marginal returns.
D. produce until total revenue exceeds total cost.
E. choose the output rate at which total cost is the lowest.

11 A notable movement in the direction of deregulation of industry in the United States occurred during
A. the 1930s.
B. World War II.
C. the late 1940s and early 1950s.
D. the early 1960s.
E. the late 1970s and early 1980s.

12 A market consisting of many firms, low barriers to entry, some control over price, but considerable nonprice competition is characteristic of
A. perfect competition.
B. monopoly.
C. monopolistic competition.
D. oligopoly.
E. none of the above.

13 The important determinants of the price elasticity of demand are the
A. number and closeness of available substitutes, importance in consumers' budgets, and length of the time period.
B. number of markets, size of buyers' incomes, and empirical validity.
C. number of firms, number of variables that must be held constant, and degree to which markets are separable.
D. scope and method of measurement and calculation, and transitivity of preferences.
E. state of technology, size of the firm's plants, and size of the absolute change in input prices and quantity.

14 A firm given exclusive rights by the government to do business in a particular area is
A. a patent monopoly.
B. an output monopoly.
C. a natural monopoly.
D. a franchise monopoly.
E. an input monopoly.

15 A market consisting of a few firms producing similar products with significant barriers to entry is characteristic of
A. perfect competition.
B. monopoly.
C. monopolistic competition.
D. oligopoly.
E. none of the above.

16 A business firm that is regarded as a fictitious legal person is called a
A. front.
B. corporation.
C. silent partnership.
D. limited proprietorship.
E. special interest.

17 An oligopolistic market is one with
A. firms having no power over price.
B. few sellers.
C. few buyers.
D. several monopolists operating simultaneously.
E. product groups.

18 A market demand curve shows
A. what price will prevail in the marketplace.
B. how much of a commodity will be purchased in a given period of time at various prices.
C. the rate at which consumption of a commodity will increase as income goes up.
D. the minimum price consumers will have to pay to get a certain quantity.
E. that as price goes up consumers will spend more money on a commodity.

19 In a market economy, firms decide what and how much to produce on the basis of their
A. income, tastes, and market supplies.
B. marginal and average utilities.
C. humanitarian ideals.
D. costs and what they can charge for their products.
E. orders from a central government planning bureau.

20 When Pester U. with an annual enrollment of 3,600 students raised its tuition from $18,000 to $19,500, its enrollment fell by 200 students. What is the school's arc elasticity of demand?
A. 0.13.
B. 0.67.
C. 0.71.
D. 1.4.
E. 1.5.

Part 2: Short Answer questions:

1 (7 points) Read Case Study 16.2 (Oil price Increases and Drilling Activity) on apge 380 of your text, then explain how rising oil prices during the OPEC oil embargo resulted in an increase in the supply of domestic oil production.

2 (6 points) Explain why a firm continues to produce in the short run so long as the price exceeds the average variable cost, even if the price is lower than the average cost.

Read Case Study 18.1 "Price Ceilings and Price Supports" and Case Study 18.2 "Starting from Scratch: The Transition from Communism to Capitalism" on pages 436-438 in your book, then answer the questions below:

3 (6 points) What is a price ceiling? Compare what is said in paragraph 2 of Case Study 18.2 on page 437 with the picture in Case Study 18.1 on page 436. Would the line of people in the picture have disappeared if the U.S. government had eliminated the price ceililng on sugar? Why or why not?

4. (6 points) Why do you think the bureaucrats and managers of state owned enterprises (see last paragraph of Case Study 18.2 starting on page 437) in the old Communist Bloc used their power to subvert the free market reforms the governments of these countries were trying to implement?

This post originally appeared on an external website

Economics 200 ? CRN 28101
Spring 2006

Assignment 4

Read Case Study 20.3 (page 484) in your textbook dealing with Airline deregulation. Then read my comments and the article below entitled Airport Privatization and answer the questions here.

1 (10 points) What has been the effect on jobs (i.e., have the increased or decreased and by how much) in the Airline Industry and on airline ticket prices (i.e., increased or decreased and by how much) as a result of deregulation?

2 (10 points) Is airline travel safer or more dangerous as a result of airline deregulation? Explain your reasoning.

3 (10 points) List reasons for privatization of airports and the air traffic control system. Also, what are some reasons for NOT privatizing airports and the air traffic control system.

4 (10 points) In your opinion would privatizing airports make travel better (in terms of customer service, safety, efficiency, etc.) or worse than they are now.

5 (10 points) What has been Canada's experience with airport privitization?

Instructor's Comments

Your book and the videos discuss deregulation which was well underway in the U.S. at the time the "Economics U$A" program was being produced and broadcast. Deregulation involves the repeal of regulations that both restrict what the regulated industry can do as well as protecting the regulated industry from competition.

Mainly overlooked was the concept of privatization which involves the sale of government run operations. While governments at all levels in the U.S. provide goods and services (schools, roads, airports, water authorities, etc.) that could be provided by private business these are not as extensive as in other nations where a large percent (as in pre-Thatcher Britain, or places like Sweden today) or all (as in the former Soviet Union) of the productive capacity is owned by the government. But pressure for privatization appears to be increasing in the U.S. as governments at all levels find themselves strapped for cash due to taxpayer revolts and hard pressed to provide the variety that consumers desire (compare the wide range of specialized private schools with the "one size fits all" offering of public schools in the U.S.)

This post originally appeared on an external website

Economics 200 ? CRN 28101
Spring 2006

Assignment 3

Read the article below entitled Ronald Reagan and the Spirit of Free Enterprise by George Gilder and answer the following questions.

Each question is worth 10 points for a total of 50 points.

1. According to the article why does the lowering of tax rates cause government revenues to increase?

2. What does the author mean by the statement "That is why high tax rates do not redistribute incomes. They redistribute taxpayers out of taxable activities and onto golf courses, into barter exchanges and among foreign regimes with lower rates"?

3. What is Supply Side economic theory and what does it say about the relationship between taxes and government revenues?

4. The author, George Gilder, like Ronald Reagan, is a political conservative who prefers to see the government reduced in size. Yet, Gilder praises Reagan for the supply side economic policy that resulted in increased government revenues which resulted in an increase rather than a decrease in the size of the Federal Government (despite the claims of his political opponents, the size of the Federal Government increased rather than decreased during the presidency of Ronald Reagan). How does Gilder rationalize his support of an economic policy that increases government size with his political philosophy that seeks a smaller Federal government?

5. According to Gilder, under the heading of "Moral Foundations of the Free Market" in his article, the market does a better job of helping the poor than the government's policies of redistributing income from rich to poor. Explain how the market, according to Gilder, improves the lot of the poor better than government redistribution policies.

Ronald Reagan and the Spirit of Free Enterprise
by
George Gilder
Chairman, Gilder Publishing LLC/Author, Wealth and Poverty

George Gilder is chairman of Gilder Publishing LLC and a senior fellow at the Discovery
Institute. He attended Exeter Academy and Harvard University, where he co-founded
Advance. Later a fellow at the Kennedy Institute of Politics and editor of the Ripon Forum,
he served as a speechwriter for Nelson Rockefeller, George Romney, Richard Nixon and
others. He is the author of the Gilder Technology Report and twelve books, including Men
and Marriage, Wealth and Poverty, The Spirit of Enterprise and Telecosm. A pioneer in
the formulation of supply-side economics, he is a contributor to Forbes magazine and has
written for The Economist, the Harvard Business Review, the Wall Street Journal and
several other publications. In 1986, President Reagan presented him the White House
Award for Entrepreneurial Excellence.

The following is adapted from a speech delivered on May 24, 2004, at a Hillsdale College
National Leadership Seminar in Seattle, Washington.

Since Ronald Reagan's death, many inspiring speeches have been delivered and adulatory articles written about his presidency. But few of the tributes have recognized Reagan's greatest achievement, which was indispensable to the U.S. triumph in the Cold War and is crucial for the current war on terrorism. Reagan tapped the creativity of America's entrepreneurs to bring about a global, not just a national, economic revolution.

Poets describe creativity as "Promethean," referring to the mythical hero who brought fire to the earth. A Promethean era in world history, the Reagan presidency lit the fires of American creativity - and they have been roaring ever since. Reagan's ideas transformed American finance, global economics and world politics. They reverberated through Eastern Europe, the Soviet Union and China with the power of Joshua's trumpets. They made South Korea a more economically important and promising country than France or Germany.

To the defenders of the old order - Third World despots, legal monopolies, land trusts, gold funds, oil cartels, bureaucracies and tyrannies of all kinds - the Promethean roar was an insufferable racket. They mustered all their powers to prevent the transformation from occuring. The facts reveal their failure - and Reagan's success: Since 1980, U.S. marginal tax rates fell some 40 percent on income and 75 percent on capital gains and dividends, and the American economy added close to 36 million jobs. During the same time period, Europe and Japan created scarcely any net new employment outside of government. American companies now constitute 57 percent of global market capitalization, and the U.S. commands close to one half of the world's economic assets.

America, responsible for one fifth of global GDP in 1980, produced one third of global GDP in 2003. That is Ronald Reagan's legacy.

The Lasting Impact of Supply-Side Economics

The key to this awesome and unprecedented triumph was Reagan's dismantling of the confiscatory tax codes imposed on the capitalist world during World War II. Supporting Reagan's tax rate reductions was a movement of economists and journalists called supply-siders. We were so unpopular that Bob Dole used to crack a "good news/bad news" joke about a Greyhound bus going over a cliff. The good news was that it was "full of supply-side economists."

A central component of supply-side economics is the Laffer Curve - named for its inventor, the economist Arthur Laffer - which shows that low tax rates produce more revenue than high ones. Ronald Reagan understood and embraced the Laffer Curve. He would regale White House visitors with a story about actors and producers in Hollywood who simply stopped working when their marginal tax rates rose over 50 percent. A rate high on the Laffer Curve, as Reagan knew, means that more work for more income is less profitable than maneuvering to avoid taxes on existing income. According to my research, the correct curve shows that tax rates should be kept very low - well below 20 percent - and that higher rates tend to reduce long run government income and massively reduce private sector wealth.

In the media and the academy, however, the Laffer Curve is widely discredited. Even many Republicans speak of "paying" for tax cuts with spending cuts and claim that the real burden of government on the economy is what it spends rather than how it taxes. But to say that tax cuts cost money is to imply that current tax rates do not obstruct economic activity, and therefore that reductions are unnecessary. If you concede that tax cuts reduce government revenue, it becomes quite difficult to defend tax cuts effectively in a democracy where at least one third of the voters are directly dependent on government spending for their livelihoods, and where most of the rest cherish some kind of government program.

Reagan's genius was to show us a way out of this dilemma: The real undeniable test of tax policy is not short-term shifts in revenue but long-term shifts in spending that are most clearly manifested by increases in the federal budget. Between 1981 and 2004, current government spending in terms of dollars increased fivefold while the total hovered a little above 20 percent of GDP.

In the mid-1980s, World Bank economist Keith Marsden showed how this is possible: Low tax countries increase their spending three times faster than comparable high tax countries. This is because the low tax economies grow six times faster. For most of the period since World War II, the fastest growing economy in the world, with the fastest growth in government spending, was Hong Kong, with a top rate of 16 percent. A study by Jude Wanniski at Polyconomics extended the analysis through the Reagan era, with the same results. In recent years, Ireland, New Zealand and Russia massively increased spending after drastically reducing tax rates. Russia has increased outlays by some 60 percent after enacting a 13 percent flat tax.

Why do I stress government spending, after a long career of attacking it? The reason is simple: What is crucial is not the absolute level of government but the size of government compared to the size of the private sector. In every country that enacted tax rate reductions, the absolute growth of the private sector enormously outpaced the growth of government.
The growth of the private sector is measured not merely by output but also by assets. In the 25 years since Reagan assumed office, U.S. household assets have more than tripled, to a current record of $52 trillion. Driven by a surging stock market, America's increase in private wealth dwarfs the increases in debt that cause such agony for one-handed economists in Washington, who dutifully gauge the swell of liabilities but seem blinded to the mountainous growth of assets.

By cutting tax rates, Reagan was able to fund a 50 percent increase in defense spending. This expansion of the military was crucial to winning the Cold War. Social spending also grew by some 25 percent - although I should hasten to add that Reagan sharply reduced the nation's debt by negotiating a Social Security Commission regime that extended the age of retirement and cut back the implicit liabilities in the Social Security program by some six trillion dollars. These reforms radically improved the fiscal position of the government compared to the 1970s, when real Social Security liabilities doubled.

The 1970s ended with a budget (minus Social Security) that was nearly balanced and a balance of payments surplus. When Reagan assumed office in 1981, the government was apparently in the black. But most of the private sector was in the red, with bankrupt Savings and Loans and interest rates over 15 percent. Reagan knew that all government spending ultimately depends on the output and assets of the private sector. While the federal budget deficit (exclusive of Social Security) swelled under Reagan in absolute terms as he confronted the Soviet Union in the Cold War, the federal debt shrunk sharply as a share of national assets. Far from losing ground in high technology, the U.S. began a 20-year surge of innovation in computers and communications that has made the U.S. the world's dominant source of technical advance and new wealth. Personal computers and networks became central to world economic growth.

Meanwhile, with the top tax rate dropping from 50 to 28 percent under Reagan, tax contributions by the top five percent of earners rose from nine to 18 percent of the total, while contributions from the bottom 20 percent dropped from six to two percent. The top 50 percent of taxpayers paid 94.5 percent of the federal income taxes. Lower tax rates resulted in much larger tax payments by the rich.

Reagan's economic policies proved to be so popular that they were extended, for the most part, under President Clinton and a Republican Congress. Whatever Clinton's intentions were, he could not reverse the Reagan momentum. While Clinton hiked the top rate to 39 percent (compared to 50 percent when Reagan took office), Congress enacted and Clinton signed a drop in the capital gains tax to 20 percent and the U.S. became a nation of stockholders as Reagan had prophesied repeatedly.

Leading the Global Economy

The key Reagan accomplishment is rarely recognized at all: We are now in a global economy. While economists constantly parse statistics about the U.S., as if our economy were isolated from the world, the real impact of economic policy today can only be gauged by global data. Overall, the Reagan program led to a shift in the global economic balance of power as dramatic as the victory in the Cold War - and vital to it.

Far from falling behind Japan and Europe, as the experts had predicted throughout the 1980s, the U.S. surged into global economic dominance. To repeat: Beginning in 1980 with a GDP at one fifth of the global total, the U.S. had attained a national output of $11 trillion by 2003, fully one third of a global GDP of $33 trillion. This is an awesome and unprecedented change. In the entire history of the peacetime world economy, nothing like it has ever happened. Coming after President Carter's "malaise" in the 1970s, the American ascent is directly attributable to the program of low marginal tax rates, deregulation of energy prices, collapse of inflation, expansion of trade, and active globalization launched by Ronald Reagan.

Why then do critics still speak of "voodoo economics"? Why is it that even some supply-siders insistently deny that lower tax rates pay for themselves with higher revenues, when Reagan's tax cutting regime brought about a fivefold rise in federal spending without increasing the government share of GDP? Why does the current administration still speak of $1.6 trillion tax cuts and $300 billion stimulus packages as if it cost money to reduce perverse and counterproductive government burdens?

One key reason is the stultifying grip of the demand-side model on the entire economics community. University and media economists still find themselves far behind Reagan in grasping the dynamics of an international economy. The economics profession functions like an establishment of flat earth physicists still patiently waiting for the ships of supply-siders to fall off the edge of the world.

While the economics profession remained lost in a maze of equilibrium models, Ronald Reagan knew the facts of entrepreneurial disequilibrium and creativity. To a supply-sider, government is a kind of business. It competes with other governments around the world. It competes to attract entrepreneurs and capital to its jurisdiction and to foster expansion of existing enterprises. By lowering marginal tax rates - the rates on additional activity - governments can induce people to produce and invest within their borders. By raising tax rates, they drive entrepreneurs to other jurisdictions and to non-taxable activities. That is why high tax rates do not redistribute incomes. They redistribute taxpayers out of taxable activities and onto golf courses, into barter exchanges and among foreign regimes with lower rates.

Moral Foundations of the Free Market

The reason for tax cuts is not to allow the rich to keep their money. It is to enable entrepreneurs to invest money by making their investments profitable. Through the investment process, entrepreneurs give money to others, in their own or other businesses. By earning the money, they learned how to identify the people best able to increase its worth. They learned how to use the money in ways that respond to the needs of their customers. They mastered the magic of lowering prices in order to increase revenues. And they reached out to the largest untapped markets of the world economy, which are always the domains of billions of currently poor people struggling to gain wealth.

As Reagan understood, high tax rates do not stop someone from being rich: Those who are already rich can move their money to protected havens. High tax rates stop poor people from getting rich. They stop entrepreneurs from supplying new goods and services that generate more wealth and jobs and value and tax revenue. In truth, defending tax cuts as a way to keep more of one's money is the opposite of the case. Tax cuts are good because they allow us to give our money to others in an ever-expanding spiral of economic opportunity. In the end, the rich can keep only what they give away - that is, what they entrust to others in the ever-spreading process of investment and growth.

These rules of giving and trust are no less important today, as the U.S. becomes an information economy. American entrepreneurs are, as we all are, not without sin. But their every decision has met an empirical test beyond appeal - a marketplace crucible beyond their control. Thus they are the world's true realists and most proven pragmatists. All of them know deeply that to reach the top, they first have to get to the bottom of things. To lead, they first have to listen. To save themselves, they must serve others and solve others' problems.

"Do unto others as you would have them do unto you" and "Give and you will be given unto" are the central rules of the life of enterprise. Because you cannot give what you do not own, enterprise requires the rights of property. Because successful entrepreneurs often defy the conventional wisdom, the life of enterprise requires personal freedom. Because entrepreneurs have to serve and collaborate with others, they must be men and women of character and faith. Character enables an entrepreneur to commit his work and wealth over a period of years to bring into the world a new good that the world may well reject. Character is essential to the act of putting one's fate into the hands of unknown others in a market of voluntary choice.

Bullheaded, defiant, tenacious and creative, America's entrepreneurs continue to vindicate the faith of Ronald Reagan and the teaching of Hillsdale College. They continue to solve the problems of the world faster than the world can create them. Confronting the perennial perils of human life and the often overwhelming odds against human triumph, the entrepreneur finds strength in a deep faith and demonstrates that genuine charity is not to be found in government largesse. The entrepreneur's success is a triumph of the American character.

Today is a heyday for entrepreneurs. As Reagan's policies have taken hold, the proportion of new jobs created through self-employment and proprietorships has risen from five percent in the 1980s to nine percent in the 1990s, and to 31 percent today. President Bush's low tax rates on capital gains and dividends have unleashed a new surge of entrepreneurship.

The ultimate source of American entrepreneurial character is our educational system. Today, more than ever, that educational system is in disarray. Too many schools are losing contact with the sources of the American character in family, faith, freedom and limited government. Too many universities are pandering to their students rather than teaching them.

In a contrarian spirit, Hillsdale boldly countervails this tide of mush and mediocrity, contining the entrepreneurial struggle and earning the faith of American entrepreneurs. And in its fealty to the cultivation of American character, it has become an American treasure.

Copyright ? 2004
Reprinted by permission from IMPRIMIS,
the monthly journal of Hillsdale College
(www.hillsdale.edu).

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Economics 200 - CRN 28101

Spring 2006

Test 2

Part 1: Multiple Choice Questions 5 points each:

1. Gross domestic product
A. equals the total wages paid in a year.
B. is a measure of government output.
C. equals the total value of final goods and services produced in a year.
D. is the sum of all goods, both final and intermediate.
E. is an obsolete economic indicator of inflation.

2. Over the last 50 years, federal, state, and local governments have
A. increased their expenditures faster than the growth in total output.
B. gradually but steadily declined in importance in economic matters.
C. demonstrated a movement toward significant public ownership of the means of production.
D. moved increasingly toward nationalization of the defense industry.
E. appreciably expanded public ownership in the electric power industry.

3. Say's law
A. states that the total amount paid out for resources must equal the value of the goods produced.
B. states that all income spent must have been earned.
C. is the intellectual basis for the Keynesian model of income and employment.
D. is an integral part of the Marxian analysis of capitalism.
E. requires the assumption of wage and price rigidity.

4. The three generally recognized types of unemployment are
A. voluntary, potential, and residual.
B. cyclical, frictional, and structural.
C. involuntary, temporary, and disciplinary.
D. teenage, female, and nonwhite.
E. classical, Keynesian, and post-Keynesian.

5. Which of the following was the most important force in bringing an end to the Great Depression?
A. The natural resilience of the economy
B. Roosevelt's New Deal policies
C. U.S. involvement in World War II
D. Delayed impact from increased business investment in the early 1930s
E. Falling wages and prices

6. A basic objection to increased public works spending when serious unemployment appears likely to develop is that
A. such spending would lead to a budget deficit.
B. such spending would lead to a decline in GDP.
C. all public works projects are wasteful.
D. there is a long lag between authorizing a program and actually spending the money.
E. stabilization policy is more important than the long-run desirability of public works.

7. The fundamental idea of fiscal policy is that
A. the government should spend more than it collects in taxes.
B. decision making should be left to the Council of Economic Advisers.
C. the government can change the equilibrium GDP by promoting a change in public and/or private spending.
D. the government should always balance its budget.
E. unemployment is a less serious concern than inflation.

8. Currently, the largest share of the annual federal budget goes for
A. interest on the national debt.
B. energy programs.
C. education and health.
D. national defense and other items connected with international relations and national security.
E. Social Security programs, welfare and other income security programs, health, and education.

9. The phase of the business cycle in which output is lowest relative to its potential level is the
A. peak.
B. trough.
C. recession.
D. expansion.
E. trend.

10. According to economist Richard Gill, the source of our economy's real income is
A. profits.
B. the goods we produce.
C. the resourcefulness and skill of our people.
D. impossible to identify.
E. the amount of money in circulation.

11. Using the spending and taxing powers of government to stabilize the economy is called fiscal
A. fitness.
B. policy.
C. federalism.
D. finance.
E. reserve.

12. The consumption function expresses the relationship between consumption spending and
A. investment spending.
B. aggregate supply.
C. disposable income.
D. savings.
E. the 45-degree line.

13. High rates of inflation often characterize
A. depressions.
B. times of great unemployment.
C. wartime.
D. periods of falling aggregate demand.
E. rural areas.

14. Why was economist John Kenneth Galbraith opposed to the tax cut advocated by Walter Heller in 1964?
A. He did not believe the tax cut would have the desired impact.
B. He felt the tax cut would have the long-term effect of reducing the government's income.
C. He did not believe the tax cut would get support in Congress.
D. He feared that tax cuts would gain popularity at the expense of important programs to assist the needy.
E. He wanted to be chairperson of the Council of Economic Advisers and was angry at being made ambassador to India.

15. The marginal propensity to consume is the
A. fraction of an extra dollar of GDP that becomes disposable income.
B. share of GDP spent by households and businesses.
C. proportion of an extra dollar of disposable income that is spent on consumption.
D. reciprocal of the average propensity to consume.
E. fraction of disposable income that is consumed.

16. Which of the following is NOT considered an automatic stabilizer?
A Changes in tax revenues that occur with economic activity.
B Unemployment compensation.
C Farm aid programs.
D Government expenditure for public works.
E Corporate dividend policies.

17. Social Security payments by the government are not included in GDP because
A. Social Security was not yet in place when procedures for calculating GDP were devised.
B. Social Security is counted as an economic cost and subtracted from output in determining GDP.
C. income received through Social Security is not directly related to contributions to production.
D. income received through Social Security is too small to affect GDP.
E. these payments are in current dollars and GDP is measured in constant dollars.

18 The primary reason President Johnson opposed raising taxes during his administration was that

A. until rather late in his administration, he feared that falling price levels would reduce government income.
B. he believed a tax increase to fund an unpopular war would be politically unwise.
C. his Council of Economic Advisers warned him that such a move would harm more than help the economy.
D. his attention was largely consumed with putting a man on the moon.
E. he felt the Federal Reserve System could control inflation by issuing more money.

19. In general, a business cycle goes through its phases in the following sequence
A. trough, peak, expansion, recession.
B. recession, trough, expansion, peak.
C. trough, recession, expansion, peak.
D. trough, expansion, recession, peak.
E. expansion, recession, trough, peak.

20. Inflation occurs whenever
A. aggregate demand rises.
B. the price of any given commodity rises.
C. the money supply increases more rapidly than output.
D. the tax rate is lower than the government spending rate.
E. the money supply falls.

Part 2: Short Answer questions:

1 (5 points) What is Gross Domestic Product (GDP)? How is it calculated and what does it tell us about the economy of a nation?

2 (10 points) According to Keynesian economics, a tax increase might have helped curbinflation during President Johnson's administration. Why did Johnson oppose such an increase?

3. (10 points) On the first page of Chapter 1 in your book it states that economics is concerned with the way resources are allocated among alternative uses to SATISFY HUMAN WANTS (emphasis mine). In the video, then Senator, Harry Truman is quoted as saying "War is hell but peace could be worse" in reference to the possibility of a return of the Great Depression after World War II. Both the textbook and video credit the U.S. entry into World War II as causing the Great Depression to finally end. World War II did result in the full employment of all of our labor, land and capital resources and we even increased output capacity beyond what existed before the Great Depression. Setting aside for the moment the plight of our troops fighting at the front and the moral necessity of having to defeat the evil of fascism, were American households better off as a result of the full employment environment created by the war than they were during the Depression? Did the economy do a better job of producing goods to satisfy human (consumer) wants during the war than it did during the Depression? Explain your answer.

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Economics 200
Spring 2006

Assignment 2

Review the discussion of the Phillips Curve on pages 175 - 179 in your book and then
read the attached article, entitled Who's Afraid Of A Red-Hot Economy?, which
discusses current criticisms of the theory. Each question worth 12.5 points for a total of 50 points.

1. Why, according to the article, doesn't economic growth cause inflation? How does economic growth help reduce inflation?

2. According to the article, what are Milton Friedman?s criticisms of the theory behind the Phillips Curve?

Answer the next two questions using your book, the videos and the ?Who's Afraid Of A Red-Hot Economy?? article.

3. What is the NAIRU (non-accelerating inflation rate of unemployment) and why are economists concerned with this concept?

4. In the Who's Afraid Of A Red-Hot Economy? article Wayne Angell is quoted as describing inflation as a monetary phenomenon. What does he mean by this and how does this view of inflation differ from that presented in your book and the videos?

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Economics 200 - CRN 28101

Spring 2006

Test 1

Part 1: Multiple Choice Questions 5 points each:

1 If the supply of fishing licenses increases,

A the quantity of fishing poles demanded probably decreases.
B the supply of fishing poles probably decreases.
C the price of fishing licenses probably increases.
D the demand for fishing poles probably increases.
E none of the above.

2 There would be no economic problems in a world in which all resources were

A. free.
B. natural.
C. bought and sold for a price.
D. owned by the government.
E. scarce.

3 One of the four basic tasks any economic system must perform is
A. measuring the size of its production possibilities curve.
B. conducting a population census.
C. eliminating free resources.
D. classifying economic resources.
E. determining the kinds of goods to be produced and the amount of each.

4 According to economic analysis, shortages of a good mean
A. supply is too low.
B. demand is too high.
C. actual price is too low.
D. production is too low.
E. equilibrium price is too low.

5 A country's standard of living is closely correlated with its
A. physical size.
B. population density.
C. mineral resources
D. cultural diversity.
E. labor force productivity.

6 The expression "there's no such thing as a 'free lunch'" is
A. generally untrue.
B. irrelevant to the subject of economics.
C. a recognition that our capacity to produce goods is limited.
D. an example of normative economics.
E. applicable solely to the inefficient use of resources.

7 According to the video, insufficient housing was a problem after World because
A. the United States experienced excessive numbers of people immigrating from Europe and Japan whose housing had been destroyed by the war.
B. the depression and mobilization of resources to fight World War II resulted in little housing construction for over 15 years.
C the supply of housing exceeded the demand for housing, pushing prices up.
D. unionization of construction workers shifted the supply curve of housing to the left, resulting in higher prices.
E. the availability of land in and around major U.S. cities was severely limited because of past development.

8 Which of the following is the best example of capital?
A. Mineral deposits
B. Human effort
C. Buildings and equipment that contribute to production
D. Accounts receivable
E. Goods and services purchased by households for their enjoyment

9 During the summer months, it is not unusual for both the price and the quantity consumed of gasoline to rise. These conditions reflect
A. a violation of the law of demand.
B. a shift to the left of the supply curve.
C. an increase in demand.
D. a condition of deficient demand.
E. a surplus.

10 In free markets, the price system encourages producers to meet consumers' wants because
A. it signals producers as to which goods are profitable.
B. producers have the public interest in mind.
C. it allows the government to direct firms to the best production technique.
D. it rewards consumers for the resources they bring to the marketplace.
E. consumers are generally willing to pay more than the actual price.

11 Werner H., an engineer very experienced in bridge design, is looking for a position with a firm that specializes in bridge building. In presenting his qualifications, he takes care to point out his experience in handling difficult terrain. Werner is currently doing business in a
A. consumers' market
B. business market.
C. product market.
D. resource market.
E. closed market.

12 According to Richard Gill in the Economics U$A video, the opportunity costs for preserving the Alaskan wilderness are measured by the loss of
A. worker health benefits in textile manufacturing.
B. minerals rendered unavailable for development.
C. wilderness areas in the lower 48 states.
D. tax revenues to the federal government.
E. foreign oil because of the cutback in OPEC oil production.

13 The idea that the pursuit of private self-interest by consumers and firms also promotes the public interest is called
A. roundabout production.
B. the circular flow.
C. opportunity cost.
D. the invisible hand.
E. innovation.

14 An improvement in technology or an increase in the amount of capital goods will
A. result in movement along a fixed production possibilities curve.
B. diminish the society's production potential.
C. increase the opportunity costs of all goods.
D. cause the production possibilities curve to become vertical.
E. shift the production possibilities curve outward.

15 Economics is best defined as the study of how
A. to classify resources used to produce final goods and services.
B. resources are apportioned to satisfy human wants.
C. modern businesses have grown and prospered.
D. technology can be used to change scarce resources into free resources.
E. pure capitalism has become the best system for satisfying basic human wants.

16 New residents moving into a growing community increase the
A. size of housing.
B. elegance of housing.
C. housing surplus.
D. quantity demanded of housing.
E. demand for housing.

17 In a free market, actual price will
A. remain unchanged as equilibrium price changes.
B. move toward equilibrium price.
C. cause the demand and supply curves to shift direction.
D. always exceed equilibrium price.
E. be very difficult to calculate.

18 In a free market, producers' desires to maximize profit
A. inevitably lead to rising market prices.
B. are inconsistent with incentives to introduce new technology.
C. guarantee that firms never take losses.
D. cause firms to use the most efficient techniques.
E. mean that government must control prices to prevent producers from overcharging consumers.

19 When Adam Smith described the invisible hand, he was talking about
A. the price system.
B. central planning.
C. opportunity cost.
D. the division of labor.
E. disguised unemployment.

20 In general, supply curves slope upward to the right because
A. increases in the price of a commodity lead to rightward shifts of the supply curve.
B. rising prices motivate producers to offer more units for sale.
C. technology progresses over time, increasing the ability of firms to produce more at existing prices.
D. of increases in input prices as production is increased.
E. empirical studies almost always show that this is the case.

Part II: SHORT ANSWER

1. (5 points) Read Case Study 1.3 ("Adam Smith, father of modern economics") and Case Study 2.1 ("How the price system determines what is produced: low-cost homes after World War II") in your book. Then explain how "the 'invisible hand' that leads the private inteest of firms and individuals toward socially desirable ends,..." works to have the economy produce what is needed without central direction from the governemnt.

For the next 2 questions read the article entitled "Happy Returns: Here's What Happens To Many Lovely Gifts After Santa Rides Off" (Wall Street Journal, Wednesday December 26, 2001, Page A1)

2. According to the article (paragragh 19) , Mr. Topp of the Topp Group pays Uniden Corp. $15 per phone for returned telephones and, after refurbishing, re-sells them for $20. Below, In paragraph 23, the article states that Mr. Topp's best technicians, who can refurbish 25 - 30 telephones per day, earn $60 per week.

a. (2 points) Assuming, for sake of arguement, a 5 day, 40 hour week, what is the hourly pay for the top technicians at Topp Group?

b. (2 points) At $60 per week, what is the labor cost to refurbish each phone if the technician refurbishes 30 phones per day (assume 5 day week)? What is the labor cost per phone if the technician only does 25 phones per day? How do the 25 and 30 phones per day rate affect the labor cost per phone if they work a 6 day week (pay remains $60 per week)?

c. (2 points) While numbers are not given in the article, there are other costs, besides the pay of the technicians refurbishing the phones (ex. the pay of those working on the shipping dock who unload the returned phones and re-load the refurbished phones on the trucks). Identify at least three additional costs besides technician and loading dock workers pay.

d. (2 points) Given that Topp Group's gross profit (the difference between what they sell the refurbished telephones for and what they pay Uniden Corp. for the phones) is $5 per phone, what effect would imposing the U.S. $5.15 per hour minimum wage have on Topp Group's NET profit (which is gross profit MINUS all costs incurred between the time they purchase the phones from Uniden for $15 and sell them to the retailer for $20)?

e. (2 points) Have any American jobs been lost as a result of the Topp Group's operations? Explain your answer.

3. Because the work done by companies, like the Topp Group, is labor intensive and low margin, the companies cannot afford to opearate in the United States and therefore would not exist without the free trade environment created by NAFTA the North American Free Trade Agreement (and they did not exist prior to NAFTA). Jobs created by the Topp Group and similar companies in Mexico were new jobs and not jobs "exported" from the U.S. leaving U.S. workers out of work. Further, according to the article the value of goods returned to vendors by U.S. consumers (for replacement or refund) is in excess of $100 BILLION per year. Explain how each of the groups below benefit from the activities of companies like the Topp Group which exist because of NAFTA. (Hint: remember that people are employed and profits earned in the production, shipping, distribution, etc. of this EXTRA $100 billion worth of goods which ends up in Mexico as a result of American consumers returning them).

a. (2 points) Mexican workers employed in refurbishing returned goods.

b. (2 points) Mexican and South American consumers.

c. (2 points) Workers employed by Mexican shipping companies and retail outlets.

d. (2 points) American workers employed in manufacturing, shipping, retailing, etc.

e. (2 points) The environment.

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Economics 200 ? CRN 10072
Spring 2006

Assignment 1

Read the article below entitled What is the Free Market? by Murray N. Rothbard. Also read the introduction and first two chapters of your text and view the first two broadcasts of Economics U$A. Then answer the following questions.

1 (10 points) According to Rothbard what two factors determine the terms of a voluntary exchange of goods (or money and goods) between two people?

2 (10 points) Explain how both parties in a voluntary exchange benefit from the transaction. Use an example from your own experience to illustrate. How does the concept of both parties benefiting from the exchange differ from the mercantilist view of an economic transaction?

3 (10 points) How does the use of money for exchange enable to market to facilitate larger and complex networks of transactions?

4 (10 points) Explain why the socialist planners in the former Soviet Union were unable to take a bumper (i.e., very large) harvest of wheat and convert it to bread and other baked goods for consumption by consumers in cities throughout the former Soviet Union?

5 (10 points) Rothbard states that voluntary exchanges in the market between two people are win-win situations where both participants benefit. Assume that you have a busy day at work and have to skip lunch. Leaving work late you rush to class without having time to stop for dinner. You have some major questions about an important assignment and stay after class to discuss them with the teacher. When you finally leave you remember that you haven't had time to do grocery shopping and, as a result, have no food at home. Hungry, but wanting to get home to sleep you stop at the first fast food place you see only to discover that all they have left are some unappetizing hamburgers and French fries that have been sitting on the warmer for the last couple of hours. The price is $10 but you pay it and take the food because you are hungry? Was this a voluntary transaction? Did the aging hamburger and fries provide you with more value than the $10 bill you handed over? Will you return to this place or refer your friends to it? Explain your answers.

This post originally appeared on an external website

Name: _____________________________________

Assignment 4
Part IV ? Chapters 11- 14
Economics 202 ? Macro
Spring 2006

1. (10 points) Describe the process by which banks create money.

2. (10 points) Describe the expectations (or Fisher) effect.

3. (10 points) List and describe the four positions held by monetarists that help to explain the monetarists view of the economy.

4 (10 points) List and describe the three monetary policy tools the Federal Reserve can use to increase the money supply. Which tool is used most often?

5 (10 points) List and describe the three functions of money.

This post originally appeared on an external website

Name: _____________________________________

Assignment 5
Part VIII ? Chapters 15 - 16
Economics 202 ? Macro
Spring 2006

1 Read the insert on page 372 of your text entitled How Economizing on Time Can Promote Economic Growth.

A (5 points) Explain why time is considered as a resource.

B (5 points) How does saving time increase economic growth and cause the Production Possibilities Curve to shift outward?

C (5 points) Your book cites computers as an example of time saving technology that results in greater output. Name four (4) other technological devices and explain both how they save time and result in greater output.

D (5 points) Explain how the invention of the wheel helped the ancients save time and improve their output.

2 (10 points) List and describe four factors that can contribute to economic growth.

3 (10 points) Explain the relationship that exists between economic growth and the price level.

4 (10 points) Describe the new growth theory. Explain how it differs from neoclassical growth theory.

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Name: ____________________________

Economics 201 - NELC
Spring 2006

Assignment 1
Covers Topics & Concepts in Part Six (Chapters 1 ? 4) of Text

Total Points for This Assignment = 50

Read the article below entitled What is the Free Market by Murray N. Rothbard. Also read the first four chapters of your text. Then answer the following questions.

1 (10 points) According to Rothbard what two factors determine the terms of a voluntary exchange of goods (or money and goods) between two people?

2 (10 points) Explain how both parties in a voluntary exchange benefit from the transaction. Use an example from your own experience to illustrate. How does the concept of both parties benefiting from the exchange differ from the mercantilist view of an economic transaction?

3 (10 points) How does the use of money for exchange enable to market to facilitate larger and complex networks of transactions?

4 (10 points) Explain why the socialist planners in the former Soviet Union were unable to take a bumper (i.e., very large) harvest of wheat and convert it to bread and other baked goods for consumption by consumers in cities throughout the former Soviet Union?

5 (10 points) Rothbard states that voluntary exchanges in the market between two people are win-win situations where both participants benefit. Assume that you have a busy day at work and have to skip lunch. Leaving work late you rush to class without having time to stop for dinner. You have some major questions about an important assignment and stay after class to discuss them with the teacher. When you finally leave you remember that you haven't had time to do grocery shopping and, as a result, have no food at home. Hungry, but wanting to get home to sleep you stop at the first fast food place you see only to discover that all they have left are some unappetizing hamburgers and French fries that have been sitting on the warmer for the last couple of hours. The price is $10 but you pay it and take the food because you are hungry? Was this a voluntary transaction? Did the aging hamburger and fries provide you with more value than the $10 bill you handed over? Will you return to this place or refer your friends to it? Explain your answers.

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Name: __________________

Economics 201 - NELC
Spring 2006

Assignment 2
(Chapters 5 ? 8)

1. (10 points) Describe the diamond-water paradox.

2. (10 points) Why are there so many more proprietorships than corporations, yet corporations account for so much more of the sales of business firms in the county?

3. (10 points) Define economies of scale and give two reasons why a firm may experience economies of scale.

4 (10 points) Explain the differences between a share of stock and a bond.

5. (10 points) Suppose the current price of gasoline at the pump is $2.50 per gallon and that one million gallons are sold per month. A politician proposes to add a 20-cent tax to the price of a gallon of gasoline. She says the tax will generate $200,000 in tax revenues per month (one million gallons x $0.20 = $200,000). What assumption is she making?

This post originally appeared on an external website

Name: ____________________________

Economics 201 - NELC
Spring 2006

Assignment 3
Covers Material & Topics in Part Three (Chapters 9 ? 12) of Text

Total Points for This Assignment = 50

Read chapters 9 ? 12 in your book and the article below entitled Myths about Business by Ninos Malek. Then answer the following questions:

1. In the "Myths" article, the author provides the following quote from Ludwig von Mises

The common man is the sovereign consumer whose buying or abstention from buying ultimately determines what should be produced and in what quantity and quality. ["The Anti-Capitalist Mentality", p. 1, Ludwig von Mises]

a. (5 bonus points) Explain how the purchasing choices of consumers determine the type, quantity and quality of goods and services that are produced.

b. (5 bonus points) Explain how a free market (with easy entry and exit for competitors) makes it difficult or impossible for a business to cheat its customers or the public on a regular basis.

2. (10 points) What is a price taker? Discuss the assumptions used to obtain the perfectly competitive model.

3. The concept of "consumer surplus" is discussed in the "Myths..." article below.

a. (3 points) Explain the concept of consumer surplus.

b. (3 points) Give an example of a product or service for which you would be willing or would expect to pay more than the vendor is currently charging.

c. (4 points) Do you feel you are cheating the vendor when you have to pay less than you intended to pay for an item?

4. (10 points) How is monopolistic competition like perfect competition? How is it like monopoly?

5. (10 points) Define price discrimination. What three conditions must exist before a firm can use it?

This post originally appeared on an external website

Name: ____________________________

Economics 201 - NELC
Spring 2005

Assignment 4
Covers Material & Topics in Part Four (Chapters 13 ? 16) of Text

Total Points for This Assignment = 50

1 (10 points) What are the costs and benefits to the criminal of committing a crime? How do rising real wages act to reduce the rate of crime?

2 (10 points) A small commuter plane crashes and two of its passengers are killed. Both are 30 year old breadwinners whose families rely on their income for support. One is a carpenter earning $40,000 per year and the other a doctor earning $300,000 per year. Both families sue the airline for their loss. Using the concept of present value, explain why the court in calculating compensation due each of these two people's families would come up with very different settlement amounts.

3. (10 points) Why is it possible for the recycling of paper or plastics to use up more resources than the activity saves?

4 (10 points) Read the section entitled "What are College Professors' Objectives" on pages 353 ? 354 of your book. What is the evidence, according to Professor Arnold, that college professors try to influence the elasticity of demand for their labor in order to increase their wages? Do you agree or disagree with the contention that traditional classrooms, smaller class sizes and subsidies for education are good in themselves or are they just a means of influencing the elasticity of demand for the services of college professors? Defend your argument.

5 (10 points) Going back to the example in question 2 above, assume that a third person is also killed in the crash. However, this person has chosen to stay home to manage manage the household and raise the couple's five young children while the other spouse works. Explain how present value can be used to calculate the amount due this family from the airline.

This post originally appeared on an external website

Name: ____________________________

Economics 201 - NELC
Spring 2006

Assignment 6
Covers Topics & Concepts in Part Six (Chapters 19 ? 20) of Text

Total Points for This Assignment = 50

Read Part 6 of your text (Chapters 19 ? 20) and the article entitled The Alleged China Threat, by Robert Murphy, which is attached. Then answer the questions below.

1 (10 points) Professor Murphy uses the example of his trade deficit with McDonald's to illustrate his point that there is nothing unnatural about America's trade deficit with China. I presume that Murphy has children and, based upon my experience of taking my wife and two sons to McDonald's periodically to eat, I assume he spends $20 - $30 per trip to McDonald's with his family. Since McDonald's obviously does not buy anything from Professor Murphy, how can he continue to run this trade deficit with McDonald's year after year and what, if any, threat does this trade imbalance pose to the Murphy household's financial stability? Will Murphy eventually be forced to quit his job as an economics professor and go to work at McDonald's (i.e., export his services to McDonald's) in order to keep the dollar value of what he buys from McDonald's in balance with the dollar value of what he sells (his labor) to McDonald's? Explain.

2 (10 points) I don't know Murphy or his wife. But let's assume for a moment that Mrs. Murphy initially stayed home to raise the children, cook the meals and take care of the house. Then assume that once the children were in school, Mrs. Murphy took a job outside the home and that is when the family began stopping at McDonald's for dinner one or two nights a week. Is the family better off or worse off now that Mrs. Murphy has had her hours as the Murphy family's cook reduced? What if, instead of Mrs. Murphy taking a job outside the home, Professor Murphy got a raise and that is when the family began going to McDonald's for dinner a couple of nights a week. Has the family been harmed because Mrs. Murphy has had her hours as family cook reduced without any compensating job outside the home to make up for the hours lost? With her lighter workload at home (now that the family is dining out at McDonald's more frequently) does Mrs. Murphy have more time and energy available to seek work outside? Explain.

3 (10 points) How are the trade deficits and surpluses accumulated by the Murphy household in their trade with the outside world balanced? How is this similar or different from the trade deficits between the U.S. and the rest of the world?

4 (10 points) What is meant by the term "Fair Trade"? Are American consumers better off or worse off economically when the Chinese government taxes its people and uses the proceeds to subsidize the price of Chinese goods so that American consumers do not have to pay as much for these goods? Explain your answer.

5 (10 points) What is meant by the statement that the Yuan is "undervalued"? Would you, as a consumer, be better off or worse off economically if the Chinese government stopped actions to manipulate the value of the yuan and let the market determine its value? Explain your answer.

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Today is the first day of the Chinese New Year's celebrations for the Chinese lunar new year 4704. Since it is a lunar (moon), rather than a solar (sun) year New Year's Day varies from year to year depending upon the cycle of the moon. In the Chinese calendar the lunar New Year begins on the first day of the new moon (i.e., when the dark side of the moon is facing earth and thus is not visible from earth).

Being a lunar rather than a solar calendar makes it somewhat difficult to convert between the modern Gregorian calendar (which was an updating by Pope Gregory XIII in 1582 of the Julian calendar created at the direction of the Roman Emperor Julius Caesar in 46 B.C.). The Chinese lunar calendar consists of a cycle of twelve alternating years named after animals - Rat, Ox, Tiger, Hare (rabbit), Dragon, Snake, Horse, Sheep (or goat), Monkey, Rooster, Dog, Pig (boar) ? within a larger sixty year cycle. Where as the modern Western calendar uses the birth of Christ as its starting reference point and numbers years prior to the birth of Christ in ascending order backwards from his birth with the suffix B.C. for Before Christ and for years since his birth in ascending order with the suffix A.D. or Ano Domine(which is Latin for After Christ), the Chinese calendar used to number years for reference purposes according to the number of years since the start of the reign of the current emperor (this practice is followed in most countries down to the present ? official government proclamations usually reference the current calendar year and the year of the reign of the current monarch ? or, like the U.S. which is a republic the years elapsed since the founding of the republic ? the ratification of the Constitution in the case of the U.S.) Following the 1911 eleven revolution in China which ended the rule of the emperors, Sun Yat-sen abolished the link between years and reigns of emperors and changed the calendar to start counting years from the origin of the Chinese calendar which occurred about 2698 B.C. in the western calendar thus making the western year 2006 the year 4704 (2698 + 2006 = 4704).

The same historical forces which have made Christmas, a western holiday, known around the world are also responsible for the dispersal of the Chinese New Year celebration around the world. The fourteenth century publication of Marco Polo's account of his travels in China is generally credited with the western world's renewed interest in China and the Orient. Rising wealth in Europe brought about increased trade with the East. However, the fall of Constantinople to the Turks in 1453 cut off the main trade route to China from Europe forcing Europeans to seek a sea route to the Orient. Christopher Columbus stumbled into the New World in 1492 while trying to reach China and India by sea and Vasco de Gama successfully navigated to India in 1497 by sailing east around the tip of Africa.

The discovery of sea routes to Asia and of the New World brought about both a vast increase in trade as well as huge shifts in population. It is common knowledge that there was mass migration from Europe to the New World as well as to Australia, New Zealand and South Africa. Somewhere in the neighborhood of 50 million people left Europe to seek a better life economically and politically in the new lands. Most of these chose to make the move but some, such as petty criminals, were transported to these lands in lieu of imprisonment at home. Large numbers were also transported, involuntarily, from Africa to the New World as the rising demand for cheap labor and new trading arrangements transformed the regional African slave trade into a global trade. In addition to the movement of Europeans and Africans, another 50 million from China and India migrated to the New World as well as to European colonies in the Pacific, other parts of Asia and Africa. Like the Europeans, the Chinese and Indians were motivated by the desire to better themselves economically as well as by the desire for more freedom. While the Chinese and Indians were often mistreated and exploited in the new lands, sufficient numbers found life in the new lands better than back home and elected to stay, giving rise to large Chinese and Indian communities throughout the world.

Today, economic prosperity has resulted not only in economic growth in China and India but also in a large and prosperous overseas Chinese community. Chinese New Year celebrations are taking place world-wide today and the press is full of stories and reports of celebrations in practically every major city in the world.

Like Christmas, there is some variation in the New Year's traditions and customs practiced by Chinese in various parts of the world. Like traditions and customs in other areas, they evolve and change with time which does not make some people happy. An article in this morning's Reuters UK quotes a Professor Gao Youpeng of Henan University saying:

Indeed, some worry that New Year traditions are being lost in the country's headlong rush to develop economically.
"It is being attacked by Western culture," Henan University Professor Gao Youpeng wrote this week in the official Guangming Daily, issuing what he called a "declaration to protect Spring Festival".
"More and more people, especially the young, have no time to consider the true meaning of the festival and prefer to celebrate the game-like revelry of Western holidays like Christmas and Valentine's Day," he wrote.

Substitute Christmas for New Year and Spring Festival in the article and it reads like similar articles last month quoting disgruntled western traditionalists. The world is changing and evolving. Economic growth and rising incomes do result in new ways to celebrate holidays. But people still have the option to not adopt new traditions. Just because my neighbor prefers Jingle Bell Rock to Silent Night doesn't mean that I have to give up Silent Night for Jingle Bell Rock. The beauty of the free market means that I can not only control what is done in my home (my private property) but also if I and others want to listen to Silent Night some enterprising merchant will see to it that we can buy it. So, if professor Youpeng wants to keep the traditions that he knew as a boy (and which may have been too modern and different compared to what his grandparents grew up with) more power to him! He is free to express his ideas and even go into business to promote and sell his traditional way of celebrating ? he just can't use force to make others follow him.

by air navigator Feb 2, 2006

This page contains the current extra credit assignment for my Economics 200 Telecourse students. All extra credit assignments will have a deadline and not only will extra credit assignments be accepted after that date, the assignments themselves will be erased from this page. If no assignment appears it means that an extra credit assignment is not currently available. To save you having to scroll down the blog to this page I will be posting a link to this page from my No Free Lunch webpage. Simply go to the web, click on the Economics 200 Telecourse page link and click on the Extra credit link to see if an assignment is available. Paper copies of the assignment will also be available at the Learning Resource Center at the Community Campus.

This post originally appeared on an external website

by air navigator Feb 2, 2006

This page contains the current extra credit assignment for my Economics 201 (Microeconmics) students. All extra credit assignments will have a deadline and not only will extra credit assignments be accepted after that date, the assignments themselves will be erased from this page. If no assignment appears it means that an extra credit assignment is not currently available. To save you having to scroll down the blog to this page I will be posting a link to this page from my No Free Lunch webpage. Simply go to the web, click on the Economics 201 page link and click on the Extra credit link to see if an assignment is available. Paper copies of the assignment will also be available at the Learning Resource Center at the Community Campus.

This post originally appeared on an external website

by air navigator Feb 2, 2006

This page contains the current extra credit assignment for my Economics 202 (Macroeconomics) students. All extra credit assignments will have a deadline and not only will extra credit assignments be accepted after that date, the assignments themselves will be erased from this page. If no assignment appears it means that an extra credit assignment is not currently available. To save you having to scroll down the blog to this page I will be posting a link to this page from my No Free Lunch webpage. Simply go to the web, click on the Economics 202 page link and click on the Extra credit link to see if an assignment is available. Paper copies of the assignment will also be available at the Learning Resource Center at the Community Campus.

This post originally appeared on an external website

by air navigator Feb 6, 2006

An extra credit assignment has been posted for each of my three economics classes. Read the information below and follow the instructions for the credit. The deadline for submitting the assignment is Friday February 17, 2006 - either close of business of the campus or midnight if being submitted via email.

As I indicated in the orientation sessions for each of my three economics classes, I will periodically post some extra credit assignments. These will be announced first on the blog and then I will try to spread the word via email as well as leave a few paper copies at the LRC desk in the Community Campus (for the ECN 200 Telecourse students) and the NELC (for the ECN 201 and ECN 202 students).

A separate web page has been created for each of the three courses and any extra credit assignments will be posted on those pages. All extra credit assignments will have a deadline and not only will the assignments NOT be accepted after that date but they will also be erased from the appropriae extra credit web page.

You can check for extra credit assignments by going to my No Free Lunch web page and clicking on one of the extra credit links at the left of the page (NOTE: only students in the course will receive credit - I will not accept an ECN 200 assignment from a student in the ECN 202 course and vice versa). Or, you can go to the extra credit web page for your class by clicking on the approprieate link below or by bookmarkeing the link:

ECN 200 http://nugent-economics.blogspot.com/2006/01/ecn-200-telecourse-extra-credit.html

ECN 201 http://nugent-economics.blogspot.com/2006/01/ecn-201-microeconomics-extra-credit.html

ECN 202 http://nugent-economics.blogspot.com/2006/01/ecn-202-macroeconomics-extra-credit.html

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by air navigator Feb 7, 2006

Demand Curve ? shows quantities of a good demanded (that will be sold) at various prices. The higher the price the lower the quantity demanded and vice versa.

Think of it this way, if you have $10 in your pocket and an item costs $10 you can afford to purchase one unit of the item. But if the price is $5 you can afford to buy 2, and if price is $2.50 you can purchase 4, etc.

Further, since there are more middle and lower income people than rich people, the lower the price the greater the number of people who will be able to afford to buy the product and the more people able to afford the product the greater the quantity that will be demanded.

Supply Curve ? shows quantities of a good supplied at various prices. The higher the price the greater the quantity supplied.

No business (supplier of a product or service) can afford to sell at a price lower than cost and remain in business. BUT all suppliers of a good do not face the same set of costs. A farmer with fertile soil, a good climate and sufficient rain can produce a larger crop, at a lower cost than a farmer growing the same crop in poor soil in the desert. The desert farmer incurs the same costs for seed, labor, etc. as the other farmer. But the desert farmer must also purchase fertilizer, install irrigation and pay for water. As a result, the desert farmer will have higher costs per bushel of product than the farmer in the ideal location. In order to make a profit on his crop, the desert farmer has to receive a higher price per bushel than the other farmer. The point is that producers of a good or service face different circumstances and some are able to produce at a lower cost (require fewer resources) than others. As the price of a good rises more producers are able to offer the good or service.

As a second example, consider yourself and the sale of your labor services. If you had tickets to a concert for tonight and your supervisor asked for a volunteer to work overtime at the regular hourly rate you probably would not volunteer. If double time was offered, you might be tempted but the desire to see the concert would probably be greater. But, if your supervisor offered a $1,000 bonus to put in an additional four hours this evening, doing your regular work, you would probably take the offer. As the price goes up you, as the seller of your labor services, are more inclined to increase the quantity of labor you are willing to provide. In this example the cost is your opportunity cost. If you earn $10 per hour and your concert ticket cost $50 the decision to volunteer or not is a no brainer since you will lose the $50 spent on the ticket and only gain $40 from working the four hours. If your supervisor offered you double time (i.e., $20 per hour) for the extra four hours you would earn $80 and lose $50 for a net gain of $30. More than likely the desire to see the concert would be greater than the $30 of additional net income so you would probably still turn down the extra work. But $1,000 or $250 per hour, for four hours of work would probably change the equation as the opportunity cost of giving up the extra pay ($1,000) dwarfs the $50 plus satisfaction of attending the concert.

In summary, the demand curve shows the various quantities of a good that will be demanded (i.e., consumers are willing and able to buy) at various prices, while the supply curve shows the various quantities of a good that will be supplied (offered for sale by producers) at various prices. The point where the two intersect is the point where the quantity demanded equals the quantity supplied and this is the equilibrium or market price.

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by air navigator Feb 8, 2006

Usually when we think about the term costs we think of money. However, in economics we use the word opportunity costs to consider costs in a larger sense.

Normally when we purchase something we give up money in exchange for a good or service we want. But the true cost, or opportunity cost, is usually more than this. If my wife and I decide to go to a movie and pay $20 for tickets we are giving up not only something else that we could purchase with the $20 but also something else that we could have done with the time spent in the theater viewing the movie. It is the other thing that we could have brought with the money as well as the other thing that we could have done with the time that is the true, or opportunity cost. Everything we do involves a choice and when we make a choice the cost of that choice is the other things we could have had or done if we had not made this particular choice.

Now, as rational economic beings we choose that which will give us the greatest satisfaction at that particular moment. The opportunity cost of a particular choice is the next best alternative that you would have chosen. This is the thing you give up in order to obtain the thing you choose.

I may not agree with your choice and, later today or tomorrow you may regret having chosen option 'A' over option 'B'. But this does not invalidate the concept of opportunity cost. You choose what was most important to you at the time based upon the best information available and your desires at that moment. Part of growing up and acquiring knowledge is to enable us to make better decisions and look at choices from a broader perspective.

Advances in technology have done much to reduce opportunity costs but, in a world of unlimited wants and limited resources, opportunity cost still exists. As recently as two hundred years ago shoes (actually boots) were so expensive that most people, if they could afford boots at all, could afford no more than one pair and that pair had to last for years. In England at that time stealing a man's boots was such a serious crime that the penalty was death (since walking was the main mode of transportation and most work was done outdoors, stealing a man's boots was the equivalent of taking away his ability to support himself and his family). Thanks to advances in technology, shoes today are so inexpensive that even the poorest people can usually afford more than one pair. But while an average person may be able to afford as many pairs of shoes as they want and still have plenty of money left over for other things, opportunity cost is still present. While money may not be the major constraint, space is. Where do you store the shoes? Despite the relative affluence of the average contemporary American, most of us can't afford mansions with unlimited rooms. So the more shoes one acquires and stores by stacking them from floor to ceiling in the closet the less space there is for clothes. With closet space as the scarce resource the opportunity cost of more shoes would be fewer clothes.

This post originally appeared on an external website

by air navigator Feb 9, 2006

All students in the ECN 200 Telecourse should have received a Telecourse broadcast scheedule with the syllabus that was mailed to you by the Community Campus. In there it shows the ECN 200 course videos being broadcast on Comcast Channel 96 on Wednesdays from 6 - 8 pm and on Cox Channel 96 at the same time (Wednesdays from 6 - 8). It is very important that you make a point to watch these broadcasts as these constitute the lectures that you would be attending if this were a regular classroom class. If you schedule does not permit viewing at this time here are your additional options:

1 Set the timmer on your VCR and record the program for later viewing.

2 Go to the LRC desk at the Community Campus (located at 401 N. Bonita Ave.) and check out the three tapes that contain the entire series. This will require a Pima Community College ID card (which can be purchased at this or any PCC campus for about $2 upon showing proof of registration). You will be required to return the tapes at the end of the semester in the same condition as when checked out or a fine will be levied and a hold placed upon your records.

3 You can go to the Library at any PCC campus and check out a video FOR VIEWING AT THE LIBRARY.

4 Go to www.learner.org on the internet and view the videos on your PC over the Internet. See below for more on viewing the videos over the Internet.

A student in last Fall's class discovered the Learner.Org site which contains numerous resources for students and teachers. The best way to access the videos used for the ECN 200 course is to click on the blue Telecourses button along the top of the page and then scroll down to the
Economics U$A
link. Each of the videos is listed and can be viewed by clicking the video button next to the one you wish to view.

This site does require you to register in order to view a video. But it is a one time free registration. I did quickly check it and they are the same videos that are broadcast for the class. The only limitation is that, being video, you need broadband access for good viewing. If you have a dial-up connection, as I have, it is slow and difficult. If you do not have broadband at home I suggest that you go to any PCC computer lab or library to view them or visit a Tucson Pima Public library and use their computers (U of A students can also use U of A facilities).

If you wish to go straight to the videos, click on this link and bookmark it in your computer:
http://www.learner.org/resources/series79.htmlAnnenberg

Those of you in my ECN 201 and ECN 202 independent study courses may also want to check out this site as the videos are an excellent resource and do a very good job of presenting the material in an interesting and understandable manner.

This post originally appeared on an external website

by air navigator Feb 10, 2006

On Saturday, January 21st of this year, one of the great figures of the twentieth century, Sir John Cowperthwaite, died in St. Andrews, Scotland at age 90.

John James Cowperthwaite was born on April 25, 1915 in Scotland. He studied economics at St. Andrew's University and then continued his studies at Christ's College, Cambridge. Upon graduation he joined the British Colonial Service and sent to Hong Kong. He, along with other members of the government were evacuated from Hong Kong as Japanese forces advanced on it during World War II. Cowperthwaite spent World War II as a British colonial administrator in Britain's African colony of Sierra Leone.

In 1945, following the end of World War II in the Pacific, Cowperthwaite was reposted to Hong Kong with orders to implement policies that would revive the war torn economy of the colony. Upon his arrival in the colony he noticed that, in the interim between the exit of the Japanese and the re-entry of the British ? a period of minimal government ? economic reconstruction had already begun through the efforts of individual citizens as they went about their daily business.

Observing that the process of reconstruction had begun in the absence of government and was proceeding without any government guidance, Cowperthwaite decided to follow a a laissez-faire policy of non-interference in the economy. There is a story told that at a nineteenth century meeting of businessmen and politicians in France, a member of the French government asked the businessmen what the French government could do to help the economy. The bureaucrat's question was answered with a resounding Laissez-faire, si vous plait! which roughly translates as Please leave us alone! The businessmen's plea was ignored in France but, a century later, Cowperthwaite successfully implemented a policy of strict laissez-faire that resulted in Hong Kong, over the course of a couple of decades, vaulting from a poor Asian trading port into a major manufacturing and world financial center with a standard of living that exceeded that of both its Asian neighbors and the mother country of England. In fact the GDP (Gross Domestic Product or value of the annual output of the economy) of this tiny Asian enclave exceeded that of both Britain and Israel combined.

While the rest of the world attempted to grow their economies through varying degrees of bureaucratic management with little or no success, the economy of Hong Kong skyrocketed. Countries like the U.S. which retained considerable economic freedom had good, but not spectacular, growth rates while countries like the Soviet Union and Communist China saw their economies stagnate and die under the dead hand of bureaucratic management.

In the early second half of the twentieth century Hong Kong was considered a miracle. But Hong Kong's success was due to neither luck nor divine intervention. Instead it was the result of Cowperthwaite's unwavering policy of laissez-faire. This is not to say that Cowperthwaite was a do-nothing bureaucrat. He worked hard and diligently to prevent Queen's ministers and bureaucrats from London and special interests in Hong Kong from forcing the government to intervene in the economy of Hong Kong. And, Hong Kong's success was no exception to the laws of economics. Other than a good harbor, Hong Kong had no natural resources and, at the end of World War II was as poor as the rest of Asia. The fact that it was small with a relatively homogenous population also offered no special advantages. Despite its small size, during the period of its rapid growth the colony was flooded with refuges from neighboring Communist China ? causing its population to increase ten-fold. Still it grew, real income increased by 50%, the number of people in absolute poverty decreased steadily and disease and mortality rates declined to Western European levels. All of this was accomplished with low tax rates and minimal government social service programs.

While Cowperthwaite's achievement in Hong Kong was considered miraculous at the time, subsequent history has shown it to be simply sensible policy. Close upon the heals of Cowperthwaite's success in the then British Crown Colony of Hong Kong, Margaret Thatcher was elected Prime Minister of the mother country, Great Britain and, following policies similar to those of John Cowperthwaite, she soon transformed the British economy from stagnation to a major force in the world economy. Neighboring Ireland, long the poorest nation in Western Europe with a population steadily declining as its youth left for other nations turned itself into one of the richest nations in Western Europe within the span of a decade after abandoning the stifling regulations that were choking the economy and allowing the people the freedom to determine their own economic destiny. Former Soviet client states like Estonia, threw off the shackles of state planning and quickly made up for a half a century of economic decline with rapid growth.

Thanks in part to the changing political climate, John Cowperthwaite not only lived to see the success of his policies in Hong Kong but was rewarded with honors and a knighthood in recognition of his achievement.

This post originally appeared on an external website

by air navigator Feb 12, 2006

Name: ____________________________

Economics 201 - NELC
Spring 2006

Assignment 5
Covers Material & Topics in Part Four (Soft Cover Chap 17- 18, Hard Cover Chap 29 - 30) of Text

Total Points for This Assignment = 50

Read the article entitled The Myth of the Tree Shortage by Charles Tomlinson (the article can be found on the web at: http://www.mises.org/fullstory.aspx?Id=1625) and answer the questions relating to it below:

1. (10 Points) Both Tomlinson and the author of your textbook state that bureaucrats have an incentive to not solve problems because if a problem is solved there would no longer be a need for the bureau or department in question and would the people working for that department or bureau would then be out of a job. Do you agree with this assessment? Why or why not (support your argument with specific examples)?

2. (10 Points) Tomlinson compares the privately owned southern forests with the government run forests of the west. The southern forests are described as being "vibrant", "productive" and being replenished at a faster rate than we are harvesting them despite the fact that they produce more timber than any other nation in the world. While he describes the western forests as "stagnant", "burning" and a resource being destroyed. Having watched thousands of acres of forest in the Catalinas burn the past few summers, do you think that private ownership of the national forests would result in better management? Why or why not?

3 (10 Points) Tomlinson states that one of the concerns of the report is the expansion of urban areas resulting in the conversion of forest lands into housing subdivisions and shopping malls. He also states that much of this is being offset by farmland being converted to forest land (Note: improvements in agriculture have meant that considerably less land is needed for farming and much of the former farmland in the eastern half of the U.S. has been converted to forest land by their owners). Given that the so called "urban sprawl" that has been underway in the eastern half of the U.S. for the past half century has resulted in an increase in forest land rather than being "paved over" as critics have feared is there any need, in your opinion, for Pima County to continue to try to enact strict land use controls intended to prevent undeveloped lands surrounding metropolitan Tucson from being developed? Why or why not?

4 (10 points) Give an economics explanation as to why it is more common for students attending colleges that are dormitory-based to study together than in commuter-based colleges like Pima College.

5 (10 points) Read the insert entitled "Are You Rationally Ignorant" on page 437 (NOTE: this should be about page 701 in the hard cover edition) and mentally answer the ten questions (you do not have to write these answers here). Then explain why it is either worth your while or not worth your while to seek and maintain current answers to these questions on an on-going basis. Are there benefits to you to knowing this information and do they outweigh the costs (time, etc.) of obtaining the information?

This post originally appeared on an external website

by air navigator Feb 13, 2006

Some students have pointed out to me that the chapter numbering on the Syllabus, assignments and tests do not match the chapter numbers in their books. Other students did not seem to have this problem, so I did some investigation.

The East Campus Book Store has the books for ECN 200 Basic Principles of Economics, ECN 201 Microeconomics and ECN 202 Macroeconmics together on the same shelf. All three courses use the same 7th edition text book by Roger A. Arnold. The only difference is that for the ECN 200 Basic Principles of Economics they have the hard cover edition (ISBN Number: 0-324-23662-x) which contains both microeconomics and macroeconomics. For ECN 201 Microeconmics they have a soft cover book (ISBN Number: 0-324-23670-0) which is identical to the hard cover book EXCEPT that it only contains the chapters that pertain to microeconomics. There is also a second soft cover book (ISBN Number: 0-324-23667-0) for ECN 202 Macroeconomics which is also identical to the hard cover edition EXCEPT that it only contains the chapters that pertain to macroeconomics. As I explained in the January 10th blog entry, students taking just ECN 201 or ECN 202 but not both should purchase the appropriate soft cover book as the price for one soft cover book was $35 LESS than the price of the hard cover book. But, those planning to take both ECN 201 and ECN 202 (either togehter this semester or one this semester and one next), should purchase the hard cover book as that book new was $71 LESS than the cost of both soft cover books.

I had a similar situation two years ago where there were both hard and soft cover versions of the text. It was a different publisher and author. That publisher used the same chapter and page numbers in the soft cover books as in the corresponding hard cover so it did not matter which book a student was using the page and chapter numbering was the same. But with this text it is not and there has been some confusion. I have gone through and changed the chapter references in the syllabi, take home tests and assignments where necessary to reflect both soft cover and hard cover chapter numbers. Below is a quick reference with links to all of the changed materials. This should clarify things for everyone.

ECN 202 - Macroeconomics: only Assignment 6, the final exam and the syllabus are affected as the first half of the book covers macroeconomics so the chapter numbering is the same. Assignment 6 and the final exam deal with the World Economy which is the last two chapters in the book and there is a gap in chapter numbering between Take Home Test and Assignment 5 and Assignment 6 and the final exam chapters.

ECN 201 - Microeconomics: Click on the links to be taken to the corrected items.

Syllabus

Assignment 1 The chapter references are correct.

Assignment 2

Assignment 3

Assignment 4

Assignment 5

Assignment 6

Take Home Test 1 No corrections are needed for Take Home Test 1.

Take Home Test 2

Take Home Test 4

Take Home Test 5

This should solve the matter for everyone. If you have any questions please see me.

This post originally appeared on an external website

by air navigator Feb 13, 2006

Brown Lung Disease, also called Byssinosis, is a lung disease that results from prolonged (often ten years or more) exposure to breathing of cotton fibers present in the air during the production of cloth from raw cotton (in the U.S. most textile mills process cotton fiber so the most common cause of Byssinosis in the U.S. is cotton fiber, in other countries it is caused by flax, hemp or other material fibers as well as cotton).

It is believed that byssinosis is the result of constant irritation and/or release of toxic substances by the fiber on the lungs over a long period of time. Byssinosis is characterized by shortness of breath, feelings of tightness in the chest and constant coughing. Continued exposure after onset of disease results in a reduced ability to breathe, especially exhale, which is very similar to the symptoms experienced by people with chronic bronchitis. There is some indication that smoking or occurrence of other lung ailments aggravates byssinosis. While "brown lung" is the term used to describe the condition, patients' lungs do not turn brown as a result of the disease.

According to the video and statistics cited by OSHA at the time of the implementation of safety standards to prevent the disease in 1978, about 100,000 or about 20% of the workers in textile mills in the U.S. were AT RISK of contracting the disease. After implementation of the new rules, OSHA statistics showed that between 1979 and 1996 an estimated 35,000 current and former textile workers (due to long period needed to develop the disease, most of these probably contracted the disease in the years prior to the implementation of the safety standards) actually had the disease and, of these, between 120 and 188 died from it in the period 1979-1996.

While it was unfortunate that some workers contracted the disease and a few died of byssinosis, the cost of the cure according to your book was the loss of 300,000 jobs in the textile industry in the U.S. Additional jobs were probably lost in service industries that provided goods and services to the workers (stores, restaurants, bars, banks, etc. all of which would have seen business decline and would have laid off workers due to loss of business from the unemployed textile workers) and services to the companies themselves (delivery people, suppliers of raw materials, machinery, etc.). In many cases the impact of the closing of textile factories could be tremendous in cases where the textile company was the major employer in the area. Also, for many of the workers jobs in the textile mills were probably both one of the few jobs for which they had skills and the textile jobs probably paid more than the few other low skill jobs.

Why was the actual rate of disease and death so low? There are a number of possible reasons. First, the disease generally occurs only after long exposure to breathing the cotton fibers. Many people got a start in the textile mills and then moved on to work in another industry. Second, many of those who spent their careers in the textile mills only spent part of their career or part of their working time in those parts of the factory floor where the fibers were concentrated. Finally, contracting the disease and the severity of it once contracted can be related to one's overall health. People with weak lungs are probably at greater risk than those with healthy lungs. Secondly, smoking and other activities that harm or weaken the lungs will increase the risk of byssinosis and this risk will be even greater in people whose lungs are weak to begin with.

While we cannot dismiss the deaths of 188 or so workers or the debilitating illness of 35,000 workers as an acceptable cost for the saving of over 300,000 jobs. But, at the same time, it is difficult to justify drastic actions that severely harm many to save a few especially when there are other alternatives. As your text and video pointed out, in the case of byssinosis, a mask that cost $1.49 per worker would have been a low cost interim solution. True, the masks were uncomfortable but that was better than losing one's job in a job market with few other possibilities. As companies renovated factories and built new ones they would have installed the new equipment in an effort to keep their existing labor force and attract new workers from the firms that had older factories. But incorporating new technology into the building of a new factory is considerably less expensive than attempting to retrofit new equipment into an existing structure.

The study of economics should show you that there is no such thing as a free lunch. Everything has costs and all economic activity involves tradeoffs between costs and benefits. The goal should be to find production processes that yield the most benefits with the least cost. But more importantly, activists and policy makers should consider the implications of the policies they are pushing. The workers in the textile mills were free to choose between keeping their jobs and risking the possibility of contracting byssinosis or seeking a different job. While their options may have been limited, they were still in the best position to analyze their personal situation and make a decision. Instead, union officials, Congressmen, bureaucrats, Supreme Court Justices, etc. in Washington and other places far from the textile mills and with jobs that would be unaffected by their decisions, made the decisions that cost over 300,000 textile workers their jobs.

For more information on lung diseases and occupational dangers affecting lung health see the
American Lung Association web page.

This post originally appeared on an external website

by air navigator Feb 20, 2006

In both the ECN 201 Microeconomics class and the ECN 200 Basic Economic Principles courses I assigned the same article by Murray Rothbard entitled What is the Free Market? and one of the questions asked in both courses was:

Explain why the socialist planners in the former Soviet Union were unable to take a bumper (i.e., very large) harvest of wheat and convert it to bread and other baked goods for consumption by consumers in cities throughout the former Soviet Union.

To date the few assignments I have received have all paraphrased Rothbard to the effect that the Soviet planners lacked a free market and prices to guide them. Some have also added that the absence of prices and profits also resulted in a lack of incentives to produce. While I have accepted these answers so far, it is clear that those answering the question didn?t really grasp why the free market and price system is important and how they work.

A real life story from my wife?s experience may help clarify the problem. My new wife is from Ryazan, a city in western Russia with about the same size population as Tucson. Ryazan is located about three hours by train or car south of Moscow. According to my wife, there were no stores with food for sale in the city in the period prior to the fall of communism in the early 1990s. Despite the fact that among the city?s industries was a large meat processing plant (the total output of which was sent to Moscow for sale) people had to travel by car (if they had one) or by train to Moscow to do their grocery shopping. My wife and her former husband had to travel by car with his parents (who owned the car) once a month to do their grocery shopping. The trip took three hours each way to get to Moscow and back and the rest of the day was spent in lines in stores trying to get food. Back in Ryazan they had a small apartment (for themselves and their two children) with a small kitchen and a refrigerator about half the size of contemporary American refrigerators.

I had previously visited Moscow and St. Petersburg (then known as Leningrad) in my senior year of college 1969 as a part of a Russian history course that included a 2 week field trip to the Soviet Union. I observed that life was drab but the people I saw and met had sufficient food, clothing and shelter. There was not much variety in the food ? mostly fresh potatoes and vegetables. Meat was very scarce and people?s main source of animal fat for energy was the lard that food was frequently used for cooking. Obtaining food required going from store to store and standing in long lines hoping they still had food in stock when you reached the counter. The clothing was dull and ill fitting. The colors were mostly dark blues, grays, browns and blacks and even these dark colors were dull compared to the same colors in clothes manufactured in the west. The quality of western clothing was so superior that a westerner could not walk down a street without having a dozen or more people approach them with offers to purchase the extra clothes they had back at the hotel. The ruble prices offered for the used clothing were usually in excess of the original price paid in the west. This despite the fact that the buying or selling of items outside regular stores was illegal. The housing was mostly small apartments.
This was the situation in Russia for most of its citizens under communist rule. Practically everyone was poor by western standards but it was not the absolute poverty of the third world. Things were bad but not desperate.

In a market economy prices for food in a city, like Ryazan, would be high. This would signal producers that there was an opportunity for profit and they would begin moving food to Ryazan to sell. But, without a market driven price system, this signal did not exist so the city?s plight did not come to the attention of the planners in Moscow. The other, non-market, signal that would have alerted the planners would have been large numbers of people dieing of starvation or masses of hungry people taking to the streets and rioting. But, there was no shortage of food in the sense that people were going hungry. Food was not plentiful and it was inconvenient to obtain it but, with effort, sufficient food could be obtained. Like a person with a long illness who has learned to live with his or her pain, the people of the former Soviet Union endured. Thus, in the absence of signals, the planners, occupied with trying to make all the economic decisions for a nation that stretched from the Baltic to the Pacific, easily overlooked Ryazan.

As my first described it to me when I first visited her in Ryazan in 2002, ??there was a fellow named Gorbachev in charge and things got really bad. Then one day things suddenly changed. Gorbachev was gone and food appeared in the stores in Ryazan?. The change was literally overnight as Russia went from communist central planning to a free market. The first thing that changed was money became important. Under the communists prices were set by the planners with some attempt to ration scarce goods. But, both the lack of good information and political meddling made most prices meaningless and rationing was done by having people wait in long lines or use political influence to obtain needed goods. Further, incomes did not vary much so everyone tended to suffer equally. Acquiring money through saving was not allowed. The government owned all the businesses so there was no place to invest one?s money. Starting one?s own business was illegal. Finally, it was illegal to take money abroad, but that didn?t matter because, the currency was basically worthless outside of the Soviet Union.

With the communists no longer in control entrepreneurs were free to begin making money by providing products to consumers. Farmers dug into their limited supplies of food that they had hidden for emergencies and began selling it in the cities. Making a profit, they returned home and began growing and scrounging anything edible to take to the cites to sell. Others, not in farming began noticing arbitrage opportunities where food in large cities, like Moscow, was more plentiful and therefore less expensive while in places like Ryazan it was scarce and expensive. They went to the places with less expensive food, purchased it and returned home to sell it at a profit. (The fall of communism meant that people were no longer paid when they took off from work, it also meant that gasoline prices were allowed to rise and trains, which were still run by the state but needed money to keep operating, were now making everyone pay the regular fare. In the past paying was more of an honor system which most people chose not to honor.) It was thus profitable for people out of work to specialize in traveling long distances to obtain food and other goods for re-sale in their home cities but costly for people with jobs. In a market system goods that are in great demand and short supply command high prices while those which are in large supply and/or not in great demand have lower prices. While planners had to try to figure everything out in order to make the economy run (and when they did not know everything, which was all the time, goods became scarce), entrepreneurs in a market economy don?t have to know everything. They just have to be able to identify which goods command a high price and can be produced or obtained at a lower price somewhere else.

The Russia I visited in 2002 was vastly different from the Soviet Union of 1969. Food was plentiful and in greater variety. Clothing was also plentiful and of comparable quality to western clothing. In 1969 you could literally spot a foreign tourist a mile away by their clothing. In 2002 the only way to identify a western tourist was if they spoke in a language other than Russian or, in the case of Americans, if they wore a wedding band on their left hand (Europeans generally wear wedding bands on their right hands). I even took a three day bus tour with my then fianc?e using a Russian name and not speaking (I don?t speak Russian) and easily passed myself off as one of the locals.

Prior to the fall of communism people, including economists, were wondering if it was possible to convert from the communist economic model to a market economy peacefully given the huge distortions created by the communist central planning. In the 1999 book The Commanding Heights. The Battle Between Government and the Marketplace that is Remaking the Modern World. authors Daniel Yergin and. Joseph Stanislaw describe the situation in Poland when the communist economy collapsed. The communist generals who had staged a coup earlier and replaced the civilian communist rulers in a last ditch attempt to save the system gave up and turned the government over to Solidarity. American economists, trained in free market economics under the tutelage of Milton Friedman and the University of Chicago, and fresh from their success in turning the Chilean economy around after its short bout of communism under Salvador Allende were called in to perform the same miracle in Poland. But Poland was a complete disaster. With food supplies expected to run out in the cities in a matter of days and mass starvation imminent, the American advisors advised going cold turkey by instantly abolishing all forms of government control over the economy and letting it move to a free market instantly rather than the gradual transition the many were urging. The government declared that effective at midnight a couple of days later the transition would occur. The American economists crossed their fingers and made reservations to leave on the first plan out after midnight just in case the experiment didn?t work and chaos ensued. The transition to a market economy took place at midnight as planned and by 5 a.m. there were lines of farmers making their way to the cities with food. Within days the food shortage had ended.

Seeing Ryazan in 2002 I could easily believe my then fianc?e when she described the change as no food one day and food suddenly appearing within days of the unreported (in Russia) coup that moved the country from communist central planning to a market economy literally over night.

This post originally appeared on an external website

by air navigator Feb 21, 2006

In yesterday's blog entry about the differences between market prices and socialist central planning I mentioned that while in Russia four years ago I had traveled under an assumed name for a few days. There was nothing sinister about this but it is a good story.

My then fiancee lived in Ryazan, Russia and the purpose of my trip was to visit her for two weeks. Ryazan is an industrial city that is home to about a half a million people. Since it has little to offer in terms of tourist attractions, few tourists visit. Wanting to make my trip more interesting, my fiancee checked the local papers and found an ad from one of the new tour companies that had been formed in recent years for a three day, two night bus tour of the Golden Ring a group of nearby cities which, like Ryazan, traced their cities back a thousand years. Again, like Ryazan, each had its Kremlin (fort) at the center with some old churches and simple palaces as well as historical museums. The package included hotel and restaurant accommodations as well as the bus, tour guide and museum passes all for a ruble price per person that worked out to U.S. $90 at the current exchange rate. I wired her $180 and she purchased two tickets.

When I arrived a couple of weeks later she informed me that the bus that was to be used for the tour had broken down and the tour canceled. However, they did have another four day, three night tour package for St. Petersburg and, despite the fact that it was a larger package in terms of both length and distance traveled, she had been able to talk them into substituting that package for the one we had purchased at no extra charge.

The tour started at four in the afternoon with the first night spent traveling to St. Petersburg. While waiting for the tour bus to arrive, she casually mentioned "Oh, by the way..." and informed me that the tour company had recognized my name as not being Russian and told her that their tours were designed for Russians, not foreigners. She quickly explained that I had been to Russia before and was familiar with local hotels and restaurant accommodations. She also added that she would translate for me. They then gave her the real reason for their concern about me and that was the fact that hotels and museums had discriminatory pricing policies in which foreigners were charged a higher price than Russians. Given the exchange rate and economic conditions in Russia the higher prices charged foreigners were very competitive compared to those charged in other parts of Europe which left the foreign tourists feeling they had found a very good deal. Further, since most foreign tourists did not speak Russian and did not understand the Russian Cyrillic alphabet, they were completely unaware of the difference. These hotels and museums recognized that they were dealing with two different markets, foreign tourists and domestic tourists, each with separate demand curves. Language was the main barrier separating the foreign and domestic customers. In the case of hotels there was also a second barrier in the form of the legal requirement that hotels are required to collect and hold the passports of their guests (in Russia passports are issued to everyone and used as national identification cards as well as identification for foreign travel) making it impossible for guests to hide their identities.

Since it served the local market, the travel company was under great pressure to keep prices low so that they were affordable for the average Russian. Their profit margin must have been very thin because they were worried that the extra fees that could be charged for my presence would wipe out most of their profit. But they also did not want to lose the $180 we had paid. So they listed me on their itinerary as Sergi Ivanov and instructed my fiancee to make sure that I did not speak in the hotel lobby or in the museums.

It was a great trip and I was able to keep my mouth shut and maintain my cover throughout the entire trip. Checking in at the hotel was interesting. After traveling all night the people on the bus were anxious to check in, freshen up and begin the tour of St. Petersburg. Our tour guide took my passport and told me to stand in the corner, away from the desk and then she and Bella, my fiancee, joined the surging crowd that was converging on the reception desk with its two clerks. Taking advantage of the chaos and confusion as well as the fact that this particular hotel catered to a mostly Russian cliental and was not used to foreign visitors, the guide was able to get me registered without showing a passport.

The St. Petersburg tour was great. In the museums I took a moment to study the price signs in the lobby which were posted in Russian, English and German. It didn't take much to see that the rates next to the English and German postings were a little more than twice the size of the rates next to the Russian posting. But a quick currency conversion (at that time 30 rubles equaled U.S. $1 so all I had to do was divide the posted ruble rate by 30 to get the dollar value) showed me that it only cost about $3 for foreigners and just under $1 for Russians to visit the museums.

Upon returning to Tucson, the story of my covert side trip was a hit with my colleagues at work. Except for one, Edward, an adjunct instructor who had emigrated from Russia to the U.S. about ten years before. Instead of the usual laugh, Edward became very serious and told me about his experience. Edward is an engineer and when he first came to the U.S. he got a job with a small engineering firm which had just won a contract in Russia. Seeing that Edward was from Russia and spoke Russian, the president of the firm had him join the other two engineers being sent to oversee the project. Not being a U.S. citizen yet, Edward had to use his Russian passport for the trip. Upon arriving he and the other two checked into the hotel. The other two engineers were each charged the ruble equivalent of $25 per night for their rooms. Edward, with his Russian passport, was charged the ruble equivalent of ninety cents per night for an identical room.

This post originally appeared on an external website

by air navigator Feb 22, 2006

In yesterday's blog entry I stated that the hotels and museums in Russia were practicing price discrimination when they charged foreign tourists different rates than local Russian tourists. This is not the same as racial or other types of discrimination whereby people are denied rights due to their race or some other identifying characteristic. Instead, it describes a situation where seller's can take advantage of the fact that not only are certain groups of consumers willing to pay more for a good or service than another but it is possible to charge each group what it is willing to pay AND prevent the higher paying group from paying the lower prices offered to the other group.

All of you should understand that the price of a good or service in the market by the intersection of the demand and supply curves. However, there are some people who fall along the portion of the demand curve that is above the equilibrium point. These people are willing and able to pay a higher price for the good or service but, seeing they can get it for the lower market equilibrium price, end up paying the equilibrium price. The difference between the price an individual is willing to pay and the equilibrium price that that individual actually pays is known as consumer surplus. Now, if I, as a consumer, drive into a gas station with my tank on empty and am willing and able to pay $2.90 per gallon but see that the gas is offered for $2.30 I am not going to insist that the attendant accept $2.90 per gallon for the gas I purchase. In fact, I will be angry if the attendant, somehow knowing that I am willing to pay $2.90, attempts to charge me that price after charging the customer ahead of me $2.30 for the same grade of gasoline. Given the opportunity, the consumer will always elect to pay a lower rather than a higher price, ceteris paribus, even though he is willing and able to pay the higher price.

The opportunity for price discrimination arises when a seller is able to first identify two or more different segments of consumers with each segment having a different price they are willing to pay. Second, the seller must have some control over price. Monopoly, monopolist competition and oligopoly all allow sellers to exercise some control over the price they charge as the products these sellers offer are to some degree unique. Price discrimination is not possible under pure competition since the good or service offered by each seller is identical to that of all other sellers of the good or service enabling consumers to get the lower price simply by going to a competing seller. Finally, and most importantly, it must be impossible or too costly for a buyer to purchase the good or service at the lower price and resell it to buyers in the higher price category at a price between what she paid and what the seller is charging that group. If such
arbitrage
opportunities exist any price discrimination will soon disappear.

The conditions described above existed in the hotel and museum industry in Russia and that is how they were able to practice price discrimination. Another example of price discrimination closer to home is the sale of seats on airplanes. Think of two passengers sitting next to each other in tourist class on a flight from Tucson to Chicago. One passenger paid $1,200 and the other paid $300 for the same service. How is the airline able to get away with this? Well, the first passenger is a businesswoman whose employer paid the $1,200 to get her to Chicago to close a multi-million dollar deal while the second passenger is a retired grandfather on a budget who had to purchase his own ticket. Being retired, the grandfather's time is flexible so he was able to purchase a ticket twenty-one or more days before and able to schedule his departure and return such that he will be spending a Saturday night in Chicago. The businesswoman's employer would have liked to pay $300 for her ticket but when the client called the day before and said they were ready to sign they had to send her immediately ? they were not about to lose a multi-million dollar deal by trying to save $900. Further, they are probably paying this woman a high salary and cannot afford to have her sitting around Chicago after the deal waiting until Sunday morning in order to qualify for the $900 savings. Business needs to respond quickly and usually does not have the luxury of 21 day advance reservations. Also, it is usually less expensive to pay the extra cost of the tickets than lose the employee's services for a few days (to say nothing of the fact that the employees prefer to be home with their families on weekends rather than sitting alone in a hotel room in a distant city). Tourists have the luxury of planning ahead and don't mind spending Saturday at their destination but they are also more price sensitive to price. The 21 day advance reservation and Saturday night layover requirements are effective ways to segregate the two groups of consumers. There is also no easy or inexpensive way for tourists to purchase extra tickets and make a profit selling them to business so the price discrimination works in this case.

The Anderson book also gives the example of monopolies charging more for the first unit of the good or service than for succeeding units. This works when the majority of the consumers have a compelling need for first unit of the good or service but not for additional units. Electricity is a good example here. It is almost impossible for a modern home to be without electricity. A certain minimal amount is needed each month for lights, alarm clocks, cooking, heating (or starting the heating unit if it is not electric) and, in Arizona in the summer, cooling. But after the basic electrical needs are met other uses are nice but not a necessary. It is necessary to use the air conditioner in summer to cool the house down while we are in it. It is nice, but not as necessary, to keep the house cool all day so you can walk into a cool home after work and not have to wait for it to cool down. Similarly, a twenty minute hot shower on a cold winter morning is great but two are three minutes are all that is necessary to clean yourself. Thus, people will purchase the first necessary units but are reluctant to spend the same amount for additional units. Recognizing this, the monopolist offers the additional units at lower prices to induce individuals to keep consuming past the first required purchase. (NOTE: this second example is also a good example of diminishing marginal utility where the satisfaction gained from consumption of the good or service declines with each additional unit consumed. In this case in order to keep the cost of the satisfaction or utility the same for each unit purchased, the price paid for each additional unit must be reduced proportionally.)

This post originally appeared on an external website

by air navigator Mar 2, 2006

After doing the assignment and take home test for section two of the telecourse, which dealt with the Philips Curve and Inflation, a student asked if the coming retirement of the Boomer generation (of which I am a member) would be inflationary.

The simple answer to this is yes, as the removal of such a large section of the population from the workforce would result in a noticeable reduction in the labor force and decline in production of goods and services. Further, with their income from Social Security, pensions, 401(k) plans and IRAs, this large group, who would not be producing, would still be exerting significant demand for goods and services. The same amount of money chasing a reduced amount of goods and services would be inflationary as prices rose in response to people bidding up the prices of the shrinking supply of goods and services.

Having said that, do I think that this will happen? My answer to this is no. There are four reasons why I don't think that, other things being equal, the pending retirement of the Boomer generation will be inflationary.

The first reason is the fact that, based upon both the past actions of this generation and present indications, a large number of these people will not be retiring. Many of the members of the Boomer generation do not have sufficient savings to be able to afford retirement. A number of these absolutely cannot afford to retire and others cannot afford to retire and maintain the life styles they are accustomed to living. Many others, including me, have indicated that they have no interest in stopping working. These people do not want to leave an active life of productive work and spend the rest of their days in idle leisure. Not only is the prospect of doing noting not attractive to these people, but both scientific studies and our own observations of our parents' and grandparents' as they aged have shown that people who remain active and productive tend to be healthier and live longer than those who simply stop working all together. Anyone who doubts this should take a trip down to Green Valley during the winter to visit the Green Valley Computer Club. This is a large active group of older people who volunteer as much as 40 or more hours per week running a computer training operation that rivals anything that Pima Community College offers in this area. I was invited to address this group a few years ago and was impressed by what this group, most of whom appeared to be in their late sixties or early seventies was doing. I was dumbfounded when I learned that most of the leaders who were showing me around were really in their late eighties and early nineties!

The second reason I feel that the pending retirement of the Boomer generation will not be inflationary is the global economy. While nations with advanced (in terms of economic development) economies - the U.S., Canada, Australia, Western Europe and Japan - have aging populations, the populations of the emerging economies of Asia, Latin America, the Middle East and Africa are disproportionately young.

Outsourcing, or the shifting of work from one nation to another, is already an established practice for other reasons. The gaps in the workforce caused by the retirement of large numbers of people in countries like the U.S. can be offset by shifting the work to places like Asia or Latin America who have the population to do the work. Americans have the money to purchase the goods and these countries have the workers to produce the goods.

The third reason for being confident that the possible exit of large numbers of workers from income producing work in the U.S. due to retirement will not be inflationary is immigration. Again, aging populations in the U.S. and other economically advanced nations is offset by disproportionate numbers of younger workers in the developing nations. Immigrants are not just poor peasants from Mexico or Central America coming here to take low wage jobs that require few skills. Instead, they include people at all levels. Rupert Murdoch, the owner of the Fox media empire is an immigrant. Last week's Wall Street Journal had an article about how as President Bush was finding an ally in the new Prime Minister of India, a leading critic of the President was the daughter of that same Prime Minister. However, she was not a foreign critic of the President but rather the leader of an American Civil Liberties Union (ACLU) team fighting the Bush Administration in court over their handling of prisoners in Guantanamo. Her father may be the Prime Minister of India, but she is a Yale educated lawyer, member of the American Bar, living and working in the U.S. and married to an American citizen (the article did not indicate whether she was a citizen or simply a legal resident). The fact is, the U.S. is a relatively open nation which offers great opportunity and this attracts people from all over the world. The U.S. has always been a nation with a shortage of labor and from the early days when we were still just a string of British colonies along the Atlantic coast we have relied on immigration to provide the labor need to build the country.

Finally, we have capital and technology. Capital is expensive and, other things being equal, it is less expensive to use labor rather than capital. But when labor is in short supply (as it has been throughout most of America's history) business is forced to invest in capital. Critics constantly bemoan the decline of the manufacturing sector in the U.S. But we are still a major producer of manufactured goods and our output of these goods is increasing rather than decreasing. Manufacturing is as large as ever in the U.S., it is just that: 1) other sectors are growing as well so the proportion of the economy devoted to manufacturing is declining; and, 2) due to automation, the number of jobs in manufacturing are declining. Today, production processes that used to employ dozens now employ a half a dozen or less aided by robots and other automated equipment. The exit of the Boomers, if it occurs, will be further incentive to invest more in capital and technology to make up for their loss.

Contrary to Luddite mythology, automation and advancing technology creates rather than destroys jobs. Ceteris paribus, automation enables business to continue to expand without having to increase labor proportionately. The main reason why business invests in more capital rather than labor is that the needed labor is not available. When the labor needed is already fully employed the only way for one company to expand is to bid workers away from another company ? this results in an upward spiral in labor costs, which is inflationary, without a corresponding increase in output. Increased capital investment solves this problem in two ways: 1) it makes each existing worker more productive by allowing them to produce more in the same amount of time with the same or less effort; and, 2) it increases the pool of labor by enabling people who lack the physical and/or intellectual capabilities to do the job under the previous conditions to now do the job. For example, think of physical labor such as road building. If done with a pick and shovel the work is not only slow but the jobs can only be done by people who are physically strong. Bring in motorized earth moving equipment and not only can one worker now move as much dirt as a dozen or more using picks and shovels, but the person driving a piece of heavy equipment does not have to meet the same demanding physical standards, thus allowing employers a larger pool from which to hire. Early in my banking career I designed an automated system for doing the paperwork needed to process mortgage loans. Prior to the computer system this job required excellent typing skills as well as years of experience in order to know which documents to prepare for a given loan and how to prepare them. Increasing demands for home mortgage loans and increased complexity due to new government regulations put great pressure on the industry to expand but the cost of recruiting experienced labor from our competitors was prohibitive. With the system I designed it took about the same amount of time to produce a loan package. However, instead of 40 to 60 words per minute typing skills I could use people who typed at 18 to20 wpm. Instead of some post secondary education and ten years or so of experience, the new system allowed us to hire people right out of high school, train and have them producing mortgage loan packages within two weeks. We were thus able to increase our loans without driving up our wage costs.

It should be noted that most Boomers put off having children until they were in their late thirties or early forties. By deferring the start of their families for about twenty years we, in effect skipped a generation (it takes about 20 years for a new generation to reach adulthood). The so called baby bust refers to the roughly twenty year period when most of the boomer generation were not having children which resulted in the generation that immediately followed us being very small. Our own children are now reaching adulthood just as we are getting ready to retire. This generation is as large as the Boomer generation but, since it is just coming of age and beginning to enter the labor market, it has not had time to acquire the skills and experience needed to enable it to replace us in the workforce. However, technology could make up for much of the experience and skills that our children lack thereby enabling them to replace, to some extent, the retiring Boomers.

All of the above factors will come into play as individuals and individual businesses adjust to changing conditions. I am confident that, if left to itself, the market will adjust and the transition will be relatively smooth. The chattering classes, of course, will be devoting ever increasing amounts of time to worrying about this perceived problem over the coming years. However, anyone who feels the temptation to succumb to their doom and gloom predictions, should go to their local library or the internet and search out magazine and newspaper articles from the 1930s dealing with the perceived demographic crises of those years. Due to the Depression and other factors, the birthrate had dropped noticeably giving rise to fears that there would be too few people in coming years to do the work necessary to keep society going. That generation went on to push the economy to new highs and, at the same time, produce the Boomer generation.

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by air navigator Mar 3, 2006

When we speak of market transactions as being voluntary in a free market we are saying that the use, or threatened use, of physical force is not being applied to either of the two participants in the transaction in order to make them enter into that transaction. Unfortunate or unpleasant circumstances may leave a person with little or no choice as to whether or not to enter into the transaction but this is not the same as one of the participants or his/her agents threatening force to complete the transaction.

For instance, going to the dentist to have a cavity in one of my teeth filled is not something that I look forward to having done and it is certainly not something for which I enjoy spending my money. In fact I take steps to try to prevent cavities so as not to have to enter into such transactions. When I do get a cavity I have the choice of either paying to have it treated or living with the pain and knowledge that I will eventually lose the tooth or worse. So I go to the dentist and part with my money knowing that paying for the treatment is the better of two unpleasant and unwanted choices. Even though I view my choice as being the lesser of two evils I still freely choose to pay to have the cavity filled.

This is different from the dentist deciding that, because cavities are not healthy, people must be made to have them filled. To do this the dentist forces his/her patients at gunpoint to come in and pay to have their cavities treated. Whether the dentist personally confronts the patients or has an agent do the threatening, the use, or threat, of force by the other party to the transaction means that this is no longer a voluntary decision on the part of the other party to the transaction. The same would be true if the dentist, rather than personally threatening the patients or hiring others to do the threatening got the government to make it illegal for people not to have their cavities treated and used the police to force people obtain treatment. (While it may seem like a no brainer to have one's cavities treated, a person could choose to live with the discomfort of a bad tooth if treating the tooth meant using money that was needed for something more important to them such as to purchase life saving medication for a loved one.)

The above example would be the same if it was the patient that threatened or used force against the dentist to fill a cavity at a price lower than what the dentist wanted to charge. Getting laws passed to limit what a dentist could charge to fill a cavity (and enforcing it with fines or prison if they insisted on charging a higher fee) would also be an example of force to make one party in the transaction participate unwillingly.

Circumstances are not always good and many economic decisions are made on the basis of choosing the lesser of two undesirable choices. But so long as we are free of man-made force and allowed to make the choice on the basis of the environmental obstacles alone, the choice is voluntary.

This post originally appeared on an external website

This post originally appeared on an external website

This is a reminder that the Spring 2006 semester is rapidly drawing to a close.

As posted in your syllabi, the following dates are the final dates for turning in work for each of my classes are as follows:

ECN 200 Telecourse .......... 4 p.m. Friday May 12, 2006

ECN 201 Microeconomics Self-paced at NELC ....... 7 p.m. Monday May 8, 2006

ECN 202 Macroeconomics Self-Paced at NELC ....... 7 p.m. Monday May 8, 2006

Because of the short window for posting grades, I cannot guarantee that work received after these dates will be corrected in time for grade posting. Students who turn in assignments after the due date may receive a temporary Incomplete grade with a grade change being posted after I have had time to correct their work. Further, I am reserving the right to NOT accept work after the official end of the semester on May 16th.

As an incentive to submit all work, including the mid-term and final exams, by the above dates I will be awarding 10 bonus points to all who have their work in by the above dates.

This post originally appeared on an external website

I have finished correcting about half of the work for my Northeast Learning Center Macro Economic Principles class (ECN 202) and have posted those grades to Banner Online this morning. The students who received these grades should be able to view them through their Banner Online accounts tomorrow. I may get some additional grades posted this evening and any additional ones posted this evening will be available for viewing tomorrow as well.

I have been inundated with work and my ECN 200 Telecourse still has until this Friday to submit their work, but I am working as fast as I can to correct work and post grades. It is still my goal to have all grades for ECN 202 and ECN 201 posted by Friday (5/12) so that they will be viewable by students starting Saturday. I will also try to post grades for ECN 200 students as they become available.

Please check this blog daily for updates on grading.

This post originally appeared on an external website

While I have not finished grading all of the NELC ECN 202 Macro work, more assignments and tests were corrected and final grades were calculated and posted for additional students last evening and this morning. The system is showing me that everything I posted yesterday has been "rolled" which I am interpreting means that those items have been uploaded to the main system and are available for viewing by the student. Further, when I added grades for additional students last night I noticed that those that had been entered in the morning were showing as having been "rolled" so I am assuming that the system is being updated during the day as well as in the evening so grades may be visible to students sooner than I am predicting.

I have also started correcting the final exams for the NELC ECN 201 Micro class and have posted final grades on line this morning for those whose final grade was waiting for the final exam only. In the case of both the Micro and Macro class those students who handed in work throughout the semester will probably see their grades online sooner than those who submitted everything on the last day.

Finally, I also have collected final exams for some of the students in my Community Campus ECN 200 Telecourse and expect to have these corrected this evening and grades posted on line for those who had previously submitted everything but the final exam.

REMINDER FOR ECN 200 TELECOURSE STUDENTS the deadline for ALL work for this class is FRIDAY MAY 12TH AT 4:00 P.M. work submitted after that date will probably be given an incomplete with a week to complete it before I simply enter the grade earned as of that point. The exception would be students from whom I have heard nothing all semester in which case I assume they abandoned the course and give them an 'F'.

This post originally appeared on an external website

As of this morning more than half of the grades for my NELC ECN 202 class have been posted to Banner Online and I am quickly wrapping up the grading and posting of those grades.

I am also moving ahead with the correcting of work for my NELC ECN 201 and my Community Campus ECN 200 Telecourse. Some grades have already been posted to Banner Online for both of these classes and should be available for viewing online today. More will be posted tonight and over the weekend.

I am receiving conflicting dates for the closing of the posting window from the college. The original date was Monday May 15th at 10 p.m. but I have also been told that it would be open until Monday may 22nd. I am still targeting May 15th as the date for completion for having all grades entered online.

Note to students in my ECN 200 Telecourse for Summer: The syllabus is available from me via email. Please email me at nugentwork@yahoo.com and I will send you a copy. I expect to begin updating the course webpage (http://www.nofreelunch.bravehost.com)in the next few days and will make the syllabus available online at that time. I will also be posting the assignments for summer online soon. Both the syllabus and assignments should be available in paper format from the Community Campus LRC in about a week and paper copies will also be available at the course introductory session on Wednesday June 7, 2006 at the Community Campus.

This post originally appeared on an external website

Additional papers were corrected today for all classes. All papers received to date for my ECN 200 telecourse have been corrected and all letter grades posted. I still have two or three students who have not turned in all of their work and will probably receive an Incomplete (I) unless I am able to receive and correct it prior to 10 p.m. on Monday evening. HOWEVER, WORK FROM ECN 201 AND 202 WHICH HAS ALREADY BEEN RECEIVED WILL RECEIVE PRIORITY AND THAT WILL BE POSTED BEFORE ANY MORE ECN 200 WORK IS CORRECTED. THE DATE FOR TURNING IN WORK FOR A GUARANTEED GRADE HAS PASSED. There are also 2 or three people in the ECN 200 class from whom I have received no contact for the entire semester. Unless I hear from these people prior to Monday evening, they will receive an 'F' for the course.

ONE ADDITIONAL COMMENT ON THE ECN 200 CLASS GRADES - EVEN THOUGH I HAVE BEEN POSTING GRADES FOR THE PAST COUPLE OF DAYS, AS OF THIS EVENING BANNER ONLINE WAS STILL INDICATING THAT IT HAD NOT ROLLED THE GRADES. IF YOU ARE IN THE ECN 200 CLASS, TURNED IN ALL YOUR WORK BY 4 P.M. YESTERDAY (FRIDAY MAY 12TH) AND CANNOT READ YOUR GRADE IN BANNER ONLINE PLEASE EMAIL OR CALL ME AT WORK AT 206-6569.

Banner Online is not available for posting on Sundays so no grades will be posted tomorrow (Sunday May 14th). However, I will continue to correct papers tomorrow and will be posting grades at 7 a.m. on Monday morning.

This post originally appeared on an external website

Two business people who I frequently work with as part of my regular job with the Pima Community College Center for Business Solutions have contacted me and asked for assistance in locating new employees for their companies. Both companies are local and growing.

The first company is a local software development firm located entirely in Tucson but with customers around the U.S. and Europe. Their sales of their software products have reached the point where they need a help desk person to provide help to clients who call with questions or problems. Please email me if you are interested and I will send contact information to you.

The second is a local company that is growing and has a number of positions open. Here is the position description and contact information:

Are you looking for fun and exciting employment? Online Self Storage, Inc.
is currently searching for sales-oriented individuals who enjoy working in a
friendly call center environment. We are looking for 30 - 40 employees who
are:

Highly energetic with a positive attitude
Must be able to multitask
Basic computer knowledge
Use of the Internet
Telephone skills
Call center or sales experience
Attention to details
Loves to exceed goals
Bi-lingual Spanish a plus, not a must

We are offering competitive pay and weekly bonus incentives. We have
immediate positions available for full time, part time, temporary and
permanent positions. We also provide friendly teams with supportive
leadership plus training & coaching! Close to bus line. Inbound Calls ONLY!

Contact
Online Self Storage, Inc.
Gloria M. Moreno
520-407-8117
6740 N. Oracle Suite#100
Tucson AZ 85704

This post originally appeared on an external website

I have finished correcting all assignments received through this evening and have posted grades for all students in all three of my courses.

A total of 8 incomplete grades were given ? two in ECN 200, and 3 each in ECN 201 and ECN 202. One of the ?I? grades in ECN 201 and one in ECN 202 were requested by students with a reason. The remaining six ?I? grades were given to students who had missing work which I was either informed would be late or which may have been submitted on time and lost. In the past week I have been inundated with 200 or more assignments and tests coming from four different locations plus email. Some students dropped off paper copies of work at the NELC and emailed me copies of the same work. Out of this deluge there are a total of six assignments/tests from four students which are unaccounted for and have possibly been lost ? the remaining missing assignments are known to be either in transit to me or have been promised by the students in question. The students whose work may have been lost will receive the extra credit for having the work in on time and I will work with them to either get copies of the missing work or arrange to calculate their grade so as not to be penalized for the lost items.

Other than this, everything is in order and all of you should be able to view your grades today.

I have enjoyed having you in my classes and want to wish all of you the best of luck for the future and hope you have an enjoyable summer.

This post originally appeared on an external website

Economics 200 ? CRN 31249
Summer 2006

Assignment 6

Read the article entitled Imports? Never! by T. Norman Van Cott (found at http://www.mises.org/story/1807) and answer the following questions.

1 (10 Points) According to the author, which of the two scenerios ? cheap foreign imports or expensive foreign imports (with "cheap" and "expensive" being relative to domestic American prices for these products) are bad for the U.S. economy? Why?

2 (10 Points) What does the author mean by the statement "What protection teaches us is to do to ourselves in time of peace is what enemies seek to do to us in time of war"? How are peacetime laws designed to prevent or limit the importation of foreign goods the same as wartime actions by one's enemies to prevent their importing goods from abroad?

3 (10 Points) Why are we better off economically when we are able to import foreign goods for a lower price than what we produce domestically?

4 (10 Points) If my household were considered a nation would my family and I be better off trying to raise chickens on our townhouse (for eggs and meat) rather than "importing" eggs and meat from a "foreign" source such as Safeway or Fry's? Why or why not? What is the difference between me "losing" my job as a chicken farmer and butcher (in a townhouse) to competition from Fry's and an American steelworker losing his job to a "foreign" producer from Korea?

5 (10 Points) Explain why cheap foreign imports raise our standard of living and make us better off economically.

This post originally appeared on an external website

NOTE!

Test 5 is the FINAL EXAM and must be taken at the Community Campus Test Center.