Just check this out: The World Clock

We’ll come back to this during our Development Unit in IB Economics. Very interesting to see the breakdown, makes you realize what kind of world we’re living in right now!

Poodwaddle.com

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IB students – As we begin unit 3.5 from our Macro syllabus, we will start to focus on the relationships between unemployment, inflation, economic growth, and further explore the policy measures available to central banks and governments to achieve macroeconomic goals. Over the weekend, you are to read chapter 16 from our text. In addition, you need to find an article that relates to the Phillips Curve, link to it, summarize it and offer a brief analysis on your own blog. Here are some articles I found by doing a quick search on Google News for “inflation and unemployment”.

• Bloomberg.com: German August Unemployment Falls as Economy Expands
• Polish central bank raises rates third time to keep inflation at bay UPDATE – Forbes.com
• www.kansascity.com | 08/28/2007 | Poverty rate falls, but U.S. has more uninsured
• Canada’s workforce needs to be more mobile to reduce jobless rate: report
• Lower the Fed Funds Rate – WSJ.com
• Bloomberg.com: Japan’s Consumer Prices Fall 0.1%, Production Drops
• TwinCities.com – Over time, data can prove unreliable

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Managing Globalization » Business Blog » International Herald Tribune » Blog Archive » Employment versus the environment?

This article represents the perfect example of comparative advantage. Almost a textbook version of the concept of countries producing the types of products for which they have a lower relative opportunity cost than other countries. Read this very short article and discuss below how this illustrates the basic concept of comparative advantage, specialization and trade. What decision should the European Commission make and why should they make it?

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China Chokes – New York Times, August 26, 2007

This article, one in a series of articles yet to come, is a must read for all IB and AP Economics students. The particular article investigates the effects of China’s massive growth on its population, its environment. and on its pollution levels. The authors present videos, photographs, interactive maps in their article in order to graphically illustrate the many ways that China is affected by its rapid economic progress.

As economists, we all know that there are opportunity costs to all decisions and this article looks at the “costs” of China’s massive economic growth. One video includes information about China’s attempt to apply a Green GDP formula to its own growth and sobered by the outcome. Another interactive map compares economic growth rate of different countries around the world while another looks at the carbon emission rate of different countries. The point is that this article is meant to be very interactive so that the reader can experience how China is choking on its own growth. It is your turn to find out.

Here’s what some of the Econ bloggers are saying about the Federal Reserve and its recent Monetary Policy moves. I encourage you post comments to the blogs you read, and then come back and share your impressions of the blogger’s views here.

• Grasping Reality with Both Hands: Notes on the Fed’s Current Actions
• The Big Picture | Five Reasons Why the Fed Won’t Cut Rates
• EclectEcon To What Extent Should the Fed (or any other Gubmnt Agency) Bail Out the Big-Time Risk-Takers?
• Economist’s View: Michael Woodford: Globalization and Monetary Control
• Finance Blog – Market Movers by Felix Salmon: The Four Views of What the Fed Should Do – Portfolio.com
• How the World Works: Globalization, Globalization Blogs – Salon.com
• Economist’s View: Robert Shiller: A Psychology Lesson From the Markets
• EconLog, Fed Attribution Error, Arnold Kling: Library of Economics and Liberty
• Writing by Tim Harford: Price fighters – Undercover Economist

And here’s what they’re saying in the news. Choose one of the articles below (or find one on your own) and blog about it on your own IB Econ blog.

• Top International Banks Tap Fed Discount Window – New York Times
• Big U.S. banks use discount window at Fed’s behest – International Herald Tribune
• Mortgage rates decline on Fed move – Aug. 23, 2007
• FT.com / In depth – Jitters hint at further intervention
• Bernanke’s strategy differs from his predecessor – Aug. 23, 2007
• It’s Out Of Bernanke’s Reach
• Will the Fed Weigh In Again? – New York Times

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Command vs. Market economics in Zimbabwe:
Mugabe’s decree on prices puts Zimbabwe economy in a tailspin – International Herald Tribune

And a blog post commenting on the news:
Managing Globalization » Economics 101 in Zimbabwe

Our first unit in AP Economics (and Friday’s lecture) examined the differences between command economies and market economies. One of the main points of yesterday’s lecture was that markets work because they result in an efficient allocation of resources towards the right products, using least-cost production methods, and putting those products in the hands of the people whose resources command the highest value in the resource market. If too much of one good is being produced and not enough of another, the “invisible hand” of the market will reallocate resources from the over-produced product to the under-produced product.

One of the reasons command economies fail is that central planners who attempt to control output and price, even when their intentions are to help consumers by assuring enough stuff is produced and available at an affordable price, are in essence acting against a basic economic law: that of supply and demand. In Zimbabwe, where inflation has reached nearly 10,000 percent (that means a candy bar that costs $1 today will cost $100 in a year!!) the president recently attempted to place price controls on all products by forcing merchants to slash their prices in half. The result? Food has vanished from the shelves of markets in Zimbabwe:

Essentials like bread, sugar and cornmeal, staples of every Zimbabwean’s diet, have vanished, seized by mobs of bargain-hunters who denuded stores like locusts in wheat fields. Meat is nonexistent. Gasoline is nearly unobtainable. Hospital patients are dying for lack of basic medical supplies. Power blackouts and water cutoffs are endemic.

Manufacturing has slowed to a crawl, because few businesses can produce goods for less than their government-imposed sale prices. Raw materials are drying up because suppliers are being forced to sell to factories at a loss. Businesses are laying off workers or reducing their hours.

As our first AP unit “Basic Economic Concepts” winds down, this article and blog post seem timely to remind us of one of the core principles of Economics: the importance of prices and markets in allocating resources (land, labor, capital and entrepreneurship) towards producing the goods and services society most wants. Later in the year we’ll examine what happens when markets fail, which they often do; but at this point in the course it is important to understand that despite their failures and shortcomings, free markets rarely experience the chaos associated with command economies of the past, and even the present as the Zimbabwe example shows. In the words of Daniel Altman, the blogger linked above:

The Soviets, Chinese and some of their allies kept their tightly controlled economies going for quite a few decades, though not perhaps with unalloyed success (former backyard smelters in China will get the pun). Mugabe’s version hasn’t even lasted through a change of seasons. Now, there are still a few lingering arguments in academia and policy circles about the merits of command economies. But a poorly planned command economy – no one seems to want that. Can anything short of total collapse follow?

Any thoughts? Why did Mugabe’s attempt to help consumers by keeping prices low only make the problem worse? What does this say about markets versus planned economies? Discuss!

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Bank borrowing from the Fed surges in Aug. 22 week – Aug. 23, 2007

IB students, you should now be able to read this article and know exactly what it’s talking about! AP students, hopefully you’ll be able to come back to this one in a few months and get it too. Monetary policy is a tool used by a country’s central bank in which the supply of money in circulation in the economy is increased or decreased in order to stimulate or slow down economic growth. In the US last week, the Fed, America’s central bank, employed one one of the three tools of monetary policy with a particular goal in mind. After reading the article, discuss which of the three tools of Monetary policy were used, and what you think the Fed’s likely goal was.

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China’s economy grew by 11.9% in the second quarter of this year. Great, right? Well, not if that growth is accompanied by 5% inflation and increasing threats to the environment. The reporter says that China’s rapid growth “has increased speculation that the Beijing government will raise interest rates again to cool growth.” Watch the video and discuss the following questions.

Discussion Questions: After reading chapter 15 of your text, discuss the following.

1. Which tools of monetary policy does the video reference that China’s central bank may implement?
2. How does the central bank affect interest rates charged by commercial banks?
3. Why is “China’s economy overheating” a bad thing? What are the signs of an overheating economy?

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Entrepreneurs From China Flourish in Africa- New York Time, August 18, 2007

One of my AP students recently asked me to explain why entrepreneurship was considered one of the four factors of production by economists. He questioned the nature of this “fourth factor of production” because unlike the other types of resources it was less obvious to him how this resource fit into the product market. In the product market, good and services are paid for directly by consumers. but how did entrepreneurs play a direct role in this market.

Part of the problem is that entrepreneurs truly belong in the factor market, a market that students new to economics are less acquainted with and one that both AP and IB students will be learning about this semester. Entrepreneurs are the “behind the scene” people. They are the “big ideas” people. They visionaries in business who figure out how to utilize all the other factors of production in order to make a good or service that will result in a profit.

I found the above New York times article about Chinese Entrepreneurs who have “taken the big risk” of moving to Africa in search of a better life and good profits extremely interesting. Chinese entrepreneur are moving into new territories in order to seek their fortunes, in places that many others have not dared to go before them because of a fear of violence, a fear of unfriendly governments or a fear of people. These are places where poverty and opportunity are rampant. Mr.Yang, an entrepreneur from the Fujian Province in China is a true risk taker and can teach all economics students about the meaning of entrepreneurship: the good, the bad and the ugly.

What set him apart was his destination. Instead of the traditional adopted homelands like the United States and Europe, where Fujian people have settled by the hundreds of thousands, he chose this small, landlocked country in southern Africa.

“Before I left China,” said Mr. Yang, now 25, “I thought Africa was all one big desert.” So he figured that ice cream would be in high demand, and with money pooled from relatives and friends, he created his own factory at the edge of Lilongwe, Malawi’s capital. The climate is in fact subtropical, but that has not stopped his ice cream company from becoming the country’s biggest.

Stories like this have become legion across Africa in the past five years or so, as hundreds of thousands of Chinese have discovered the continent, setting off to do business in a part of the world that had been terra incognita. The Xinhua News Agency recently estimated that at least 750,000 Chinese were working or living for

extended periods on the continent, a reflection of deepening economic ties between China and Africa that reached $55 billion in trade in 2006, compared with less than $10 million a generation earlier.

Today, in many of the countries where the new Chinese emigrants have settled, like Chad, Chinese-owned pharmacies, massage parlors and restaurants serving a variety of regional Chinese cuisines can be found; the Western presence, once dominant, has steadily dwindled, and essentially consists nowadays of relief experts working international agencies or oil workers, living behind high walls in heavily guarded enclaves.

At first, this new Chinese exodus was driven largely by word of mouth, as pioneers like Mr. Yang relayed news back home of abundant opportunities in a part of the world where many economies lie undeveloped or in ruins, and where even in the richer countries many things taken for granted in the developed world await builders and investors.

Conditions like these often deter Western investors, but for many budding Chinese entrepreneurs, Africa’s emerging economies are inviting precisely because they seem small and accessible. Competition is often weak or nonexistent, and for African customers, the low price of many Chinese goods and services make them more affordable than their Western counterparts.

Not everything that these entrepreneurs have touched is pretty. Some locals have come to resent Chinese entrepreneurs and accuse them of entering local markets where local business owners can not compete with such low prices.

Africans view the influx of Chinese with a mix of anticipation and dread. Business leaders in Chad, a central African nation with deepening oil ties to China, are bracing for what they suspect will be an army of Chinese workers and investors.

“We expect a large influx of at least 40,000 Chinese in the coming years,” said Renaud Dinguemnaial, director of Chad’s Chamber of Commerce. “This massive arrival could be a plus for the economy, but we are also worried. When they arrive, will they bring their own workers, stay in their own houses, send all their money home?”

In Zambia, where anti-Chinese sentiment has been building for several years, merchants at the central market in Lusaka, the capital, said that if Chinese people wanted to come to Africa, they should come as investors, building factories, not as petty traders who compete for already scarce customers for bottom-dollar items like flip-flops and T-shirts.

“The Chinese claim to come here as investors, but they are trading just like us,” said Dorothy Mainga, who sells knockoff Puma sneakers and Harley Davidson T-shirts in the Kamwala Market in Lusaka. “They are selling the same things we are selling at cheap prices. We pay duty and tax, but they use their connections to avoid paying tax.”

Whatever becomes of official Chinese-African economic ties, entrepreneurs like Mr. Yang will continue to take a leap of faith in the name of profit. He sounds like one “smart cookie” who as learned how to be a successful entrepreneur in Africa

After nearly seven years in Malawi, Yang Jie, the ice cream maker, seems to have learned better. Greeting his workers at the ice cream factory, he begins the day by asking, “How did you sleep last night?”

One quickly replied, “Very well,” sounding a bit formal.

“Don’t tell me a lie,” Mr. Yang answered with a sly, friendly smile. “It’s O.K. to tell me your worries.”

Be sure to check out the slide show in the article.

How the World Works: Who Invented Calculus? – Salon.com

IB students, here’s a blog post you’ll want to read closely once we start studying economic development later this semester. Andrew Leonard at Salon.com refers to a study titled “Does Economic Growth Reduce Fertility? Rural India 1971-1999″.

Interesting stuff. Leonard points out a peculiar paradox of growth in India:

India’s Green Revolution has been criticized by those who wonder if an agricultural model reliant on large inputs of fertilizers and pesticides is environmentally sustainable over the long run. But if in the short run these spikes in agricultural productivity contribute to population stabilization, then we have a nifty paradox: a (possibly) unsustainable agricultural model contributing to (possibly) sustainable population levels.

This article and the study it refers to might make for an interesting commentary for your internal assessment, or as a source for an extended essay on growth and development. Any opinions on the supposed correlation between economic growth and decreased fertility?

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Made in China: News & Videos about Made in China – CNN.com

Thanks to James Hannam from my IB Econ class for providing the link to the site above. CNN jumps on the China bashing bandwagon and does its part to trump up fears of the danger posed by the “Wild West” of China’s manufacturing sector. This site has a wealth of anti-Chinese features including videos, quizzes, investigative reports and so on. Here’s the headlines warning us to be afraid of Chinese imports:

• Recalled: 255,000 Chinese tires – CNN.com
• Shoppers offered few safeguards against ‘Wild West’ imports – CNN.com
• FDA blocking import of 5 species of fish from China – CNN.com
• FDA: Melamine-tainted poultry, fish safe for humans – CNN.com
• Avoiding Chinese food products nearly impossible – CNN.com
• Tainted medicine in Panama
• China detains manager at heart of U.S. pet food recall – CNN.com

Given the tendency of media to dramatize and blow out of proportion certain issues for the sake of entertainment and to feed the American appetite for scandal, the full blown anti-Chinese campaign is no real surprise. Americans’ own insecurity about the strength (or should I say weakness) of their manufacturing sector surely fuels the Sino-bashing trend that seems to be dominating the media. All this will provide political fodder for lots of nationalistic, pro-America “protect American jobs” rhetoric in the upcoming presidential race too, I’m sure.

What I would challenge you, my students and readers, to ask is: who’s really at fault here? Are Chinese factory owners, whose sole purpose is to make a profit, really to be trusted to uphold standards of product quality and safety that America’s highly industrial economy took over a century to put in place? China only started industrializing in a modern way less than 30 years ago, and much of the development has been spearheaded and overseen by, yes, American firms. The sourcing of manufacturing to third party factories in recent years is a sign of the growing entrepreneurial spirit of China’s new generations of capitalists. Weak regulation by Chinese authorities is a sign not of corruption or malice on the behalf of Chinese producers, but of American consumer’s expectation that goods from China will get cheaper and cheaper.

American consumers seem to have forgotten an old adage, “you get what you pay for”. Just today, in my principles course, we talked about how you don’t always get what you pay for (i.e. diamonds). But in the case of cheap Chinese products, it would appear today that perhaps this adage holds true. Americans take for granted that products like seafood maybe aren’t supposed to be cheap! The freezers of Costco and Wal-Mart are filled with giant bags of shrimp, frozen fish, and other cheap seafoods that we have grown to expect to be there. If Americans want guarantees of their products’ safety, they should look for quality rather than quantity. Try eating locally if you fear the safety of imported food products.

Ultimately, the harm caused by Chinese products will be minimized not only by more and more government regulation, but also by consumers who change their buying patterns to reflect an appreciation for quality and safety over quantity and cheapness. Consumers who demand quality should vote with their pocket books, not rely on government to protect them from the dangers of the “Red Storm” Lou Dobbs warns us of. Markets contain the perfect mechanism for improving the quality and safety of products coming from China, and that’s the power of consumer sovereignty and strength to influence producer behavior through their buying behaviors.

Students, debate and discuss!

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Trade protectionism could cause economic isolation – Poole – Aug. 17, 2007

In our coming unit on International Economics we will weigh the various arguments for and against protectionism, or the erecting of barriers to trade, and examine examples of various types of protection, its aims and effects on international trade.

In the article above, St. Louis Federal Reserve Bank President William Poole warns that the US is working against trade liberalization goals established in Doha, Qatar in 2001 by playing on fears among American consumers of harmful food and toy imports from countries such as China:

Poole said in his speech that the slackening in trade liberalization could have serious consequences. “The Doha Development Agenda multilateral trade negotiations are on the verge of collapse. A collapse of the Doha round would raise doubts about the future effectiveness of the World Trade Organization,” he warned.

The current world trade talks to reduce barriers to imports are called the Doha round because they were launched in Doha, Qatar, in 2001.

Poole also said recent safety worries on product imports from China must not be allowed to create barriers to trade.

“My concern is that certain groups will attempt to use concerns over safety and job loss to restrict imports and thereby pursue an agenda of economic isolation in an increasingly globalized world.”

Recent scares following the discovery that Chinese imports of pet food and toothpaste into the United States contained impurities were compounded after a major U.S. toy maker withdrew millions of toys with lead paint.”

It is easy for retaliatory trade measures to escalate and derail the desirable movement to a more open trading environment. It is in the best interests of all the countries of the world to avoid trade wars,” Poole
said.

Ironically, some say the blame for the potentially dangerous imports from China lay not entirely on Chinese manufactures, but on American companies that own the factories producing the dangerous products. Check out this article:

Recalls: Should U.S. companies share some blame with China? – Aug. 14, 2007

The recent spate of product recalled – melamine-tainted pet food, toothpaste laced with antifreeze and a second batch of Mattel-branded toys made with lead paint – were all made in Southern China’s low-cost manufacturing hub that’s notorious for its lax regulations.But some industry watchers say U.S. importers that do business with these factories are more to blame than even their Chinese suppliers for allowing those unsafe products to enter the U.S. marketplace.

“U.S. law is pretty clear. The importer is responsible for quality and safety of goods imported into the country,” said Erin Ennis, vice president with the U.S.-China Business Council

Part of the problem, says the article, is that competition has forced American firms to cut costs wherever possible, and often this means “sourcing” production to factories owned not by the American company, but by Chinese (or Vietnamese, Mexican, Malaysian, and other foreign owners) where strict oversight of product quality is not assured. Does this mean American firms are no longer responsible for their own product safety? Should the blame be placed on China when an American company produces toys that turn out to be dangerous?

One reason manufacturing products such as toys in China (80% or the world’s toys are made in China, according to the article) is because standards for products safety are so low, so the regulatory obstacles to production are almost non-existant, making production cheap.

Another connection this article makes to our IB course is in the area of development economics. The theory of comparative advantage says that a country should specialize in the products for which its resources are most adept at production. For two decades, China has emerged as a manufacturing giant. But with new fears of product safety, and more significantly the rising cost of labor and land in manufacturing hubs such as Shenzhen and Shanghai, Western firms are looking to China’s less developed neighbors as an alternative:

“If I was sourcing heavily in China, I would be exploring alternatives like Vietnam and Cambodia,” said Sean McGowan, an analyst with Wedbush Morgan Securities, referring to rising labor and production costs in the southern China’s manufacturing belt.

If China moves towards enforcing tighter standards of product safety in its thus far highly unregulated manufacturing industry, this will surely result in higher costs of production for companies like Mattel (the toy manufacturer who recalled 14 million toys last week because of safety issues). Higher production costs in China will send firms looking elsewhere for manufacturing options (such as Vietnam and Cambodia). In effect, the demand for higher quality standards will lead to tighter regulation by the Chinese government, leading to higher production costs in Chinese factories, leading to loss of business from Western firms, leading to the opening of new factories in even less regulated countries like Cambodia.

Discussion Questions:

1. Are retaliatory measures by the US government necessary to punish China for the dangerous exports that have arrived in the US recently?
2. Does tighter enforcement of quality standards by the Chinese government assure products like toys being imported to the US will be safer? Explain.
3. As wages and production costs continue to rise in China, how will less developed countries in Asia and elsewhere be affected?

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All the talk about economics being the “dismal science” is totally wrong. In fact, this subject is more funny than people know! Have you heard of the Stand-up Economist? He actually does shows in which Economics jokes get laughs from non-economists… now if we high school teachers can’t learn from a guy like this, then who can we learn from? While making econ funny isn’t always easy, it should certainly get our kids attention! So, add humor to your list of tools in your attempt to make economics stick with your students. Ladies and gentlemen, the Stand-up Economist!

12th-Graders Show Strength in Economics – washingtonpost.com

On a recent national economics exam, high school seniors scored higher than they did on similar math and reading exams. Interesting stuff. The article explains:

“Economics courses are becoming increasingly common in high school. A 2005 survey of transcripts found 66 percent of high school graduates had taken an economics class, up from 49 percent in 1982.

Students who took a high-level economics course, such as one labeled Advanced Placement or honors, were more likely to score high on the national test than students who did not take a similar course, according to the governing board.”

For those of you who teach AP Econ, it probably comes as no surprise that AP Econ students score higher on a test designed for a national audience than non AP students. But how about this:

“But high schoolers who took a general economics course did not do any better on the economics test than students who didn’t take a class, which raises questions about the rigor of those basic-level courses. It’s also possible that students are getting some information about economics through other courses.”

That should be of some surprise. Even if kids take a one semester intro to basic economic ideas course, you’d think anything would prepare them to outperform their peers who have not taken any econ. This is a frightening fact, and it basically says that non-AP Econ courses are doing little if anything to enhance students’ understanding of Economics.

Here at SAS, my colleague Harvey, who has taught AP and IB Econ for over a decade, is picking up a survey Econ course this year. His plan is to take the AP syllabus and teach as closely to it as he can. This seems like a good strategy; even though non-AP students should not be held to the same standard as the AP students, the syllabus certainly gives teachers a place to start and something to strive for.

Below Greg Mankiw of Harvard gives his two cents. Mankiw was on the test development committee for the AP for a while, and seems to think the AP course gets the job done pretty well.

Greg Mankiw’s Blog: High School Economics

“I have often worried about the quality of high school economic courses. Over the years, I have met quite a few AP teachers (and even spent some time as a member of the committee that writes the AP exam), and I am confident in the quality of those courses. But the non-AP courses, from reports I have heard, are less consistent in quality. Basic high school courses in economics need to start looking more like the introductory courses taught in college.”

Or, do as Harvey does and teach to the AP syllabus, just lower the bar a bit when it comes to assessments. I’ll ask Harvey to write an article later in the year about how this strategy turns out!

Check out the debate that follows Mankiw’s piece… around 24 comments from readers with all kinds of interesting views, definitely worth reading!

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The Dismal Science, Dismally Taught – New York Times

As our new school year begins and we all settle into the routine of teaching economics, I thought this article offered a wake-up call for us principles of economics teachers. Robert Frank, econ professor from Cornell, makes some poignant observations about introductory economics courses in this NYT article:

“Studies have shown that when students are tested about their knowledge of basic economic principles six months after completing an introductory economics course, they score no better, on average, than those who never took the course.”

Frank goes on to suggest that perhaps the reason for this dismal news has to do with the fact that Econ teachers tend to emphasize far too much in an introductory course.

“The typical course bombards students with hundreds of concepts, many of them embedded in complex equations and graphs. The mathematical formalism that has become the hallmark of economic research has yielded deep insights. But it does not seem to have helped introductory students learn basic economic principles.”

As I prepare for another year of teaching AP Micro and Macro, it is certainly daunting to think of all the formulas, graphs, equations and definitions kids will have to learn between now and May. Is there any hope that it will stick beyond those two, 2-hour exams they sit for in the spring? If we wish it to do so, we may reconsider how we go about teaching the basics. Frank writes of a “revolutionary” approach to teaching complex subjects like economics:

“Just as a few simple sentence patterns enable small children to express an amazing variety of thoughts, a few basic principles do much of the lifting in economics. If someone focuses on only these principles and applies them repeatedly in examples drawn from familiar contexts, they can be mastered easily in a single semester.

The form in which ideas are conveyed is important. Perhaps because our species evolved as storytellers, the human brain is innately receptive to information in narrative form.”

At the end of last semester I had my students complete a course evaluation in which many of them mentioned that their most memorable moments from their AP course were the times I told personal stories that helped illustrate the basic principles (such as opportunity cost, cost-benefit analysis, diminishing marginal utility, and so on). Most such stories are not thought out before hand; I’ve never written a story down and given it to kids or read it to them.

Almost always, it will be in the middle of an energetic lecture about a topic, say, diminishing marginal utility, and often times something will come to me: “like the other night when I was at Haggen Daaz downtown Shanghai and my wife and I were choosing what to order… I had to weigh the marginal benefit of a three-scoop bowl to the marginal cost. Of course, the third scoop costs less than the second, but it also provides me with less marginal utility!”

A story like that… it was totally spur of the moment, totally unscripted, but it illustrated, what, three different basic principles to the students? Those kinds of stories stick, the narrative form of teaching economics focusing on major principles seems to be the means by which my students will take something away from this brief time we have together, which is so important in this time of ever increasing scarcity. As Frank says:

“Basic economic principles are not rocket science. They are accessible even to children. Lance Knobel, for example, who writes the blog DavosNewbies.com, said that he’d been regaling his 11-year-old son with economic naturalist puzzles at bedtime, “and he can’t get enough of them.”

Given the importance of the economic choices we confront, both as individuals and as a society, more effective economics training would yield enormous dividends. And in light of the low bar established by traditional courses, there seems little risk in trying something different.”

As another year of scarcity, costs, markets, supply and demand gets off to a start, this article seemed like a great excuse to pause for a moment and reflect on the practice of teaching, the art of teaching, and the means by which we attempt to get SO MUCH information into these kids heads in SO LITTLE time! Good luck to all you Econ teachers who are also starting the new year out afresh… hope you find your narrative, your flow; perhaps take a risk and try something new… that should make you and your students learn and enjoy economics so much more!

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Starbucks Raising US Drink Prices Next Week – Reuters.com

One of the first things that my jet lagged family noticed when we got back from San Francisco was that Starbucks had opened up around the corner from our house in Zhudi Town. Normally, my family travels far and wide to buy coffee beans at the Starbucks in Gubei or at the Portman because my husband Kevin, a sophisticated caffeine addict, needs his well roasted coffee. Now my husband can just walk down the street to find his fix. Let’s just say that he now is very happy. My kids, Maya and Cooper, are extremely happy too because when they walked into the Starbucks Café, some smiling ladies behind the counter gave each of them a free gift. The gift was small packet of yellow sculpting clay. So much for teaching them that there is “no such thing as a free lunch” early in life.

I, on the other hand, had a lot of unanswered economic questions running through my mind when we into the café, For example, why did Starbucks open up here in Zhudi? What would this mean for my favorite local joint, The Rendevous Café? Is competition always a good thing? And what about my core value of “think globally and buy locally”? All of these questions continued swirling around in my mind as I had breakfast (with nicely brewed tea) at the newly updated Rendevous Café. As we were eating, the local owners came by our table and personally welcomed us back from vacation. I commented on how nice the place looked and the owners told me that the updates to the restaurant were a response to the new competition from Starbucks and Johnny Moos. The owners looked a little worried. For a long time they have been the only place in town where locals and SAS faculty and students could stop by for a western breakfast, lunch, dinner or coffee. Now, there is real competition. Rendevous’ food is definitely good but can they survive with this competition?

I ran home (well, a little overstated) and got online to see if I could catch up on the latest information about Starbucks Inc. and their plans for China. I was amazed to learn that Starbucks had just announced,

“Starbucks Corp will raise U.S. prices on coffee, lattes and other drinks by an average of 9 cents a cup next week to help offset soaring costs for milk and other commodities, a spokesman said on Monday, July 23, 2007.The widely anticipated move marks Starbucks’ second price increase in less than a year and comes a month after the coffee shop chain’s chief financial officer warned it would be “very challenging” for Starbucks to meet the high end of its 2007 earnings forecast, in part because of rising dairy prices.”

Also it was noted on a Chinese business website that in China, Starbucks will increase the price of their coffee drinks by as much as 5RMB in Beijing and 3RMB in Guangzhou. Dessert prices will remain the same. That got me wondering again, what is going to happen if the price of coffee drinks go up just as this new Starbucks is taking off in Zhudi Town? Will people stop going to Starbucks because of the increase in the cost of coffee drinks?

So, Starbucks has arrived in Zhudi. I know that many people are really happy but I am not sure if it is time to say hooray just yet. We will have to let the free market forces go forth and let the chips fall where they may. I certainly hope that Rendezvous Café is still standing when all the chips have fallen.

Discussion Questions:

1. What economic forces brought Starbucks to Zhudi? Name them and graph them.
2. What kind of market structure do fast food/coffee restaurants have? Explain. How do they compete with each other.
3. Will an increase in price of Starbucks coffee drinks affect people’s decision to buy coffee from Starbucks? Why? Why not?
   
4. Is there really such a thing as a, “free lunch? Explain.
   
5. Can Rendezvous café survive given its competition?

While you, my students, enjoy your last week of summer, I, your teacher, am beginning once more to think about how to make this a productive, interesting, and enjoyable year of learning economics. While I was in exile on the beaches of Bali, the mountains of Northern Idaho, and the islands of Canada’s Barkley Sound this summer, I rarely found the time (or electricity) to log on and read the comments you’ve added over the summer. Today, however, with my return to the world of wireless, I had some time to read the comments you’ve been posting to this blog, and I have to say I am VERY impressed with the understanding and knowledge expressed in my future students’ contributions to this blog over the last few weeks! Most of the comments made on the last few posts were made by students who have never studied economics, yet the insights and discussions that have been shared are at a level beyond what I would expect most 17 year olds to achieve.

This is a good sign. I have a feeling the 2007-2008 AP Economics students at SAS are going to be a very successful group. But to give you an idea of the caliber of last year’s group, I thought I would share the results of the AP exams they took in May. Here’s the run-down for you, so you know what you have to achieve this year to really impress me! 32 students sat for the Macro and the Micro exams. Here’s their results.

On the Macro exam:
5’s – 13
4’s – 13
3’s – 3
2’s – 3
1’s – 0

On the Micro exam:
5’s – 18
4’s – 10
3’s – 4
2’s – 0
1’s – 0

Percentage of exams earning a 5: 48.4%
Percentage of exams scoring a 4 or 5: 84.4%
Percentage of exams earning a passing score: 95.3%

There you have it folks. If you were part of last year’s class, CONGRATULATIONS!! If you’re about to begin AP Econ with Mr. Welker this year, good luck. I do think this will be a great year and that by next may you guys will be able to earn even higher scores than last year’s group! I look forward to meeting you all on Thursday!

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While students and teachers across America settle into their summer routine and look forward to three more weeks of summer vacation, the first week of August marks an unseen exodus of thousands of international students and teachers in countries on every continent. For some reason, international schools all seem to start about two weeks earlier than the post-Labor day start date enjoyed by most public school in the US. Here at Shanghai American school, teachers arrive in droves around the 7th and 8th of August, just in time for our first work day on the 9th.

My wife and I returned to 95 degree heat from the pleasant 70’s of Seattle last night to begin preparing for our second year at Shanghai American School. In a week SAS will welcome around 2900 students, making it one of the largest international schools in the world. As part of our orientation this morning, our director, Dr. Dennis Larkin, shared a bit of SAS’s 95 year history with the faculty, enlightening many of us to the school’s storied past stretching back to the concession era of Shanghai’s “golden age” when thousands of Westerners made their settlements in the city’s center. 100 years ago Shanghai underwent a renaissance unseen in China’s thousands of years of history. European influence brought the city into the 20th century architecturally, culturally, economically, and perhaps more notoriously in the realm of criminal activity as gangsters took over the city through much of the 20’s and 30’s.

With the large Western presence came a demand for Western schools, thus in 1912 Shanghai American School welcomed its first class of 12 students. By the 20’s enrollment rose to 600, and by the 30’s it approached 1,000. In 1937 China was invaded by Japan, and foreign firms and embassies began nervously moving their people out of Shanghai. By 1939 Shanghai had fallen to the Japanese and the school grounds were occupied by Japanese troops. But with the surrender of the Japanese in 1945, the school was back in operation, albeit for only a short time as a civil war between the Chinese Communist Party and the US backed Nationalists brought violence to the streets of Shanghai once more. By 1950 Beijing had fallen to Mao and the Communists, and SAS was shut down “for good”. Its doors would remained closed for 30 years until 1980, when Mao had died and Deng Xiaoping had ushered in the era of “Reform and Opening”, a euphemism for westernization. Once again SAS opened for business.

In the 27 years since the school’s rebirth, the student body has grown from the seven children of American diplomats to 2,900 students from over 50 countries. In the last five years alone the student body has nearly doubled in size, as the school has added a second campus and countless new buildings to serve the growing population of foreigners in Shanghai. Over the same 27 years, around ten other international schools have opened in Shanghai, some with two or three campuses spread across the vast city, several serving over 1000 students also from scores of foreign countries. What impact has the opening and expansion of SAS and other international schools had on tuition paid by foreign students in Shanghai? You may think that with so many schools competing to attract students, each school would have to lower its fees in order to attract students away from its competitors. Well, you’d be wrong. SAS increased its tuition fees by 10% this year, bringing a year’s tuition to around $22,000. Its competitors charge something in the same ballpark, meaning a year of schooling at any of Shanghai’s international schools will cost a family more than a year’s tuition at most state universities in the US.

Discussion Questions:

So, what does all this history and data have to do with economics? Here’s a simple supply and demand question for you. In 1980, international schools in Shanghai had room for, let’s say 20 students total. I am not sure, but I’d guess tuition in 1980 probably ran around $2,000. Today, there are somewhere around 10 international schools with room for probably around 10,000 students, and the average tuition is somewhere in the realm of $20,000.

1. How would an economist explain the 1,000% increase in tuition over the last 27 years, given the fact that today international schools in Shanghai have the capacity to serve 500 times as many students as they could in 1980?
2. Could you draw a supply and demand diagram illustrating the changes that have occurred since 1980 in the market for international education in Shanghai?
3. Let’s be honest, $22,000 is a lot of money for a year of school. What would have to happen in the market for international education in Shanghai for the tuition fees to go down? Identify two scenarios that would result in a tuition decrease. Illustrate these scenarios on your diagram.

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