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The econfather blog

Welcome to econfather


Expert subject knowledge with an excess supply of dad jokes!


Posts to support Economics teachers and students.



By econfather, Nov 12 2020 03:56PM

“How did you find your test paper?” I asked one of my students this week. “Easily, Sir, it was just on the desk in front of me” he said.

Learning key chains of analysis ahead of tests is so valuable and is one of the benefits of using Economics Factory’s model answer resources.

A case in point is learning chains of analysis (and accompanying diagrams) in relation to externalities. It is a rare microeconomics A-level paper that does not require analysis of externalities at some point.

A phrase I find extremely valuable in externalities chains is one I borrowed from a mark scheme years ago. “Those who generate third party benefits have no way of using the market to charge for doing so.” The equivalent for negative externalities is that “Those who suffer third party costs have no way of using the market to get compensation”.

This helps to explain why rational economic agents ignore third party effects.

I always find that it is worth stressing to students that externalities are not really an informational failure: Even if rational consumers know about third party effects, they will ignore them. In practice, it may be true that we sometimes take account of the effects of our actions on others, but this is a departure from traditional economic theory.

Where informational problems are more likely to affect consumer decision making is when consumers fail to appreciate the full private benefits/costs of their actions, perhaps due to not having all the information, or perhaps due to other aspects of bounded rationality such as a “present moment bias”. For example, in relation to health care treatments, consumers may have to pay now to get a benefit in the future and evidence suggests that they are poor at processing the true value of those future benefits, discounting them too heavily.

The economics of Covid-19 vaccines, very much in the news this week, makes a great case study of these factors and a number of others. It can be used to encourage students in the skill of application. Why not set a lesson starter based around vaccines? For example, challenge students to create a chain of analysis to explain why vaccines could be considered merit goods. You could also encourage them to think about which other goods might be seen as merit goods in the context of Covid-19 and to compare the different forms of government intervention in relation to them.

I’ve just posted a handout that would be a great follow up resource on the free resources section of this site.

By econfather, Sep 24 2020 04:45PM

Many of you will be teaching or learning about the theory of costs in Micro classes right now.

I've always found the ultimate test of understanding to be "so you think you understand the theory of costs" by M Seales, first published in Economics magazine in 1984. A version with solutions has just been added to the free resources section of this website. It's wonderful to see how student understanding of the relationships between the curves builds as they work their way through the exercise.

I've so glad that Nike got the deal to sponsor the marginal cost curve. Can you even begin to imagine what our cost curve diagrams would look like if Adidas had got the deal?!

By econfather, Sep 17 2020 07:40PM

Even better than showing your own photos, think about setting students a homework to submit pictures of real world applications of Economics.

I love this one from my former student, Tom, showing monopolistic competition amongst traders selling kumpir - baked potatoes - at a Turkish market. This gave rise to plenty of discussion about this market structure and its place on the spectrum close to the perfectly competitive end. We were able to discuss the likelihood of long run normal profits and to review the meaning of normal profit.

Students often enjoy presenting their own analysis in relation to the pictures they have submitted.

Streetfood, so no jacket required at these establishments!

By econfather, Sep 17 2020 07:24PM

I sometimes tell my students that if they finish Year 13 seeing Economics everywhere they look then my work will be done. Especially if they find themselves cracking the odd sub-standard one liner too!

The application of economic theory to real world examples is an important exam skill and one that, with practice, deepens understanding and enables students to write more extended chains of analysis and to support evaluative judgements.

One way of encouraging this is to show students a photo you have taken and to use it as the basis for a lesson starter. An example is this board in my local Wetherspoons, which compares prices with two other pubs that are situated right next to it! I ask students to offer as many explanations as they can of the price differences. Answers include, on the cost side, the economies of scale enjoyed by Wetherspoons and, on the demand side, the relatively inelastic demand at neighbouring pubs, which are differentiated by the experience they offer. The fact that not all drinks are direct like-for-like comparisons usually comes up too. The next step is to ask students to write detailed chains of analysis for one of the factors they have identified - the more links the better, but six makes a good target. This could be adjusted for different students and classes.

The photo also prompts discussions about why three pubs would choose to locate next door to one another………think external economies of scale.

By the way, did you hear about that brutal attack outside a pub recently? Was it Wetherspoon? No, it was with a knife!

By econfather, Sep 8 2020 05:33PM

In context, it seems very appropriate to be writing about starters! Taxi for econfather.

This week I challenged my Year 13s to draw a supply and demand diagram to illustrate the Eat out to help out scheme. This produced a range of useful outcomes and talking points:

• Most students recognised that the scheme is a subsidy and therefore increases supply.

• A few students recognised that because the subsidy is a percentage of the price of the meal, the vertical distance between the old and new supply curve grows the higher the price.

• Some students even incorporated the fact that the maximum subsidy is £10 and that the new supply curve would run parallel to the original, once this point is reached.

• We were able to remind ourselves of the importance of detailed analysis (for example, by inserting the extra step that the increase in supply creates an excess supply at the original price P1)

• Students were challenged to shade the area representing the total cost of the subsidy.

• We covered a range of evaluative points – the potential benefits of the scheme, its opportunity cost and the data we could use to measure its effects. Best suggestions included comparing the number of meals sold on Monday to Wednesday through August to the same in previous years. Comparison to Thursday to Sunday was also useful – might the scheme simply have concentrated business on the first 3 nights of the week.

• One brilliant point put forward was that if the scheme lasted any longer, demand would become more elastic as customers would get used to cheap food and become more sensitive to price increases.

• We spoke about the assumptions involved in modelling the scheme with supply and demand analysis – eg a single equilibrium price for meals doesn’t really fit.

• Students were able to identify that “Eat out to help out” appeals to our care for others in society, in a way that does not fit with the assumption of rationality.

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