Hungry Zimbabweans Try to Eat Giraffe

A while back we blogged about Robert Mugabe’s order to freeze all prices in Zimbabwe in order to halt the country’s hyperinflation. At the time we were studying equilibrium price and how it results in allocative and productive efficiency, meaning that neither too much or too little of a particular product is produced given the availability of resources and manufacturing technology.

A few months after the price controls took affect, the question remains, how are the people of Zimbabwe fairing? I think the headline above answers this question rather clearly. From the article:

Police stopped villagers from slaughtering and eating a giraffe that strayed into the outskirts of the capital amid chronic food shortages caused by an economic crisis, the official media reported Saturday.

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Habitat for Humanity Philippines

This will probably be my last post for a while. My wife and I are leading a group of 16 SAS juniors and seniors to Lucena City on the Luzon Island in the Philippines next week to build a house with Habitat for Humanity. The following week, we take another group of 24 sophomores to Chengdu in China’s Sichuan Province. I doubt I’ll be blogging much from these two places, however I am sure I’ll have a lot to blog about when I get back. Check back around October 15 and we’ll be back in full swing here at Shanghai American School.

In the mean time, if you haven’t seen it yet, be sure to check out the new SAS Economists student blog where our AP and IB students have begun their careers as bloggers with much enthusiasm and several great posts have already appeared! These kids are amazing writers and some of their blog posts include analysis that goes way beyond what I would expect of them only 5 weeks into their Principles of Economics course! Way to go guys, keep it up and I hope some of you choose to post while I’m away on these trips.

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New York Times - Don’t Even Think of Touching That Cupcake

I had to post this article. It would have been a crime not to. Seriously, there are economic implications to bans on cupcakes in school and changes in attitudes about cupcakes. You are bright AP and IB Economics students, you figure out the economic implications and then post a comment with your economic analyisis. What does this attack on cupcakes really mean from an economist point of view?

And what is presidential hopeful Hillary Clinton’s stance on the great cupcake debate? The writing’s on the wall folks… promise #9…
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Consumers cutting back on restaurants: survey Reuters, September 25, 2007

For all my Year 1 IB Economics students out there, here is an example of an short and sweet article that brings to life many of the economic principles that we have been studying in Unit II. Since all IB Year 1 students will be writing their first Internal Assessment during the second week of October (when I am away for China Alive), I wanted to post something just for you to help you prepare.

So, why is this article appropriate for an IA Assessment? First, it is was written in the last 6 months. Second, it is not found in the Economist but it is written by a writer from who has not done a complete economic analysis of the events. That means that there is still room for you to do it. Third, even though some economic ideas are mentioned in the article, the price elasticity of demand as a factor in why people are “cutting back on restaurants” is never mentioned. So, the article is written in such away that there is room for your own independent Demand/Supply Analysis including a whole analysis on the Price Elasticity of Demand for Restaurant Meals.

IB Students, you will need an article in hand on October 8th. Start looking online, New York Times, Reuters, Yahoo, Times, Newsweek, your home country’s newspaper (for me that would be the Boston Globe. So, check out the front page news. Do not go straight to the business section. Consult your IA handbooks and bring them to class.

Ready, set…. search…

Wow, what can I say? America’s rich are becoming “disenfranchised” as the super rich leave them behind. While the rich can barely afford one family boat and vacations to Martha’s Vineyard, the super rich keep yachts in multiple harbors and jet off to Italy at their whim. This is an outrage, and more should be done to narrow the gap between these disparate groups!

Cutting through the satire, this story does get at some interesting core economic principles, namely the impact of taxes on productivity and output growth. What arguments could seriously be made for cutting taxes for the rich? What role to taxes really play in redistributing wealth from one bracket of income earners to another?

In The Know: Are America’s Rich Falling Behind The Super-Rich?

 Other Media: Download

Theory 1 - Demand-pull inflation - is inflation demanding?

The Keynesian view of Demand Pull inflation: Notice the large horizontal section of the AS curve. This represents the wage inflexibility and the elasticity of supply at high levels of unemployment. In a recession, large number of workers are unemployed, so any increase in price will result in a large increase in output, since firms can easily attract new workers without increasing wages. So what about the upward sloping and vertical sections? These of course represent the full-employment level (upsloping) and beyond full employment to full-capacity production, when any increase in aggregate demand is “absorbed” by price level increases with no further increase in output, since all resources are being used to their full-capacity, and even further increases in wages will not increase national output.

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SAS Economists - A blog written by AP and IB Econ students at Shanghai American School

It dawned on me this weekend that my students have a LOT to say about economics and how it relates to our world. The Wiki has been a great platform for extending their study of the principles of economics onto a collaborative online learning platform, as over 75 AP students have collaborated on a course study guide.

Part of the wiki experience has included regular posts by students to unit pages called “AP Econ in the News”, where they post a link to an article relating to the current unit’s topics and include a short summary. I have decided to take this concept to one more level and create for the students a blog where they can post their articles, summaries and a short discussion and/or questions to get their class mates to think more about how our subject relates to our everyday lives and the world around us.

So I created a blog just for SAS Economics students, both AP and IB, where they can register as authors and post articles whenever they feel inspired to do so. The blog is called “SAS Economists” and it is found at http://welkerswikinomics.com/students.

Any SAS Economics student, AP or IB, can register at this blog and is automatically made an author. Writing for the blog is easy, and a keen student should be able to figure it out in less than five minutes. I would ask that once in a while, if you find an article (perhaps for the AP Econ in the News page), you consider posting it to the blog as well as the wiki. You don’t need to write much to go with the link to the article, just a few words of how it relates to our class and maybe some questions or observations for readers to think about and comment on.

Anyway, I thought I might as well make a student blog, since we already have the student wiki and the teacher blog! So, follow the link above, bookmark it, and check back regularly to see what your classmates are writing about! And become an author yourself! Anyone can do it! Welcome to the blogosphere folks, have fun!

-Mr. W.

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Thanks to Jeewon Oh, Shanghai American School AP Econ student, for posting the link to this excellent article about supply and demand for teachers in Mississippi. Jeewon posted this article and her below summary of it to our class’s “AP Econ in the News” page on the wiki. CLICK HERE to see the other articles and summaries posted by students relating to our current unit on Supply and Demand. Here’s Jeewon’s article:

Teachers: Shortages require pay hikes -The Clarion-Ledger- Real Mississippi

And here’s Jeewon’s summary from the wiki:

In Mississippi, there are not enough teachers in the classrooms. This teacher shortage is becoming a greater problem, as 50 percent of the teachers nationwide are estimated to leave the profession within five years. In August there were 1,270  requests for one-year education licenses, which would result in temporary and unqualified teachers in schools. Despite the fact that 1,400 education majors graduate from Mississippi colleges, only 900 become teachers. The State Superintendent of Education Hank Bounds realized that if wages increased, there would be more teachers willing to work. Bounds currently wants a 3 percent pay raise andaddition of 5 years to the pay schedule for teachers. This is asupply-and-demand issue, as the Legislative Budget Committee is planning to supply, or offer, higher wages, predicting that more teachers will be demanding and willing to take the job, due to the change in their income.

The reason this article jumped out at me is because it relates to so many of the topics we’ve studied in unit 2 of Microeconomics, particularly our last class where we learned about how free, competitive markets lead to an allocatively efficient outcome. In public schools in America, wages paid to teachers are essentially set by the state and local governments; in essence there is a price ceiling in the market for teachers. According to the article:

Mississippi has been on a plan to get pay competitive, but it still lags. Base pay for a starting teacher is about $30,000. The average salary is $40,594, short of the Southeastern average of $42,333. The national average is $47,674.

Given the severe shortage of teachers in Mississippi and the nation as a whole, what does this say about the average salaries being paid to teachers? What can we conclude about the allocation of resources towards education? Is the market for public education in the United States allocatively efficient? How does Jeewon’s article present a solid argument for the privatization of education in the US? How might taking some of the responsibility of providing education out of government hands result in a more efficient allocation of resources towards schools?

Great article, Jeewon, thanks for the link and the nice summary. From now on, when I see an excellent article like Jeewon’s accompanied by a fine summary such as the one above, I will plan to post it to this blog so others can benefit from the research and reading that our AP students are sharing through our class wiki. The AP Econ in the News page is a great place economics teachers and students to come find useful articles for their classes, as well, so I encourage you to bookmark it. A new page is added for each unit, and it can be found under each unit’s main page.

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IB students - the following is a MUST READ article before we wrap up our unit on inflation and unemployment!

Thomas Palley » Blog Archive » Inflation, Chinese Style

Here’s a great piece from economist Thomas Palley laying out in great clarity the underlying causes of China’s record high inflation. He explains why China’s inflation fighting strategy based on domestic contractions of the money supply are missing the point, and how to really tackle the rising prices China should look at the value of its currency.

As for why it’s in the government’s own best interest to reduce this inflation, Palley sees the issue as pretty obvious:

Putting the pieces together, the picture is one of rising Chinese inflation, and with that comes the risk of inflation-triggered social and political problems. In this regard it is worth recalling that the Tian**men Sq**re disturbances of May 1989 were in part caused by industrial worker unrest over erosion of living standards by inflation.

Bringing prices under control appears to be in the best interest not only of consumers in China, but of the government as well, if not for the sake of sound economic policy, then in the name of self-preservation.

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Here’s some examples of good economics related podcasts. Pay attention to the similarities, such as the interviews, smoothly edited transitions, introductions and conclusions, etc. A good podcast follows a similar structure to a good essay, it uses quotes (interviews) strategically to support evidence of the main ideas.

Some of these podcasts are longer than others. Remember, you’re only expected to make a 3-5 minute podcast exploring ONE topic related in SOME way to our class. Economics, of course, is part of our everyday life. Find one way economics is visible in YOUR life, grab a recorder, go out and interview people and put together a story that illustrates how we are LIVING economics!

 

 Sample Podcast 5 [6:14m]: Play Now | Play in Popup | Download

 

 Sample Podcast 1 [4:54m]: Play Now | Play in Popup | Download

 

 Sample Podcast 2 [55:04m]: Play Now | Play in Popup | Download

 

 Sample Podcast 3 [31:18m]: Play Now | Play in Popup | Download

 

 Sample Podcast 4 [27:33m]: Play Now | Play in Popup | Download

FT.com / Asia-Pacific / China - Beijing rejects North American pork

Here’s a follow up to the previous post about China’s attempt to keep inflation low by clamping down on rising prices through price controls. The main cause of the record inflation figures is the shortage of pork in the country. This headline’s irony was obvious, only a few articles below the one linked in the last post!

Here’s the thing; pig shortages have driven up the price of pork by around 60-70% in China. What’s one obvious solution to this problem? Import more pork from overseas to meet the excess demand. So, what’s the government doing about it? Playing politics with the US and blocking imports of American pork! Ha! Looks like their concern for the common Chinese may take a backseat to the retaliatory message sent to the US, which has recently threatened new tariffs on Chinese goods in the wake of concerns over product safety and frustration over the persistent trade imbalance between the two countries.

Beijing has rejected consignments of pork from the US and Canada because they contain a banned additive – in spite of a domestic shortage of China’s staple meat, which pushed inflation to a
10-year high in August.

Again, China’s meddling in the market economy seems to only make things worse for the Chinese people.

Chinese officials have said they expect the pork shortage to remain a problem into next year, but prices have already started to come down from their August high, Xinhua, the official news agency, reported at the weekend. Prices decreased by 11.3 per cent in early September from the levels in August because of an increase in supplies of pigs, Xinhua said.

The number of pigs ready for sale was up 9.9 per cent early this month compared with a year ago, said Sun Zhengcai, the agriculture minister.

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FT.com / Asia-Pacific / China - China freezes government-set prices

Here’s a great article for both AP and IB students to pay attention to. The Chinese government is responding to rising prices at home by resorting to some good old fashioned “iron fist” measures, namely price controls on a wide range of products. For the rest of this year, prices on certain goods and services will not be permitted to rise, OR ELSE! (what? we don’t want to know!)

China has begun to enforce a freeze on all government-controlled prices in a sign of the central government’s alarm about rising popular anger over inflation, now at the highest rate in over a decade.The order freezes a vast array of prices still under the control of governments in China, ranging from oil, electricity and water, to the cost of parking and park entrance fees.

I find the following statement interesting:

“Any unauthorised price rises are strictly forbidden…and in principle, there will be no new price-raising measures this year,” the ministries’ announcement said. (italics added)

How strange is it that the government’s announcement pointed out that the freeze on prices is only in principle? Could this be the government’s attempt to placate a public that’s grown angry at their weakening purchasing power? Does this mean that if prices actually do go up, the government can just say, “Hey, at least we tried!” Looks like the old communist mentality has softened a bit in the era of market reforms!

So what’s the source of all these rising prices? Well, food plays a big role, thanks to a couple of factors:

The sharp spike in inflation is largely due to higher food prices, because of a shortage of pigs after a disease killed millions late last year and earlier in 2007, and the rising cost of feed, a global
phenomenon.

The China of today is very different from that of 20 or 30 years ago, when the government played a much larger role in the economy. Unleashing the beast of the free market in the early 80’s may have meant the government would have to loosen its grip in situations such as today’s inflation, and let the free market adjust on its own.

Economists said the price freeze is the kind of administrative measure redolent of China’s former planned economy, but it may be less effective in China today.

“They will not be able to control the price of everything,” said Chen Xingdong, of BNP Parisbas in Beijing.

Perhaps that’s for the better. Why might the government’s price controls actually make the matter worse for the average Chinese? If the government were to take a “laissez faire” approach to the problems faced by China, how might the free market resolve them on its own? Any ideas? Don’t worry, AP student, you don’t need to explain this yet, but I promise you by the end of the year you’ll be able to!

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 Podcast: China's Inflation and Consumer Spending: Download

Semester 1 Microeconomics Podcast Assignment - Welker’s Wikinomics Page

Hello readers, I have some exciting news for the future of Welker’s Wikinomics Blog. This last weekend I attended, along with about 450 other teachers from all over Asia, the Learning 2.0 Educational Technology Conference here in Shanghai, at which I participated in several workshops aimed at furthering our integration of technology into learning environments. I also presented a workshop myself on the use of wikis to enhance student learning.

I was blown away by the enthusiasm of teachers from pre-K to grade 12 for the potential uses of wikis. Our own wiki, Welker’s Wikinomics, has grown rapidly this year and is now ranked 47 among Wetpaint’s 516,000+ wikis. My eager and hard working students deserve the credit for our class wiki’s success!

A couple of the workshops over the weekend focused on the use of podcasts in the classroom. This got me thinking about how we could harness the podcast in our economics class. After a few discussions with fellow teachers, I have designed a research project for AP Econ students through which they will create a podcast of a story connecting the content learned in class to current events selected from the news media. Details of this research assignment can be viewed here.

Students, you should follow the link above and read the assignment carefully. Once you’ve chosen a partner, you should sign up as soon as possible on the podcast assignment sign-up sheet. This project has replaced the article commentaries that last year’s AP students wrote and submitted during first semester.

Once stories have been submitted, they will be “podcasted” through this blog, on the wiki, and even through iTunes, where they will be available for download by anyone in the world to listen to and enjoyed. At the bottom of this post is an example of what your podcasts will look and sound like once they’re posted to the blog.

There are a few other exciting new features on the blog for students and readers to enjoy as well:

• Reader comments now include a short extract on the left toolbar. If a comment sounds interesting, you can click on the commenter’s name and read the whole thing.
• Social bookmarking buttons have been included with each post, so you can save and share the posts you find interesting through any number of social bookmarking services.
• An Amazon.com book list has been included on the left toolbar, with images of and links to some of my favorite economics books, as well as a few AP Econ study guides for you to consider as exams approach.
• Comments can now be made on posts using your voice! Yes, you can either type and submit your comment, or you can record your comment (must be 30 seconds or less) for others to listen to right on the blog. I encourage you to experiment with this cool feature!

I will continue to improve and expand Welker’s Wikinomics (both the wiki and the blog). In the meantime, we here in Shanghai are preparing for Typhoon Wipha, supposedly the biggest storm to hit the city in a decade. Around 3 am tomorrow they’re anticipating winds of up to 200km/hour to hit the city. School has been cancelled… hopefully that means more time for blogging!

 

 Example of a Podcast from Mr. Welker: Play Now | Play in Popup | Download

The price of sperm | Free exchange | Economist.com

What are sperm banks thinking? This reflective post from Free Exchange takes an economist’s look at the market for donated sperm, where only recently have sperm banks been charging interested mothers an additional fee for the sperm from PhD holding donors.

Here’s the thing, if mothers are willing to pay more for the higher quality DNA within a PhD’s sperm, wouldn’t they also be willing to pay for other qualities as well?

For example, should donors be compensated extra for every inch of height? Or for being fine featured? And what about athletic prowess? Surely some donors are more popular than others—and thus their sperm should exhibit greater scarcity and desirability. Why does the market not price that?

It’s a great question, and one that relates to the interaction of supply and demand in the marketplace. The fact is, sperm banks are not following the rules of supply and demand in the prices they charge mothers and their payments to donors.

…perhaps more accomplished donors would step forward if they were compensated more handsomely for their achievements. More aggressive bidding for sperm could raise the quality of donors, leading to more options for customers, and—who knows?—more talented children.

If prospective mothers really value certain qualities over others, why wouldn’t the market for sperm reflect those values? Perhaps sperm banks have something to learn about basic economics!

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Environmental Economics: Someone’s been drinking a little too much of the Kool-Aid

Professor Tim Haab of Ohio State University and author at Environmental Economics Blog made a post the other day titled “Someone’s been drinking a little too much of the Kool-Aid”. Apparently he thinks that what high school students in Shanghai drink for fun (do you?) because he was talking about us. Yes, here’s Professor Haab’s words:

“AP Economics students at the Shanghai American School are pointed to the Blogs of America’s Leading Economists.  The only reason I’m pointing this out is because we are listed before Greg Mankiw, Marginal Revolution and Freakonomics…cool. Click the thumbnail for proof–in case they decide to change the order once they realize their obvious oversight.”

Apparently the fine professor is flattered yet confused about the fact that on our Wiki’s student resource page, I have listed his blog ahead of that of Havard’s Professor Makiw and Steven Levitt of “Freakonomics” fame. This is no oversight, Professor Haab. Perhaps his preferred position is based on my own interest in environmental economics and the fact that his blog serves a very important role in raising awareness of the environmental implications of our rapidly growing global economy.

He shouldn’t be flattered, just aware that his words are being read and appreciated by young economists like yourselves, as is evidenced by the several posts on our own blog linking to Dr. Haab’s articles on the Environmental Economics blog.

Anyway, just as he’s flattered at his own position on our Resource Page, I’m equally flattered that he somehow found our wiki and commented on it on his own widely read blog! Thanks for the plug Professor Haab!

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Revenge of the Frosh-Seeking Robots — The American, A Magazine of Ideas

So this article jumped out at me for a couple of reasons. First, it makes this somewhat startling observation:

…elite schools are reporting that the number of economics majors is exploding. For the 2003–2004 academic year, the number of economics degrees granted by U.S. colleges and universities increased 40 percent from five years previously. Economics is seen by bright undergraduates as the path to a high-paying job on Wall Street or at a major corporation.

A 40% increase in the number of econ majors is incredible! I don’t know whether to be flattered that so many young people find the field interesting or frightened that in a few years there will be tens of thousands of fresh, eager economists out there on the job market, against whom I’m sure I’ll end up competing for jobs in economics education!

Besides the impact on the job market for economists, this article really focuses on the decline in numbers of computer science majors, and describes Microsoft’s plan to make the major more appealing to bright freshman once more.

The number of smart kids studying computer science peaked a few years ago and has dropped dramatically since. The number of new computer science majors today has fallen by half since 2000, according to the Higher Education Research Institute at UCLA.

Think of the market for computer scientists and the market for economists. What impact do the above data have on these two job markets? What do you think will happen to the wages paid to economists in the next four or five years? What about wages paid to computer scientists? In which market would you predict a shortage? A surplus?

In an attempt to make computer science more exciting for incoming freshman, the brains at Microsoft have piloted a program to give every freshman who studies comp sci their own pet robot:

Research formed a partnership with Bryn Mawr, the venerable liberal-arts women’s college near Philadelphia, and Georgia Tech, a traditional technical university. The three jump-started a $2 million pilot program called the Institute for Personal Robots in Education that is developing an easily programmable tabletop robotic device to introduce to first-year computer science students.

The prototype I saw in May looks like a miniature space-age chariot, with two wheels and a Bluetooth wireless receiver on top. The developers want to keep the cost under $200 and offer it in college bookstores with a first-year textbook.

Within the first weeks of a class, students will be able to write elementary code that prompts the robot to do simple tasks like drive forward or back. But even simple code-writing with immediate, physical results like this can have an impact that energizes students. Or so it is hoped. Eventually, students can write more complex code—programming their personal robots to emulate a moth.

Do you think this pet robot program will lead to more comp sci majors? What are you thinking of studying in college? Why might economics be a bad choice right now? (Did I just say that?!)

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A Silver Lining? The connections between gasoline prices and obesity - by Charles Courtemanche

Here’s the abstract from a new study about relationship between gasoline prices and obesity (I know, weird, right?)

A causal relationship between gasoline prices and obesity is possible through mechanisms of increased exercise and decreased eating in restaurants. I use a fixed effects model to explore whether this theory has empirical support, finding that an additional $1 in real gasoline prices would reduce obesity in the U.S. by 15% after five years, and that 13% of the rise in obesity between 1979 and 2004 can be attributed to falling real gas prices during this period. I also provide evidence that the effect occurs both by increasing exercise and by lowering the frequency with which people eat at restaurants.

Given these numbers, you, my students, should be able to calculate the cross-price elasticity of demand between gasoline obesity. Crunch the numbers, what do you see? Is this research plausible or did this guys simply see the relationships he wanted to see to support his thesis?

Hat tip to Professor Greg Mankiw.

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Previously I blogged about the decline in demand for natural gas and the resulting decrease in quantity supplied by gas producers:

Welker’s Wikinomics Blog » Disequilibrium in the market for natural gas

Professor John Whitehead over at Environmental Economics Blog took the liberty of calculating the price elasticity of supply (PES: a measure of the responsiveness of producers to a change in a product’s price) of natural gas. In this case, since the price of natural gas went down, producers decreased the quantity of gas supplied. Professor Whitehead simply found the price of natural gas, and the rest was easy, given the date from the original article:

“Amid an abundance of natural-gas supplies and soft prices, gas producers are starting to pull the plug. Chesapeake Energy Corp. said it will cut 6% of its gas production in September in response to low natural-gas prices.”

And the professor’s calculation of PES:

PES = (change in Q/Q)/(change in P/P)And the percentage change in quantity is 6% (”Chesapeake Energy Corp. said it will cut 6% of its gas production …”).

…natural gas is about $5.75. During the period Feb-July ‘07 price was pretty stable at about $7.50.

So, change in P/P = (7.5-5.75)/5.75 = .30 or 30%

Therefore: PES = 6/30 = .2

So, with a price elasticity of supply of 0.2, how would you describe the responsiveness of gas producers to changes in price? Do you think the PES for natural gas would remain 0.2 over time if the prices were to remain low? Why or why not? What are the main determinants of PES?

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From the Undercover Economist:

FT.com / Weekend columnists / Tim Harford - Dear Economist

Is there a relationship between a student’s decision of whether to have sex and his/her performance in school? Tim Harford finds there just might be.

There is little doubt that virgins achieve better grades. Yet is this because sex kills brain cells, or because kids who are already bored at school look harder for ways to amuse themselves?

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BBC.co.uk - News - Science/Nature - “Brits ‘adicted’ to cheap flights”

As we continue to learn economics, you’ll begin to realize more and more how important this field is to truly understanding how things in our everyday lives work. For example, how will people respond to the increase in a product’s price when the government places a new tax on the product?

Chapter 18 of our text discusses the implications of price elasticity of demand on governments’ decisions of what types of goods to place excise taxes on. Given an understanding of PED, we as economists understand that taxes will earn the most revenue for a government when placed on goods for which the PED coefficient is less than 1. In other words, revenue seeking governments should tax products for which demand is highly price inelastic, and avoid taxing products for which demand is highly price elastic. This just makes sense: when the price of an inelastic good goes up, consumers will respond very little, while an increase in the price of an elastic good will scare away a relatively large number of consumers, meaning a decrease in total revenue (tax revenue in this case).

In addition to elastic and inelastic price elasticity of demand, we also discussed today the theoretical existence of products for which PED is perfectly inelastic. In the article linked above, geographers from the University of Exeter in the UK share findings from a study that seem to indicate that PED for air travel in the UK is perfectly inelastic:

“The government raised air passenger duty in February, and the European Union is set to include aviation in its Emissions Trading Scheme (ETS), which could increase costs further.

But the Exeter research suggests price hikes would have a minimal impact.

‘We found that flying is quite embedded in peoples’ lifestyle choices,’ said Stewart Barr from the university’s Department of Geography.

‘And it’s not people on lower incomes taking these flights, it’s middle class people taking more flights to go on city breaks, and they can afford to pay higher prices.’”

According to the Exeter geographers, because “flying is quite embedded in peoples’ livestyle(s)…” the increase in price resulting from the new taxes should have “minimal” impact on air travel. When most people say “minimal”, what they are implying is “none”… in which case we as economists can translate the geographers’ statements as thus: “the price elasticity of demand for air travel in the UK is zero (or darn close to it!)”

Could this be true? Do you think air travel has a PED of zero? If so, what are the implications for airlines? What are the implications for travelers? Could the geographers be wrong? What about air travel makes demand for it so price inelastic? Discuss!!

Hat tip to Professor John Palmer at EclectEcon for the link to this article.

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