Post Lesson 26/Pre Lesson 27

All,

I hope today was a good way to wrap up this section while having some Friday fun. To prep for the GR I'd really encourage focusing on the objectives but also re-reading my blog re-caps. The major theme encapsulated in one line to me is: prices~wages~interest rates and differences in prices-->trade.

Beyond that some good things to think about:

1. wages tell us something about productivity. if someone is more productive they should rightfully be paid more because they (as a productive worker) are a scarce resource which others would love to have.
• as a sub point...the more expensive a person is to do a given job, the greater returns to automating that process if possible
• since the above point is true, trying to legislate higher wages may eventually lead to fewer jobs via automation which suddenly becomes feasible with higher wages
2. statistics can be deceiving...as unemployment stats sometimes are
3. screwing with wages is like screwing with prices....what are the effects?
4. trade is useful because it allows all of us to lower our costs. this is true whether trade is between individual persons or between entire countries
• limiting trade only forces costs to be higher than they could otherwise be
• there may be instances where trade restrictions are important but what happens with those kinds of arguments (ie claiming it as a national security requirement)?
• just because you can pay someone less does that mean you will employ them? no! it would be "cheaper" for an engineering firm to hire the average worker at mcdonalds but this lower cost would result in a drastically lower benefit as well. sometimes the cost is not all that matters. (see the low-wage myth in sowell)
5. we all have a comparative advantage because our costs are ALWAYS relative.
6. Investments come in all sorts of shapes and sizes so to speak. All of them have a purpose, even speculation, in allocating the use of money today and money tomorrow. Interest rates are the prices that allocate the use of this scarce resource.

There is so much more that could be added but hopefully this gives all of you a start on studying. I hope you can relax a bit this weekend and I hope to see at least some of you around the tailgate on Saturday!

Post Lesson 25/Pre Lesson 26

You better know how to do present and future value calculations....that is all.

For next time in addition to the journal assignment from last time add this question:

What is the purpose of insurance and what problem does it solve? Why does government provided or subsidized insurance often fail to solve the problem?

Post Lesson 24/Pre Lesson 25

Interest rates work like prices in that they allocate the scarce resource called money to it's alternative uses, consumption today versus tomorrow. Not only that but the real "price" of money takes into acount both the number we see and what we expect to happen to the value of money over time (inflation). Thus Real Interest Rate = Nominal Interest Rate - Inflation.

Related to this is the difference in real rates of return (or rates of expected interest) among different types of investments: stocks vs bonds vs CDs vs Mutual funds vs real estate etc. Generally the more volatile (or risky) an investment the higher the average rate of return. Additionally, investments (ie bonds) that are longer term have higher rates of return. Why? to compensate for the increased uncertainty and risk over the longer period. So, for example 30 yr bonds will have higher yields (interest rates) than 5 yr bonds.

Finally, to figure out what money in the future is worth today or what money today will be worth in the future you need to know how to complete Present Value and Future Value calculations. You need to memorize the formula to do so, using annual compounding only. Of course these calculations to know the amount of money, expected rates of growth (to get future value) or discount rates (to get present value), and the number of years.

For next time read BE 341-352 completing the standard journal entry and answering this question:

1. Give an example of moral hazard or adverse selection here at the air force academy.

Last time was a check.

Post Lesson 23/Pre Lesson 24

Folks,

now we will begin in personal finance! This is an important topic and one in which economics has a lot to say. Why do we invest? Why don't we just buy everything now? Why do other people borrow the money we aren't spending? What encourages or discourages people to lend/borrow? Specifically, answer these questions in your journal as you READ HO 167-170 & 177-180 as well as BE 299-303 (Financial Investments):

1. Explain why lending/borrowing occurs using the definition of economics and the basic principles.
2. What encourages or discourages people to lend/borrow?

The lesson this time was straightforward. Everyone gains from trade because trading changes the costs we face. If someone else has a lower opportunity cost, even if we might be better at it absolutely, we can trade and obtain a cost lower than our own. In doing so we can "skirt" the scarcity of our resources by relying on others thereby seemingly increasing the resources we have.

This is shocking and hard to believe but it's true because all prices (and costs) are a result of relationships between things. Recall that definition of economics, that piece about alternate uses, and when we realize that prices merely reflect those scarce resources and their alternative uses we begin to see that all they tell us is the relationships between things. Thus most attempts to interfere with trade, like attempts to interfere with prices to make things "cheaper" only tend to obscure the true relative value between goods or uses of those goods. Anyway...sorry for the diatribe. You need to be aware of the fallacies of trade restrictions like tariffs save jobs, low wages are unfair and make us uncompetitive, etc. that we may or may not have talked about but was in the reading. You will be evaluated on those things and should be ablt to apply the logic of prices and the principles of economics to trade.

Yesterday was a check plus by the way. You should also be able to answer these questions:

1. What is the relationship between real and nominal interest rates?
2. T / F When comparing monetary values from different time periods it is best to convert them to a common base year, typically present value.
3. If demand for loans rises and supply falls, the interest rate will INCREASE or DECREASEuntil equilibrium is reached. When loan prices are LOW or HIGHfirms are more inclined to borrow.
4. What is investment? How is it different from saving?
5. In your own words, describe the purpose or function of financial institutions.
6. Economic speculation is a way of allocating what scare resource?
7. What is interest?
8. In general, what effects would a cap on interest rates have on the market for loanable funds?

The additional reading which covers these questions are BE 295-326

Post Lesson 22/Pre Lesson 23

Folks,

16 Oct, F-1 @ 1900!!!!!
It was great start this morning and it seemed that you were all well prepared which made the game go really well. Therefore I gave today a check plus. Thank you for being prepared!

Note that everyone was better off than they would have been on their own BUT some countries had larger gains than others.

For next time complete the TRADING GAME REPORT:
1. Provide a hard copy of the EXCEL worksheet for the TRADING GAME. Be sure to print the worksheets so they fit on one page
a. TRADE PREPARATION worksheet
b. TRADING SCORECARD worksheet
2. Evaluate the effectiveness of your top three trades based on the percentage of the difference in the autarky terms of trade captured.
a. Compute results on the TRADING SCORECARD worksheet
b. Explain the significance of these values and how you were able to achieve them.
3. Review the Basic Principles of Economics and discuss how three of these principles relate to the trading game and its outcome. For example, what happened to scarcity? Why could you make/get more than you did before? How could you possible increase the number of man hours available, isn’t time fixed?

Also, read BE 510-522 & 551-555 (THE ROLE OF TRADE)
Due next time: trade game report
Due on monday!!!!! Reflection Paper III

Post Lesson 21/Pre lesson 22

You all had a check today. Remember that prices convey something to us not just about how good we may be at making something but also about how relatively good or bad we are compared to others and other persons alternative uses of their time. Thus specializing and trading in what we are RELATIVELY (or comparatively) better at makes everyone better off. We'll see this in action next time.

Please complete the spreadsheet and read the trade game instructions here for next time: K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser\Block B - Trade Game

post lesson 20/pre lesson 21

Folks,

for next time:

1. Read BE 499-507 (this reading should help you complete #2)
2. Complete the Comparative Advantage worksheet located here K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser\Block B - Trade Game
3. Check out what country you've been assigned via the excel file in the same location (we may have a quiz on this)

I dont have any specific journal question for this reading

Last time we discussed basically the issues inherent messing with wages in any variety of ways. Just like prices, wages reflect something about scarcity and alternative uses and even with very GOOD intentions, policies to change this reality often end up with POOR outcomes. Many times such policies even hurt those who it was specifically intended to help. So Job security legislation normally hurts the average unemployed worker, minimum wages actually hurt the poor and unskilled the most, and unions or cartels often result in job lossses for union members, and job safety legislation results in unhappy workers!

as we move into trade and macroeconomics we can see many well intended arguments about "sweatshops," outsourcing, job protection, and explotation in the public arena.

Post Lesson 19/Pre Lesson 20

Folks,

I hope you enjoyed our min wage game. Think of what happens on a larger scale and when the changing of wages in one industry will also incentivize/disincentivize those who might work in other industries. So, if the minimum wage is increased, what might that do to the desire of some to get an education?

Also realize that scarcity and alternatives will change overtime. It's not easy to automate a process overnight but if prices are high enough it may encourage me to automate over a year or more, thus reducing the number of jobs.

Finally, statistics are important only if you know and understand the numbers behind them. With that in mind define these terms along with completing/re-completing the worksheet that was previously assigned:

• Unemployment
• Discouraged Worker
• Underemployment
• Voluntary Unemployment
• Unemployment Trap
• Labor Unions

Post Lesson 18/Pre Lesson 19

Folks,

Good discussion today in class. I gave it a check. Two main points:

1) Wages, like prices, convey information about scarcity and alternatives both to a producer (who demands labor) and to a worker (who supplies labor). In the case of a producer there are choices between productive resources (land, labor, capital, management) and even between different levels of those resources (having Darelle Revis as your cornerback vs Aqib Talib will depend on other assets of your team). In the case of the worker, wages can indicate to me how I ought to use my current skills or whether I should invest to obtain other skills. In any case, both supply and demand are incentivized and affected by wages.

2) Productivity depends not just on the individual but on the resources and people who surround them. Additionally, wages OUGHT to reflect the productivity of one person versus another but such things are notoriously hard to see precisely because productivity is SO dependent upon outside factors. The choices between what productive resources to use will (as stated above) be affected by how each additional unit will affect productivity overall. In other words the opportunity cost of the next unit of any resource matters. Having 3 hammers and one person just will not increase productivity and so, due to increasing opportunity costs, the producers decision on which resource to employ next will change based on what I currently have.

For next time I'd like you to read one on the following sections:
-Job Security: BE 235-244 & 249-251 (Skip Informal Minimum Wages)
-Collective Bargaining: BE 251-260
-Working Conditions: BE 260-267

Pull out one (or two) sentence(s) which you think defines the reading or is key to Sowell's point.
-ie (and you can't use this!) in the Collective Bargaining section Sowell says: "In general, employers cannot simply make whatever arbitrary decisions they which when there is a competitive market for labor and for the products they sale."

Finally, complete the worksheet here: K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser titled "worksheet-due lesson 19.docx"