Archive for August, 2007

Aug 31 2007

The World Clock – an amazing resource for teaching and learning about economic development

Published by under Development

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!

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Aug 31 2007

You can’t always get what you want… the tradeoff between unemployment and inflation

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”.

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Aug 29 2007

Comparative advantage, plain and simple

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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Aug 26 2007

Monetary Policy in the headlines!

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.

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.

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Aug 25 2007

The magic of markets – missing in Zimbabwe!

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:Empty shelves in Zimbabwe
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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