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Chapter 22: Frontiers in Microeconomics

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

 

October 8

On Textbook Prices

Students often ask why textbooks are so expensive. National Public Radio investigates the issue, and offers some possible explanations, including the principal-agent problem. The 15-minute podcast includes an interview with the author of this textbook, Greg Mankiw.

Textbook References:

Pages 468-470 “Hidden Actions: Principals, Agents, and Moral Hazard”

May 3

Media Slant

Recent research suggests that the media cater to the political biases of their consumers. For example, a newspaper in a liberal community will slant left, and a newspaper in a conservative area will slant right. The question arises, however, as to how well this serves democracy. How can people make informed decisions if their news sources simply confirm existing biases?

Textbook References:

Pages 473-479 “Political Economy”

November 3

Robert Frank on Casinos

Robert Frank urges voters not to approve new casinos. Slot machines are designed to be addictive and therefore prey on the vulnerable.

Textbook References:

Pages 480-485 “Behavioral Economics”

October 31

The State of Neuroeconomics

Neuroscientists are using tools such as functional-magnetic-resonance-imaging machines to look for the biological basis of economic decisions.

Textbook References:

Pages 480-485 “Behavioral Economics”

October 9

An Interview with John List

John List discusses his career as an experimental economist.

Textbook References:

Pages 480-485 “Behavioral Economics”

July 27

Where is economics going?

Prominent young economists discuss the future of their discipline. Growth and behavioral economics figure prominently.

Textbook References:

Pages 480-485 “Behavioral Economics”
Pages 540-552 “Economic Growth and Public Policy”

February 12

Betsey Stevenson & Justin Wolfers

The New York Times profiles the experts on "lovenomics."

Textbook References:

Pages 480-485 “Behavioral Economics”

December 31

A Half Dozen Short Takes

Six economists suggest ways to improve the economy in 2012.

Textbook References:

Pages 480-485 “Behavioral Economics”
Page 683 “The Euro”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”

December 13

Shiller on Neuroeconomics

Robert Shiller expects Neuroeconomics to revolutionize economics by showing us how the brain really works.

Textbook References:

Pages 480-485 “Behavioral Economics”

November 8

A Profile of Daniel Kahneman

Michael Lewis discusses the work of the founders of behavioral economics, Daniel Kahneman and Amos Tversky.

Textbook References:

Pages 480-485 “Behavioral Economics”

October 4

Sin Taxes on College Sports?

Allen Sanderson argues for a sin tax on the revenue generated by college.

Textbook References:

Pages 482-483 “Sin Taxes”

September 29

Left-Digit Bias

The price difference between cars with 79,900 miles and cars with 79,800 miles is much smaller than the price difference between cars with 79,900 miles and cars with 80,000 miles. In other words, the left-hand digit matters more than it should.

Textbook References:

Pages 480-481 “People Aren't Always Rational”

July 21

The Subprime Mortgage Crisis

Christopher Foote and Paul Willen examine two different theories of why the subprime mortgage crisis occurred.

Textbook References:

Pages 468-473 “Asymmetric Information”
Pages 480-481 “People Aren't Always Rational”
Page 561 “Financial Crises”
Pages 745-748 “The Recession of 2008-2009”

June 11

George Akerlof

Prakash Loungani interviews Nobel laureate George Akerlof.

Textbook References:

Pages 468-473 “Asymmetric Information”
Pages 480-485 “Behavioral Economics”

April 19

A Free Book Well Worth Your Time

Mankiw recommends Policy and Choice: Public Finance through the Lens of Behavioral Economics by William J. Congdon, Jeffrey R. Kling, and Sendhil Mullainathan. A link allows you to download the book for free.

Textbook References:

Chapter 10 “Externalities”
Chapter 11 “Public Goods and Common Resources”
Chapter 12 “The Design of the Tax System”
Pages 484-489 “Asymmetric Information”

April 3

A Profile of Al Roth

Al Roth improves how markets function, especially those where money or price do not play a central role.

Textbook References:

Chapter 22 “Frontiers of Microeconomics”

February 9

Incentivizing Customers to Monitor Workers

A sign in South Africa offers customers a reward if an employee fails to provide a correct receipt.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 484-485 “Hidden Actions: Principals, Agents, and Moral Hazard”

February 7

A Behavioral Econ Business Plan

A new type of gym membership forces people to pay more if they do not work out.

Textbook References:

Pages 494-500 “Behavioral Economics”

February 2

Moral Hazard

Mankiw provides an example of moral hazard from his own life.

Textbook References:

Pages 484-485 “Hidden Actions, Principals, Agents, and Moral Hazard”
Pages 601-603 “The Market for Insurance”

December 16

The Economics of Seinfeld

Clips from the TV show "Seinfeld" are used to illustrate a variety of economic concepts.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 5-6 “Principle 2: The Cost of Something is What You Give Up to Get It”
Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 3 “Interdependence and the Gains from Trade”
Pages 67-72 “Demand”
Pages 73-76 “Supply”
Pages 144-153 “Controls on Prices”
Chapter 10 “Externalities”
Pages 226-227 “The Different Kinds of Goods”
Pages 227-232 “Public Goods”
Pages 230-232 “The Difficult Job of Cost-Benefit Analysis”
Pages 232-237 “Common Resources”
Pages 274-275 “Fixed and Variable Costs”
Page 281 “Economies and Diseconomies of Scale”
Pages 312-315 “Why Monopolies Arise”
Chapter 16 “Monopolistic Competition”
Pages 370-378 “The Economics of Cooperation”
Pages 399-400 “The Supply of Labor”
Page 414 “Compensating Differentials”
Page 442 “Utility”
Page 465 “Utility: An Alternative Way to Describe Preferences and Optimization”
Pages 484-489 “Asymmetric Information”
Pages 556-558 “Technological Knowledge”
Pages 578-580 “Financial Intermediaries”
Pages 598-600 “Present Value: Measuring the Time Value of Money”
Pages 603-604 “Diversification of Firm-Specific Risk”
Pages 606-609 “The Efficient Market Hypothesis”
Pages 630-631 “The Economics of Unions”
Pages 703-705 “The Prices for International Transactions: Real and Nominal Exchange Rates”
Pages 707-708 “The Basic Logic of Purchasing Power Parity”
Page 833 “Time Inconsistency”

July 2

A New Problem for Insurance Markets

The discovery of genetic markers for longevity will affect markets for life insurance and annuities.

Textbook References:

Pages 485-486 “Hidden Characteristics: Adverse Selection and the Lemons Problem”
Page 488 “Screening to Induce Information Revelation”
Pages 601-603 “The Markets for Insurance”

March 7

A Life in Finance

Eugene Fama writes an autobiographical sketch.

Textbook References:

Pages 606-609 “The Efficient Markets Hypothes”
Pages 484-485 “Hidden Actions: Principals, Agents, and Moral Hazard”

December 21

Rolling the Dice on Medicare

The rate of increase of spending on Medicare is scheduled to decline, but it isn't clear how the savings will be achieved.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Page 493 “Politicians are People Too”

December 21

Sachs on the Copenhagen Summit

Jeffrey Sachs argues that the Copenhagen summit was a complete failure.

Textbook References:

Pages 232-237 “Common Resources”
Page 493 “Politicians are People Too”


November 25

Take Out Your Pencils 3

Mankiw poses a problem about Arrow's Impossibility Theorem suitable for introductory students.

Textbook References:

Page 491 “Arrow's Impossibility Theorem”


October 14

Maskin on the Financial Crisis

Nobel laureate Eric Maskin discusses the financial crisis. He contends that economists did anticipate the crisis but that policymakers did not listen. He also provides a reading list on the subject.

Textbook References:

Pages 484-485 “Hidden Actions: Principals, Agents, and Moral Hazard”
Pages 601-603 “The Markets for Insurance”
Pages 642-643 “The Functions of Money”
Pages 649-658 “Banks and the Money Supply”
Pages 779-781 “The Theory of Liquidity Preference”
Pages 783-785 “Changes in the Money Supply”

Chapter 22: Frontiers in Microeconomics
Archived Posts

 

September 19

Levine on Macro

David Levine accuses Paul Krugman of ignoring advances in modern macroeconomics.

Textbook References:

Pages 494-500 “Behavioral Economics”
Pages 606-610 “Asset Valuation”
Chapter 33 “Aggregate Demand and Aggregate Supply”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”
Chapter 35 “The Short-Run Trade-off between Inflation and Unemployment”
Chapter 36 “Five Debates over Macroeconomic Policy”


September 17

Kocherlakota on Macro

Narayana Kocherlakota makes ten claims about the state of modern macroeconomics.

Textbook References:

Pages 494-500 “Behavioral Economics”
Pages 606-610 “Asset Valuation”
Chapter 33 “Aggregate Demand and Aggregate Supply”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”
Chapter 35 “The Short-Run Trade-off between Inflation and Unemployment”
Chapter 36 “Five Debates over Macroeconomic Policy”


September 10

How Did Economists Get It So Wrong?

Barry Eichengreen and John Cochrane defend economic theory in the face of the current crisis.

Textbook References:

Pages 494-500 “Behavioral Economics”
Pages 606-610 “Asset Valuation”
Pages 751-761 “The Aggregate Supply Curve”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”
Pages 817-818 “Rational Expectations and the Possibility of Costless Deflation”
Chapter 36 “Five Debates over Macroeconomic Policy”


September 3

Krugman on Macro

Paul Krugman argues that most macroeconomists have preferred beauty to truth.

Textbook References:

Pages 494-500 “Behavioral Economics”
Pages 606-610 “Asset Valuation”
Pages 751-761 “The Aggregate Supply Curve”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”
Pages 817-818 “Rational Expectations and the Possibility of Costless Deflation”
Chapter 36 “Five Debates over Macroeconomic Policy”


May 28

Blame the Board

Alan Blinder blames corporate boards for much of the financial crisis. They created incentives for executives to take on excessive risk.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 9 “Incentive Pay”
Page 486 “Corporate Management”


Apr. 21

Solow on Posner

Robert Solow reviews Richard Posner’s book, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression. Along the way he provides insightful observations, as one would expect from a Nobel laureate.

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 246-248 “The Fiscal Challenge Ahead”
Pages 484-489 “Asymmetric Information”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”


Apr. 15

Yale Economists on the Financial Crisis

Robert Shiller, John Geanakoplos and Richard Levin discuss the financial crisis in a one-hour video. The roles of psychology and of leverage are emphasized.

Textbook References:

Pages 494-500 “Behavioral Economics”
Pages 498-499 “This Is Your Brain on Economics”
Pages 576-578 “Financial Markets”
Pages 608-609 “Neurofinance”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”


Apr. 5

“Animal Spirits”

Richard Posner reviews the book “Animal Spirits” written by George Akerlof and Robert Shiller. Unsurprisingly, he doesn’t like it.

Textbook References:

Pages 498-499 “This Is Your Brain on Economics”
Page 749 “Shifts Arising from Changes in Investment”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”


Mar. 29

Forecasting as Futuristic Fiction

Robert Shiller reports on how paying attention to peoples’ mind-sets can be useful in forecasting economic performance.

Textbook References:

Pages 498-499 “This Is Your Brain on Economics”
Pages 608-609 “Neurofinance”
Pages 654-655 “The Financial Crisis of 2008”


Mar. 3

The Case for Moderation

David Brooks argues that the Obama administration wants to fundamentally change government’s role in the economy and society.

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 442-445 “The Political Philosophy of Redistributing Income”
Pages 489-493 “Political Economy”