Mankiw 6e. Experience it.
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Chapter 6: Supply, Demand, and Government Policies

Recent Posts
(Note: Page numbers referenced in posts prior to June 1, 2011 refer to 5th edition)

 

February 18

CBO on a Minimum Wage Hike

The non-partisan Congressional Budget Office examined the effect of raising the minimum wage to $10.10 per hour. It estimated that it would reduce employment by 500,000. Moreover, only 19 percent of the increase in income for minimum-wage workers would go to people below the poverty line.

Textbook References:

Pages 117-119 “The Minimum Wage”

December 5

The CEA Fact Checkers Miss One

In a speech, President Obama said that "there's no solid evidence that a higher minimum wage costs jobs." There are many economists who dispute that assertion, including labor economists David Neumark and William Wascher.

Textbook References:

Pages 117-119 “The Minimum Wage”

December 3

Minimum Wage Redux

Paul Krugman has called for an increase in the minimum wage and claims the effects on employment are trivial. David Neumark, J.M.Ian Salas, and William Wascher provide evidence that disputes Krugman's claim.

Textbook References:

Pages 117-119 “The Minimum Wage”

September 24

Some Observations on the Minimum Wage

Mankiw presents a link to a discussion of the minimum wage by John Cochrane. Mankiw also discusses the views of an economist who supports the minimum wage.

Textbook References:

Pages 117-119 “The Minimum Wage”

September 2

Don't 'Fight for Fifteen'

Allen Sanderson argues that an increase in the minimum wage will increase unemployment among low-skilled workers.

Textbook References:

Pages 117-119 “The Minimum Wage”

March 15

Caplan on Card

Bryan Caplan argues that David Card's empirical research on labor markets presents conflicting results. In some cases Card finds that labor demand is inelastic, but in other cases he finds that labor demand is elastic. This matters because of the predicted effect of a minimum wage on unemployment (among other things).

Textbook References:

Pages 117-119 “The Minimum Wage”

February 16

Why $9?

Mankiw wonders why White House economists decided that the minimum wage should be $9, and not some other value. He also has links to previous posts about the minimum wage.

Textbook References:

Pages 117-119 “The Minimum Wage”

November 12

Should we repeal anti-gouging laws?

Anti-gouging laws function as price ceilings when there are disasters. John Carney and Mark Thoma debate their merits.

Textbook References:

Pages 112-121 “Controls on Prices”

April 24

Price Controls in Venezuela

Price controls in Venezuela have made it hard for people to buy basic necessities.

Textbook References:

Pages 112-121 “Controls on Prices”

October 16

The Increased Role of the Minimum Wage

The increase in the minimum wage means that it now covers a larger fraction of workers.

Textbook References:

Pages 117-119 “The Minimum Wage”
Page 428 “Minimum Wage Laws”
Pages 606-608 “Minimum Wage Laws”

August 24

Jeff Miron on Capitalism

Jeff Miron discusses three common misconceptions about capitalism.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 13-14 “Principle 8: A Country's Standard of Living Depends on Its Ability to Produce Goods and Services”
Chapter 6 “Supply, Demand, and Government Policies”

July 25

A Question About Tax Incidence

No part of a temporary reduction in aviation taxes is being passed on to consumers. This implies that in the very short run, the supply of airline seats is perfectly inelastic.

Textbook References:

Pages 125-127 “Elasticity and Tax Incidence”

May 6

The Inanity of Rent Control

An article describes how rent control and tenants' rights laws are harming renters in San Francisco.

Textbook References:

Pages 117-118 “Rent Control in the Short Run and the Long Run”

April 21

Price Controls for Limo Rides

A short video demonstrates the harm caused by a price floor.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 118-121 “How Price Floors Affect Market Outcomes”

February 5

The Lucky Break of Rent Control

An article discusses the practice of making cash payments to get people in rent-controlled apartments to leave.

Textbook References:

Pages 114-118 “How Price Ceilings Affect Market Outcomes”
Pages 217-218 “The Coase Theorem”

December 7

The Tax Deal

Mankiw comments on the tax deal between President Obama and Congressional Republicans. He is generally pleased, but notes a peculiarity of the cut in the payroll tax.

Textbook References:

Page 127 “Can Congress Distribute The Burden Of A Payroll Tax?”
Pages 166-167 “The Deadweight Loss Debate”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”

October 25

Pricing in Venezuela

A photograph explains the source of shortages in Venezuela.

Textbook References:

Pages 114-118 “How Price Ceilings Affect Market Outcomes”

September 10

A Dastardly Clever Scheme

Some universities in New York City are buying rent-controlled apartment buildings. They then rent to faculty at the rent-controlled price, which allows them to reduce faculty wages.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 117-118 “Rent Control In The Short Run And The Long Run”

May 5

In Defense of Price Gouging

Should vendors of bottled water raise their prices when tap water is no longer clean enough to drink?

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 114-118 “How Price Ceilings Affect Market Outcomes”

April 5

Is "Unpaid" Below the Minimum Wage?

The U.S. Labor Department claims that unpaid internships violate minimum wage laws.

Textbook References:

Pages 119-121 “The Minimum Wage”
Page 446 “Minimum Wage Laws”
Pages 627-629 “Minimum Wage Laws”

February 23

Financing Healthcare Reform

The most recent healthcare reform proposal does not include a tax on "Cadillac" health insurance and adds a tax on capital. It will not reduce demand for healthcare and will likely slow growth.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 125-127 “How Taxes on Buyers Affect Market Outcomes”
Page 560 “Saving and Investment”
Pages 586-587 “Policy 1: Saving Incentives”
Pages 587-589 “Policy 2: Investment Incentives”

February 22

How Not to Stop Healthcare Inflation

Price controls have not worked in the past, and are not likely to work on healthcare.

Textbook References:

Pages 114-123 “Controls on Prices”

January 16

Healthcare Reform Debate

There is a link to a video and the Powerpoint slides of a symposium on healthcare reform. The U.S. and Canadian systems are discussed.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 114-123 “Controls on Prices”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 271-273 “Production and Costs”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Chapter 6: Supply, Demand, and Government Policies
Archived Posts

 

December 9

The Transactions Tax

Burton Malkiel and George Sauter argue against taxing financial transactions.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments can Sometimes Improve Market Outcomes”
Pages 123-130 “Taxes”
Pages 654-655 “The Financial Crisis of 2008”

November 15

Supply, Demand and Healthcare Reform

The healthcare reform bill passed by the House contains significant reductions in Medicare payments to hospitals and nursing homes. This is likely to limit access to care for millions of people.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 73-76 “Supply”
Pages 114-123 “Controls on Prices”

November 9

Unintended Consequences

David Meltzer and Zhuo Chen argue that there is an inverse relationship between the real minimum wage and the average body mass index of Americans.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 119-121 “The Minimum Wage”
Pages 348-354 “Competition with Differentiated Products”

November 2

Disincentives from Reform: The House Edition

The implicit marginal tax rates in the House version of health care reform are even higher than in the Senate version.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 123-130 “Taxes”
Pages 249-253 “Taxes and Efficiency”
Pages 253-257 “Taxes and Equity”
Pages 258-260 “Conclusion: The Trade-Off Between Equity and Efficiency”

October 31

Disincentives from Health Reform

Mankiw discusses how the proposed health care reform would significantly increase marginal tax rates on the middle and upper classes.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 123-130 “Taxes”
Pages 249-253 “Taxes and Efficiency”
Pages 253-257 “Taxes and Equity”
Pages 258-260 “Conclusion: The Trade-Off Between Equity and Efficiency”

October 30

Average Marginal Tax Rates

Robert Barro and Charles Redlick present a graph of the average marginal tax rate, defined as the sum of the marginal rates of the federal and state income taxes plus the marginal FICA tax.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 123-130 “Taxes”
Chapter 8 “Application: The Costs of Taxation”
Chapter 12 “The Design of the Tax System”

October 15

Davis on Job Creation

Steven Davis does not like the proposed tax credit for job creation. He offers alternative suggestions.

Textbook References:

Pages 119-121 “The Minimum Wage”
Pages 246-247 “The Fiscal Challenge Ahead”
Pages 251-252 “Administrative Burden”


October 13

The Incidence of the Cadillac Tax

Kevin Hasset argues that the Baucus health care reform bill would raise taxes on the working and middle classes. The tax is on insurance companies, but will likely be passed on to their customers.

Textbook References:

Pages 123-130 “Taxes”
Pages 442-445 “The Political Philosophy of Redistributing Income”


October 10

Marginal Tax Rates from Health Reform

The CBO estimates that the Baucus healthcare reform bill will add about 22 percentage points to the marginal tax rate of many working-class people.

Textbook References:

Page 7-8 “People Respond to Incentives”
Pages 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 166-167 “The Deadweight Loss Debate”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 449-451 “Antipoverty Programs and Work Incentives”


October 9

A Cautionary Tale

The current discussion of a tax credit for job creation is reminiscent of a Carter-era tax credit.

Textbook References:

Page 7-8 “People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


October 7

A 70-Percent Marginal Tax Rate

James Capretta argues that the Baucus healthcare bill will impose a marginal tax rate of 70 percent on workers just above the poverty line.

Textbook References:

Page 7-8 “People Respond to Incentives”
Pages 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 449-451 “Antipoverty Programs and Work Incentives”

A Tax Credit for New Hiring?

Congress is considering a tax credit for firms that create new jobs. But the issue is not as simple as it appears.

Textbook References:

Page 7-8 “People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


October 5

Medicare and Freedom

Medicare sometimes imposes price controls on markets. When people try to circumvent them, more restrictive rules are imposed.

Textbook References:

Pages 7-8 “People Respond to Incentives”


June 12

The Case Against a Minimum Wage Hike

The minimum wage is scheduled to increase in July, David Neumark argues that a recession is an especially bad time to increase the minimum wage.

Textbook References:

Pages 118-121 “How Price Floors Affect Market Outcomes”
Chapter 18 “The Markets for the Factors of Production”
Pages 627-629 “Minimum-Wage Laws”


Apr. 4

Hoover Did It!

Lee Ohanian argues that higher wages, which were paid to prevent unions from organizing, was an important cause of the Great Depression.

Textbook References:

Pages7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 118-121 “How Price Floors Affect Market Outcomes”
Pages 421-422 “Above-Equilibrium Wages: Minimum-Wage Laws, Unions, and Efficiency Wages”
Pages 629-631 “Unions and Collective Bargaining”


Mar. 16

They’re Baaack!

The current hard times are inducing some state and local governments to impose price controls.

Textbook Reference:

Pages 114-123 “Controls on Prices”


Feb. 6

The Mature Keynesian Perspective II

Keynes would’ve approved a cut in the payroll tax now.

Textbook References:

Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Jan. 5

Glaeser on Stimulus

There is a link to an editorial by Ed Glaeser that suggests the best use of the stimulus money is to cut the payroll tax and give money to local governments.

Textbook References:

Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Pages 248-249 “State and Local Government”
Pages 253-256 “Taxes and Equity”
Pages 792-793 “Changes in Taxes”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”


Dec. 13

The Case for a Payroll Tax Cut

There are links to more complex analysis of the Bils-Klenow stimulus plan presented on December 2.

Textbook References:

Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Pages 253-256 “Taxes and Equity”
Pages 792-793 “Changes in Taxes”
Pages 793-796 “Using Policy to Stabilize the Economy”


Dec. 10

Bail-out, Italian Style

Italy is buying up Parmigiano cheese in order to support cheese prices. Mankiw suggests that if the government did not do so, a few firms would fail. That would reduce supply and increase price. That would help the remaining firms without any expense for the government. The same logic applies to other industries.

Textbook References:

Pages 118-121 “How Price Floors Affect Market Outcomes”
Pages 295-297 “The Firm’s Short-Run Decision to Shut Down”
Pages 301-304 “The Long Run: Market Supply with Entry and Exit”


Dec. 2

The Bils-Klenow Stimulus Plan

Bils and Klenow argue that a cut in the payroll tax would be the best way to stimulate the economy.

Textbook References:

Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Pages 253-256 “Taxes and Equity”
Pages 792-793 “Changes in Taxes”
Pages 793-796 “Using Policy to Stabilize the Economy”