Public Goods Through the Eyes of a Freshman

A Public Good Through the Eyes of College Freshmen

-Mike Moffatt

a copy of this article can be found at http://economics.about.com/cs/studentresources/a/public_good.htm

so, i thought i'd do a little blog on this article cuz it kinda made me laugh and also talked a little about public goods too.

it gives a prettymuch textbook defenition of public goods in the first part. it also gives me a little hope that if i don't happen to pass the AP exam there's still hope because the question that the article shows answers to was on a midterm for a freshman econ class. the question was simply to define a "public good."

that, and because it was kinda entertaining to read some of the answers. i hope we all did better than that on our test. haha.

DMP and Fort Atkinson

so, i was pondering upon what i could write my blog on this fine week, and was informed that the city hired a few new people to work this summer because some of the people who worked last year decided not to return for another summer.

upon hearing this i began a small bit of remeniscing which gave me an idea as to what to write about for this blog.

last summer i was hired by the fort parks department as a seasonal employee because the city is a little short handed with all of the summer activities and increased use of parks and playgrounds etc. to sum up my job, i pick up trash and get baseball diamonds ready for games. i do this work with anywhere between 0 and 3 other people depending on the time of day and time of the summer. when i thought about this more, it dawned on me that it was a prime example of diminishing marginal product.

at the beginning of the summer it was myself and one other person in the morning working on 'doing rounds' (thats how we refer to checking/changing all the trash cans around the various parks) with one other joining us in the afternoon to get all of the 5 baseball diamonds ready for the games to be held in the evening.
with just the two of us working in the morning we would finish doing rounds by approximately 830 in the morning. we would finish the first two baseball diamonds by noon, and when the last person would join us we would finish the last 3 diamonds in the afternoon.

later on in the summer, another guy joined us, making the grand total 3 workers in the morning and 4 in the afternoon. our workload did increase, but only to what we could still manage to do in one day. that increase was only 2 extra baseball diamonds a day.

so, if you do the math, we went from having 2 people for 4 parks worth of rounds to 3 people, decreasing the average number from 2parks/person to 1 and 1/3 parks/person. we also went from 3 people doing 5 diamonds to 4 doing 7. an average of 1.66 diamonds/person to an average of 1.75 diamonds/person. so for average total work, we went from 3.66 parks/person to 3 parks/person. (1 parks worth of 'rounds' is worth approximately the same amount of work as preping 1 baseball diamond).

so with the extra person, none of us was actually as productive as before. if you need further proof of DMP in the parks department, simply look at how long it took for us to do things. when it was just hte two of us working we would finish rounds by about 830. with three people, we wouldn't finish rounds until close to 930 (w/a 15minute break @ 845).

yea, i know its been kinda a theme in my blogs/comments, but i still think its real cool how you can find econ in just about everything. so i just thought i'd share this little epiphany with the rest of you.

When Stock Prices Go Down, Where Does the Money Go?

so, i've often wondered this question myself, so when i saw the name of the article, i had to read it. it turned out to be fairly insightful, and i thought maybe i'd share it with the class.

When Stock Prices Go Down, Where Does the Money Go?
by Mike Moffatt

so, Mr. Moffatt explains in this article where the money goes in the stock market. basically, he says that no matter how many people buy or sell a share of stock, the market will always break even. by this he means that all of the gains of the people who sold the stock on a profit will equal all of the losses by people who sold on a loss. he uses an excellent example involving AOL in order to explain it all handily.

although i understand this concept of how the profits in the market will equal the losses, i can't exactly comprehend how the market can go up collectively over a long period of time. i think he tries to explain it near the end of the article, but i still just can't quite grasp it. if anyone could shed some light on the topic, i'd really appreciate a post. thanks.

p.s. if you want to read the whole article because my explaination didn't quite cut it, here's the link: http://economics.about.com/cs/finance/a/money_lost.htm

The Winner's Curse

so, i stumbled upon an interesting article recently that said it had something to do with game theory.

the article was entitled "The Winner's Curse - Oil Field Economics and Baseball"
http://economics.about.com/cs/baseballeconomics/a/winners_curse.htm. it was written by David Marasco.

Mr. Marasco points out some interesting similarities between oil executives in the 1960s and baseball general managers today. He explains it in terms of the "winners curse." according to him, the winners curse is what happens when all parties involved in the purchase of something are underinformed. udoubtedly, some people will pay more than others for a product because they believe it is worth more than others. The winners curse is what happens when the person who paid more overvalued the product and ends up losing money.

as far as i can tell, the game theory comes into play when both oil companies and general managers began realizing that they were being bitten by winning and started to bid only fractions of what they thought their player or potential oil supply was worth. firms had to decide how much they were willing to bid on a player or reserve of oil based on both how much they thought it was worth and how much of that value they were willing to pay.

if several firms thought that the player or reserve was worth the same amount of money, but one firm was only going to pay 65% while another was willing to pay 70%, the firm willing to pay 70% would get the item while the other was simply left with its money to spend somewhere else. if the player lived up to standards, then the firm that won gained income from the player or oil. if the firms had overestimated the value, the firm that won lost money while the firm that lost stayed the same.

another place the game theory came into play was when new firms entered the markets for either oil or a new general manager was hired. this facet of the game dealt with letting the new people in on the secret of not getting bitten by the winners curse or not. for oil it was relatively simple. let them do it and let them lose money to learn, but for baseball its different. the salary cap on each team is reevaluated every year, so buying an expensive player means your teams resources go up next year, while other teams' go down. this means teams have to weigh whether or not to let the new guy in on the secret to keep their ability to spend higher or to stay quiet and let him make a fool of himself.

either way, its really amazing to me how very similar these two industries are while still being nowhere near each othere as far as what they provide.

Iraq Affordable?

http://www.msnbc.msn.com/id/17665432/
This article "Is the Iraq war a relative bargain?" by the Associated Press is an interesting read. It points out some things that I didn't know about the war in Iraq before.

The first is that we have been paying for Iraq entirely with supplements to the budget. In the 4 years we have been at war, there has only been a section for the war in the actual budget for this coming year of 2008. This and the fact that the president hasn't really increased taxes since the start of the war means that we're paying for the whole thing on credit.

The second is that the U.S. economy has strengthened exponentially since the last time we were in a war that lasted a significant amount of time. That little tidbit means that even though we are still paying the same relative price to wage war that we have in the past, it is taking up much less of our economy's total output.

Because of this strengthened economy and odd methods of paying for the war, the associated press suggests that the war is actually very "affordable" for the country.

This is all well and good, but when the majority of the country doesn't believe we are over there for the right reasons or doesn't believe we should have been over there in the first place it becomes much more difficult to convince them that we can afford to be in Iraq. This attitude also makes it much, much more difficult to write off the large number of soldiers we have lost overseas already in this war. At the end of the article the AP cites what the cost would have been if we had kept doing what we were doing instead of starting a war with Iraq. It would have, in fact, cost a mere $50-$700billion. That may seem like a lot, but when just the medical care and disability costs payed to veterans of the war is already projected at $700billion, one has to question...why would you even think of calling this war affordable?

Mexico and Price Discrimination

so, last week thursday through tuesday I was in Mexico. during my stay there i happened to visit a flea market in Cancun. after walking away from the flea market i was reminded of how much i would have to catch up when i got home (since it was monday) and thought 'hey, i could use that market for econ' so here we go.

the flea market really amazed me as to how much of an excellent example it was of price discrimination. at this flea market, like many in mexico, it was expected that one would bargain for items. this means that every person who walks into the market has the chance to get a different price. although each vendor prices the item the same for everyone when they walk in it is up to the consumer as to how much they really pay.

for example, when i walked into a jewelry store with my new stepdad ron, he was interested in buying a pendant for my mom. the original price that the vendor said he would sell it for was $367 american. in less than half an hour ron had talked the vendor down to a mere $70, and he ended up throwing in a neclace chain to go with it for free.

this means one of two things, either the pendant really was worth very little to begin with, or the vendor knew ron would not budge, yet still wanted to get at least some money. this would indicate the mentality that a little money now is better than waiting and possibly not ever selling the merchandise. this is an interesting theory to me, being as vendors in the US have a set price, and a view that suggests that if one person doesn't want it at that price, someone else will. does anyone have any idea as to why there would be this fundamental difference in mind set?

tax cuts and the health care field

http://www.msnbc.msn.com/id/17075561/page/2/

Bush’s proposed health-care cuts spark debate

this article, by Christopher Lee and Lori Montgomery discusses the newly proposed cuts in health care by the bush administration. it suggests that his cuts could either sink or save medicare and medicaid. the authors also say that although the cuts could potentially work in helping balance the budget, they do nothing to address the real underlying problems that are making medicare and medicaid costs rise. they also show a concern for the future of the medical industry as far as people actually wanting to become doctors or surgeons or any other medical professional.

I think this article is excellent. i really entirely agree with what mr. lee and mrs. montgomery say in it. its true that tax cuts could, theorhetically, balance the budget, but for the most part in times of war it is considered good policy to increase taxes in order to raise funds for the war. in addition, i really don't think that simply making cuts in the budget can actually reduce debt, simply make the national rate of creating debt lower. we're still spending money, its just that we have slightly more to pull from, we aren't actually making money.

these cuts in the medicare and medicaid programs could also have extraordinary costs in the future. being as hospitals and by extension their employees are really not getting paid the full cost of doing many of the procedures they do, or it is at least very difficult, it could deterr people who are looking at a career in health care to reconsider. granted, people shouldn't look at a job just because of its salary, but many people do, and regardless of the reasoning behind getting into a field of medicine, we need doctors.

in addition to people being deterred from entering the medical field, bush's cuts propose to essentially stop paying for graduate education in teaching hospitals, yet another huge blow to the overall medical population.

so how will we balance the budget? if this passes, will medicare and medicaid survive, or will it become the next social security? what will happen to the medical field if it does?

sports economy

http://www.econlib.org/LIBRARY/Columns/y2004/Sandersonsports.html

so, this article , by Allen Sanderson, was about how large of a deal it is when athletes raise their pay, but how little it seems to matter when other entertainers (movie stars, etc.) raise their salaries, and questioned how we should view college athletes skipping years of school in order to begin their career in proffesional sports. it also compares college athletes to sweatshop workers, and pro athletes on steroids to entertainers who use cosmetic surgury.

Personally, i agree that we shouldn't make as big of a deal when pro sports players raise their pay because it really has little effect on the price of tickets, as Sanderson points out. the price of tickets is determined by the team's owners, who base it on the market as far as how much people are willing to pay in order to see the all star players, not how much the players charge for the service.

i do, however really have to disagree with Sanderson's point about college athletes being very similar to sweatshop workers. this is because although, yes, college athletes don't get paid for their performances on the field (besides maybe a t-shirt) they are building their talent so they can be paid an extraordinary amount of money in the long run because they are getting their names out there for pro coaches to see.

clarification

so i'm just clarifying what i said in class today about opportunity cost and figuring out which person should do what with comparative advantage (in case anyone was wondering)

when looking at amount of time one takes the value in the cell they are trying to find the comparative cost of and divide by the other value being compared and take the smaller of the values for the 2 different people as who should do that part of the work.

you can do the same thing when talking about quantities and get the same answer, except you have to find the opportunity cost of the specific item and then make it the inverse of what you found. for example: in question 4 when looking for the OC of hte united states making cars you can just take 12/4 and get 3, and then invert it so its still 1/3 and you still have to take the smaller number.

or, if you really want to get wild, you could probably just take the larger of the two numbers before inverting the fraction, because you will still end with the same answer, just not the same numbers.