Aug 14 2012

## My first Economics lesson – Scarce Chairs!!

The following lesson is a great way to start an IB or AP Economics class for the year. I just tried it this morning for the first time and it went great!

Instructions:

• Before your Econ students arrive for their first full class meeting, remove chairs until there are only half as many as you will have students. I stuck mine in the library, well out of view of the students coming to my class.
• Tell students that the custodian removed the chairs for repairs, or they were taken to another room for a presentation or something. Anyway, you don’t know when they’ll come back and it may be a couple of weeks.
• For now, we are stuck with this many chairs, and we have to figure out a way to resolve this problem!
• Tell the students it’s up to them to decide how our limited number of chairs will be allocated. Have them brainstorm solutions out loud while you write their suggestions on the board.
• Try to come up with 6-10 possible solutions, then have the students vote on the one they would like to see enacted. They can only vote once! Write the tallies next to each option on the board.
• If there is a tie for #1, have the whole class vote between the two or three options you’ve narrowed it down to until there is one clear winner.
The Economist’s Solution:
• Once the students have voted on their favorite solution, share with them the economist’s favorite solution. It is known as a sealed-bid auction.
• Give each student a slip of scrap paper and have him write two things: 1) His name, and 2) the maximum price he would be willing and able to pay each class period to have a chair to sit on.
• Collect the results, and in front of the students, organize their bids from highest to lowest. If there is a tie on the margin, have the students whose bids were identical bid again, writing their highest price on the back of the same slip of paper, then re-rank.
• The students with the highest bids will get a chair! For example, I had 17 students, and only 8 chairs. The highest bid was \$10, while three students were not willing to pay anything. Four kids were willing to pay \$1, but there were only two chair left at that point. When they re-bid, one was willing to pay \$2, one \$1.75, \$1.25 and \$1.20. Therefore, the two remaining chairs went to the students willing to pay \$2 and \$1.75.
• Finally, tell the winners that they can take a seat, and that everyone else must stand! At this point, of course, you can send the lowest bidders out to fetch the missing chairs and begin your debrief.
Economic concepts illustrated by the Scarce Chairs exercise:

Scarcity exists:

• When something is limited in supply and in demand, it is scarce.
• Everyone wants to sit, but the chairs were missing… chairs were scarce.
• Scarcity is a function of both demand and supply. The greater the demand relative to supply, the more scarce something is.

• Because scarcity exists, we must make choices about how to allocate our scarce resources
• We had to choose between competing systems for allocating the chairs

Rationing systems:

• When faced with scarcity, a system must be decided upon to ration the scarce items.
• The systems we decided upon ranged from a lottery to first come first serve to a merit-based system.

Something that is scarce has value:

• Everyone wanted a chair, yet they were limited. Because the chairs provide us with benefit, we value them, and are therefore willing to pay to have one.
• Value is a function of scarcity. The scarcer something is, the more valuable it becomes (gold), while less scarce items are less valuable (drinking water).

Consumer surplus:

• Consumer surplus is the difference between what you are willing to pay and what the price is.
• Sofia would have had lots of consumer surplus if she only had to pay \$2 , because she was willing to pay up to \$10.

Equity versus Efficiency:

• Equity means fairness, while efficiency requires that resources go towards their most socially optimal use, so that those who value something most end up getting that which they value.
• The tradeoff between equity and efficiency is a major theme of the IB Economics course.
• What is most efficient (an auction to determine who is willing to pay the most for the chairs) may not be equitable (or fair).
• When the richest students end up in the chairs, those with lesser ability to pay feel that they’ve been treated unfairly.
• A lottery in which names would be drawn from a hat to determine who gets a chair is certainly more equitable, but is actually less efficient, since those who get the chairs may not be those who place the greatest value on having a chair.
• Auctioning the chairs assures that those who value them the most will end up getting them, therefore resources are allocated most efficiently.

Aug 03 2012

## Macroeconomics and International Economics PowerPoints and Study Guides NOW AVAILABLE!

Welker’s Wikinomics Lecture Notes – PowerPoint and PDF Study Guides: ORDER HERE!

Two weeks ago I finished a complete overhaul of my popular Microeconomics PowerPoints and Study Guides. Now the Macroeconomic and International Economics PowerPoints and Study Guides are ready to order.

Here’s what you get when you order the Macro and International Lecture Notes:

The Macroeconomics and International Economics Lecture Notes include the following units of study:

•     1.0 Introduction to Economics (45 pages with 2 video lessons)
•     2.1 GDP and its Determinants (23 pages with 3 video lesson)
•     2.2 Aggregate Demand and Aggregate Supply (38 pages with 2 video lesson)
•     2.3 Macroeconomic Objectives (40 pages with 3 video lessons)
•     2.4 Fiscal Policy (28 pages with 5 video lessons)
•     2.5 and 2.6 Monetary and Supply-side Policies (36 pages with 3 video lessons)
•     3.1 Free Trade and Protectionism (27 pages with 3 video lessons)
•     3.2 Exchange Rates (26 pages with 3 video lessons)
•     3.3 Balance of Payments (24 pages with 4 video lessons)
•     What you get: A 287 page set of lecture notes including 28 video lessons

Here’s a quick look at one of the units:

Sep 30 2011

## Lesson Plan: Macroeconomic Indicators around the World

Directions: Macroeconomics is an area of study with precise goals attached to it. Macroeconomists generally agree that there are three primary goals towards which policies should be used to try and achieve:

Understanding the indicators used in macroeconomics to measure the success in these three areas is important. In the activity that follows, you will research, define, and explain the various types of inflation, unemployment and economic growth. You will also research and record examples of these indicators from several countries. Finally, you will investigate your OWN country, and determine what precisely makes up the total amount of economic activity in your country.

Part 1: Using your notes and your textbook (Welker’s chapters 11, 12, 13, 14 and 15), answer the following questions. Most of the country data you are asked to find can be found in the CIA World Factbook.

Define and explain the various types of each of the following:

1. Define inflation [2 marks]
1. Type 1 [1 mark]:
2. Type 2 [1 mark]:
3. Research and identify the current inflation rates in [3 marks]:
• Switzerland
• China
• United States
2. Define unemployment [2 marks]
1. Type 1 [1 mark]:
2. Type 2 [1 mark]:
3. Type 3 [1 mark]:
4. Research and identify the current unemployment rates in [3 marks]:
• The UK
• Germany
• Spain
3. Define Full Employment [2 marks]
4. Define economic growth and illustrate the concept of growth using a production possibilities curve [4 marks]
1. Research and identify the most recent GDP growth rates in
• Nigeria
• Greece
• Japan

Part 2:

1. Identify the four components of a nation’s aggregate demand and briefly explain two factors that affect each of the four components (this can be found in Welker’s chapter 12) [10 marks]
2. Research and identify the main macroeconomic indicators for your home country. Enter the information you find into THIS ONLINE FORM, and click submit when you’re done.
• From the CIA World Factbook you should be able to discover your country’s main macroeconomic indicators (GDP, GDP per capita, inflation rate
• Using the Eurostat website, you can find out what percentage of your country’s GDP is made up of government spending.
• If you are not from a European country, you may have to do a little more investigation to find the percentage of GDP made up of government spending.

Part 3: The Results : You can view the results of the form by clicking HERE

Discussion Questions:

1. Which of the countries appear to be doing the BEST job of meeting their macroeconomic objectives of low unemployment, low inflation and economic growth?
2. Which countries appear to be doing the WORST at meeting their macroeconomic objectives?
3. Which countries have the highest GDP growth rates? What do the highest growth countries have in common? What is different about them?
4. Which countries have the lowest unemployment rates? What do these countries have in common?
5. Which country experienced a recession in 2010? Discuss the possible relationship between economic growth and unemployment?

Apr 08 2011

## The battle of ideas: Hayek versus Keynes on Aggregate Supply

Introduction: The two models below represent two very different views of a nation’s aggregate supply curve. The theories behind the two models represent the ideas about the macroeconomy of two economists, John Maynard Keynes and Friedrich von Hayek.

Instructions: The videos introducing Keynes’ and Hayek’s theories can be found here: “Commanding Heights: the Battle for Ideas”. We will watch them in class, but if you need to review them you may watch them again from home. Once you’ve watched the videos and read chapter 17 from your Course Companion, answer the questions that follow each of the two models below.
Figure 1: the Classical AD/AS model

1. Why does Hayek’s “classical” aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of
2. The vertical AS curve above is sometimes referred to as the “flexible-wage and flexible-price” model of the macroeconomy. Why must wages and prices be perfectly flexible for this model to be an accurate representation of a nation’s economy.
3. Hayek was an advocate for free markets, he felt that government intervention in a nation’s economy would only interfere and disrupt the efficient allocation of resources. How does the model above reflect his belief that governments cannot improve a nation’s level of output beyond what the free market is able to achieve?
4. Do you believe that the classical model of aggregate supply is representative of the real world? Why or why not? What evidence is there from recent history that the model is or is not accurate?

Figure 2: The Keynesian AD/AS model

1. Based on the model above, which level of aggregate demand corresponds with the macroeconomic goals of “full-employment and stable

prices”?

2. Changes in which factors could cause aggregate demand to shift from AD2 to AD3? If AD falls to AD3, what happens to the price level in the economy? What happens to the level of output of goods and services? What happens to employment and unemployment?
3. Sometimes the Keynesian AS model is known as the “sticky-wage and sticky-price model”. How does the model reflect the idea that wages are downwardly inflexible, in other words, will not fall even if demand for goods and services fall? For what reasons might wages in an economy be downwardly inflexible (in other words, not fall even as total demand in the economy falls)?
4. How realistic is the Keynsian model of aggregate supply in the real world?
1. Can you point to any evidence from the last few years that it might be correct (in other words, that a fall in AD will lead to decrease in national output?) Find data on the GDP’s of two Western European countries from 2008 and 2009 to support your findings.
2. Can you point to any evidence from the last few years that the model might be flawed (in other words, that a fall in AD actually does lead to a fall in the price level)? Find data on inflation in the same two Western European countries to examine whether or not wages and prices are completely inflexible downwards as the model suggests.

Figure 3: Our IB Economics AD/AS model

The diagram above represents a compromise between the classical AD/AS model and the Keynesian AD/AS model. This graph is the one we will use throughout the IB and AP Economics course when illustrating a nation’s macroeconomy. Answer the questions that follow about the diagram.
1. How does the above model represent a compromise between Keynes’ and Hayek’s view of aggregate supply?
2. Why are there two aggregate supply curves? What is the difference between the two?
3. What happens in the SHORT-RUN when AD falls from AD2 to AD3 to the price level and output? What will happen in the long-run? In macroeconomics, the short-run is known as the “fixed-wage period” and the long-run the “flexible-wage period”. The main factor that can shift the SRAS curve is the level of wages in the economy (in other words, a change in wages will shift the SRAS). How does this help explain the adjustment from the short-run equilibrium and the long-run equilibrium following a fall in AD?
4. What happens in the SHORT-RUN when AD increases from AD2 to AD1? What will happen in the long-run? How does the long-run flexibility of wages explain why output always seems to return to its full employment level of output in the long-run?
5. What does the model above indicate about the possible need for government intervention to help an economy achieve its macroeconomic goals of full-employment and price level stability in the short-run?

Nov 24 2010

## Lesson Plan: Costs of Production Presentation for Y1 IB Economics

Unit 2.3.1 Costs of Production: Team Presentation Activity

Learning Objectives:

• Distinguish between fixed and variable costs of production
• Understand how the law of diminishing returns affects the shape of a firm’s short-run total costs and short-run average costs.
• Understand the relationships between marginal cost and the average costs faced by a firm
• Distinguish between the short-run and the long-run and understand how economies of scale determines the shape of a firm’s long-run ATC curve.
• Evaluate the importance to a business firm of understanding its short-run and long-run costs of production.

Process: Work with a partner in the class to prepare a presentation on the theories behind and the relationships between a firm’s short-run and long-run costs of production. Pairs will create a shared Google Presentation (which should also be shared with Mr. Welker) and collaborate on creating a presentation demonstrating your understanding of the topics outlined below. The presentations that are created will be shared among group members, and edited in class and over the weekend.

The assignment: Each team is to make one Google Presentation on an assigned topic based on what they learn using the web-resources provided by Mr. Welker below. Presentations will be shared with Mr. Welker and presented during our first meeting next week.

Guidelines for presentation:

1. Presentations must be at least 10 slides long, but no more than 15.
2. Presentations must include definition, explanations, illustrations and examples (when possible) for the key concepts identified below
3. Presentations must include graphs from the resources provided to illustrate concepts where necessary
4. Presentation must use each group’s own words. Copying and pasting text from the resources provided is not permitted.

Shor-run – Key Concepts

• Short-run
• Total, average and marginal product
• Law of diminishing returns
• Short-run total costs
• Short-run marginal and average costs

Resources on Short-run Costs of Production:

Long-run: Key Concepts

Resources on Long-run Costs of Production:

Grading Presentation: Total – 40 marks

 Area of assessment High marks (7-10) Medium marks (4-6) Low marks (1-3) Organization Easy to read. Font size varies appropriately. Text is appropriate length. Presentation falls within the required length limits (10-15 slides) Overall readability is difficult. Too much text. Too many different fonts. Presentation falls within the required length (10-15 slides) Text is difficult to read. Too much text. Inappropriate fonts. Small font size. Presentation is either too short or too long. Graphs All graphs are related to content. All graphs are appropriate size and good quality. Graphics are explained clearly and illustrate the concepts from the presentation Some of the graphs are unrelated to content. Too many graphics on one page. Some of the graphics distract from the text. Graphs are explained, but explanations are incomplete or unclear Most of the graphs are unrelated to content. Too many graphics on one page. Most of the graphs distract from the text. Explanations are incomplete and unclear Concepts The economic concepts that were assigned have been completely and accurately incorporated into the presentation. Definitions, explanations, illustrations and examples fully reflect the team’s understanding of the concepts The economic concepts assigned are all addressed in the presentation, but analysis is superficial and lacks original insight from the team members. The economic concepts assigned are not all addressed in the presentation. One or more have been left out completely, and those that were addressed were explained or illustrated incorrectly.
Mark Bands:
27-30: A, 23-26: B, 19-22: C, 15-18: D, 0-15: F

• ## Order Welker’s books

for IB Economics

for AP Macro