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Why is Supply and Demand so confusing?

In critique, popular economics, reblog on July 29, 2009 at 11:49 am

Scott Sumner, professor of economics at Bentley University, wrote an honest-to-goodness article about the general confusion that students, teachers and business journalists have in thinking about supply and demand. I found the article through the site of Greg Mankiw, the author of the textbook which Sumner refers to in this illuminating article. Consider this:

Question:  A survey shows that on average 100 people go to the movies when the price is $6 and 300 people go when the price is $9.  Does this violate the laws of supply and demand?

Very, very few can answer this question, especially if you ask for an explanation.  Even worse, I think there is a perception that there is something ‘tricky’ about this question, something unfair.  In fact, it is as easy a question as you could imagine.  It’s basic S&D.  It’s merely asking students what happens when the demand for movies shifts.  I cannot imagine a less tricky question, or a more straightforward application of the laws of supply and demand.  In the evening hours the demand for movies shifts right.  Price rises.  Quantity supplied responds.  What’s so hard about that?  And yet almost no student can get it right.  Our students enter EC101 knowing one of the two things they need to know about S&D, and they leave knowing one of the two things they need to know about S&D.  Maybe instead of having them memorize mind-numbing lists of “5 factors that shift supply,” and “5 factors that shift demand,” we should just tell them to read something that will explain what economics is all about, something that portrays economists as detectives trying to solve the identification problem, something like Freakonomics.

Scott Sumner articulates one of my personal concerns in studying economics. I felt that the general concepts, when you really think about them, really lack the empirical basis of the natural sciences. I thought that a more comprehensive education would make the philosophy of economics indispensable to clarify abstract concepts like value, exchange, utility, price and demand. These terms never fail to confuse me, though what I like in general is how the universe of economics can be postulated in the form of a labyrinth.

The author criticizes the manner with which reputed publications talk about the subject. “I feel like something is wrong.  What they are doing is about as closely related to economics as astrology is to astronomy.”

The full article can be found here.

Related posts:
Economics post archive

Longlist for 2009 Man Booker Prize

In literary, reblog on July 29, 2009 at 8:57 am

 

The official website of Man Booker Prize has announced the judge’s longlist. The Man Booker Prize is one of the prestigious literary awards in the English-speaking world. Included in the list are A.S. Byatt and Nobel Prize winner J.M. Coetzee.

* Byatt, AS. The Children’s Book
* Coetzee, J.M. Summertime
* Foulds, Adam. The Quickening Maze
* Hall, Sarah. How to paint a dead man
* Harvey, Samantha. The Wilderness
* Lever, James. Me Cheeta
* Mantel, Hilary. Wolf Hall
* Mawer, Simon. The Glass Room
* O’Loughlin, Ed. Not Untrue & Not Unkind
* Scudamore, James. Heliopolis
* Toibin, Colm. Brooklyn
* Trevor, William. Love and Summer
* Waters, Sarah. The Little Stranger

Winners in the past are Margaret Atwood, Ian McEwan, Kazuo Ishiguro, Salman Rushdie, William Golding, Iris Murdoch, V.S. Naipaul, among others. See the archive of winners here.

The indie kid’s guide to classical music

In music, reblog on July 29, 2009 at 8:35 am

From The Guardian:

How do you listen?

What you need to do is close the curtains, take your clothes off, lie face down with your teeth sunk deep into the carpet. Then get your butler to sprinkle your buttocks with rose petals and put on the 16-plus hours of Wagner’s operatic tetralogy, The Ring, before he retreats, locking the door on you, until the bloody ordeal is over. Not really: what you need is peace, quiet and concentration. 

Music for kids: Muse and Chopin. Photographs: Yui Mok/PA/ Alfredo Dagli Orti/Corbis/Art Archive

Five downloads to get you started

Schubert: the Trout Quintet
Bach: Brandenburg Concertos
Mozart: Clarinet Concerto
Beethoven: Symphony No 9
Puccini: Madame Butterfly

Related post:
Music and Metaphysics

Five downloads to getyou startedSchubert: the Trout QuintetBach: Brandenburg Concertos

Flatland: a Romance of Many Dimensions

In book review, reblog on July 29, 2009 at 8:15 am

I learned about Edward Abbott’s 1884 novella about entities in the two-dimensional world from this video. The book is entitled “Flatland: a Romance of Many Dimensions” and is so eccentric I couldn’t imagine how the Victorian era received it. The video features Carl Sagan trying to explain how a person in a two-dimensional world can perceive an intruding entity with three dimensions. The book also talks about how one flatlander journeyed to space and was branded a madman when he returned to Flatland to report what he had seen about other dimensions. Flatland’s relationship to ours is, of course, the same as our relationship to the four-dimensional realm.

Hayao Miyazaki’s “Ponyo”

In film, reblog on July 29, 2009 at 8:05 am

From biblioklept:

Ponyo tells the story of a little fish-girl (girl-fish?), a mermaid who escapes from her mad-scientist father and meets a boy named Sosuke. After tasting some of Sosuke’s blood, Ponyo begins to morph into a human. However, her transmutation causes bizarre and violent weather, including a giant tsunami resulting in a massive flood; even the moon starts to pull out of orbit. Sosuke and Ponyo navigate this surreal post-flood world, searching for Sosuke’s mother Lisa. The tale of these children is sweet but never maudlin, and like most Miyazaki films, Ponyo taps into sentimentality and pathos without ever becoming mawkish.

Visually, Miyazaki employs a sketchy, watery style here, painted in beautiful pastels and flashy complimenting brights. The look of this film is a significant departure from the fine detail and rich heaviness of Miyazaki’s masterpiece, Spirited Away (Sen to Chihiro no Kamikakushi), and might disappoint some, but we thought it was both beautiful and fitting. Of course, we were watching a pirated version that someone lovingly and bravely shot in a theater, undoubtedly inferior to the spectacle we expect from the theatrical release.

See original article here.

Vampires are good for the economy

In popular economics, reblog on July 25, 2009 at 4:46 pm

Just as I have thought. Vampires work wonders to the economy, if their population is managed effectively.

In Dennis Snower’s Macroeconomic Policy and the Optimal Destruction of Vampires (1982), the optimal production of stakes should make the supply sufficiently low to allow the regeneration of vampires (see my An economic policy on vampires post).

Michael Ian Black has some amateur arguments in My Custom Van. Ecocomics sums this up:

…vampires would be more likely to attack individuals of lower socioeconomic backgrounds, who have less adequate means of protecting against an attack. This, he argues, would serve to reduce spending on social welfare programs, such as Medicaid, since more lower-income individuals enroll in these programs.

The same blogger adds his own insights:

…there are other industries that have the potential to grow. One is, of course, the insurance industry. Much like with supernatural disaster insurance, people will want compensation in the event of vampires destroying their homes, their cars, and most of all, their pets. And what about insurance against actually becoming a vampire? Vampires have things to buy. They still live in homes, which means they have mortgages to pay, utilities bills, car insurance payments, etc. Unlike zombies, vampires do not just walk around lusting for brains and losing body parts. They are actually capable of blending in with humans, holding intelligent conversation, and engaging in rational thought. They are also capable of deriving enjoyment from television, music, books, clothing, and others. Therefore they are likely to make some purchases for entertainment and luxury in addition to necessity.

See the complete article here.

Related posts:
An economic policy on vampires

Health care is not a right

In critique, philosophy, reblog on July 25, 2009 at 8:25 am

To make medicines and health services available to all citizens, care of the government — any sane person would think that this is moral and well-intentioned. People who oppose the health care plan in America reason out that while indeed it is moral and well-intentioned, it is impractical. As of this date, “the US spends more on health care than any other country” (Financial Times).

Dr. Leonard Peikoff, who is heir to Ayn Rand’s intellectual estate, says that the health care plan, or the concept of socialized medicine for that matter, is impractical because it is immoral. The opponents of the plan are therefore merely scratching the surface. Peikoff argues: Health Care Is Not A Right. The reason is as follows:

Now our only rights […] are the rights to life, liberty, property, and the pursuit of happiness. That’s all. […]

Why only these? Observe that all legitimate rights have one thing in common: they are rights to action, not to rewards from other people. The American rights impose no obligations on other people, merely the negative obligation to leave you alone. The system guarantees you the chance to work for what you want—not to be given it without effort by somebody else.

The right to life, e.g., does not mean that your neighbors have to feed and clothe you; it means you have the right to earn your food and clothes yourself, if necessary by a hard struggle, and that no one can forcibly stop your struggle for these things or steal them from you if and when you have achieved them. In other words: you have the right to act, and to keep the results of your actions, the products you make, to keep them or to trade them with others, if you wish. But you have no right to the actions or products of others, except on terms to which they voluntarily agree.

The art of book vandalism

In history, reblog on July 23, 2009 at 1:11 pm

Many centuries ago in China, shortly before the construction of the Great Wall, Emperor Qin commanded that all books must be destroyed. The only ones excluded were useful manuscripts, like books on astronomy and agriculture. Jorge L. Borges wrote that in order for the leader to truly establish himself as the first emperor of the unified kingdoms of China, he must first erase history. The emperor prevented the forces that shattered this unity, in turn hastening the construction of the structure. For imaginative purposes, one could think of the Wall as being made of books instead of bricks, since the burning of books was totally in conjunction with the project.

Franz Kafka’s The Great Wall of China, a most exemplary piece showing the so-called “Kafkaesque process of non-arrival” (see John Updike’s introduction to Franz Kafka: the Complete Short Stories), speculates how the Chinese citizens were socialized into the project by having the entire educational system revolve around the notion of “building”. The most important skills were related to constructing something indestructible, in the masonic sense of the word.

(There is a legend that Emperor Qin ordered some 500 Confucian scholars to be buried alive, in response to some illustrious people who opposed his tyrannical ways.)

Borges, the librarian of the world, pursued the idea that books constitute the substance of the universe in The Library of Babel. That was the extent of his bibliophilia. This fictional essay is the first Borgesian piece that I ever loved. What was most astonishing is how he calls attention to the physical constitution of the book rather than the text. For him, even the pages and the binding are sublime.

Today, contemporary artists have found a lot of uses from the physical constitution of books. The pictures are from OffBeatEarth:

Below are promotional images for Anagram Bookshop in Prague, by Kaspen.

 

Economics and Global Climate Change

In popular economics, reblog on July 15, 2009 at 11:53 am

Conor Clarke, correspondent for The Atlantic, lists the reason why it’s difficult to make sense of global climate change after his interview with Thomas Schelling, who won the 2005 Nobel Prize in Economics. Schelling has been recognized in the field of game theory, which is the study of strategic situations. A strategic situation, by layman’s definition, is simply a situation where the outcome of one’s decision is affected by the decision of another party.

The rationale for the interview is to contextualize the issue of global climate change in complicated bargaining agreements among nations. Part one of the interview can be found here. He summarizes the difficulty of making sense of the issue in the following:

1. Any solution to climate change must have a theory for what the present generation owes future generations. That’s hard. How do we weigh the interests of people that don’t yet exist?

2. Any global solution to climate change must take account the fact that the costs of warming will be borne unevenly around the world. Parts of the northwestern United States will actually benefit from a warmer climate. Bangladesh will not. But why should the U.S. care what happens in South Asia?

3. Any solution should account for the fact that the responsibility for global warming is also borne unevenly. The developing world will bear most of the costs, but the developed world bears most of the responsibility. (My understanding is that this will change at some point in the next 50 years.)

4. Related to #2, the world’s ability to adapt to a changing climate is distributed unevenly. It would surprise no one to learn that wealthy nations will have an easier time adapting than poorer ones. So should we allow poorer nations to pursue the most rapid growth possible, before the consequences become dire? Or should we pursue a solution that achieves the maximum possible reduction in global emissions?

5. There is a great deal of uncertainty about what will happen. To be sure: There is no (repeat, no) scientific uncertainty as to whether or not the climate is warming. It is. But the question is, By how much? And when? Will the temperature increase by two degrees Celsius over the next 100 years? Three degrees? Seven degrees? The differences matter.

6. Climate change has an incredibly long time horizon. Any small cost or small chance of a catastrophic outcome must to weighed across hundreds or thousands of years. There is also one-way ratchet here: It isn’t clear everything we change about the climate can be reversed.

7. Global warming asks us to weigh economic factors — growth, GDP — against non-economic ones, like the diversity of species and the amount of arable land on the planet. I have absolutely no clue how to do that.

Thomas Schelling

Related post:
Game Theory of Washing Dishes

Harold Bloom on Blood Meridian

In book review, reblog on July 13, 2009 at 2:32 pm
Leonard Pierce of A.V. Club interviewed Harold Bloom about the Yale professor’s take on Cormac McCarthy’s Blood Meridian. Bloom confirms my observation that McCarthy is secretly indebted to William Faulkner. I have yet to read As I Lay Dying and Light in August, but based from The Sound and the Fury and the epic Absalom, Absalom! alone, one could readily trace McCarthy’s precursor. An excerpt:


The A.V. Club: Talk a bit about how you came to read Blood Meridian. You apparently had a hard time getting through it the first time.


Harold Bloom:
I read it on the recommendation of a friend, Gordon Lish, a New York book editor and a specialist in fiction. He said that it was a very splendid work, but that he was always appalled by the violence of it, and I wondered what he meant. I think I had read some earlier McCarthy, and had mixed feelings about it—it seemed to me to be Faulknerian in a way that was not really integrated in a way that made it McCarthy’s own. It may have been Suttree, in fact, a book that I haven’t read since. It was a strong book, but you had the feeling at times that it was written by William Faulkner and not by Cormac McCarthy. He tends to carry his influences on the surface, quite honestly.

The first time I read Blood Meridian, I was so appalled that while I was held, I gave up after about 60 pages. I don’t think I was feeling very well then anyway; my health was going through a bad time, and it was more than I could take. But it intrigued me, because there was no question about the quality of the writing, which is stunning. So I went back a second time, and I got, I don’t remember… 140, 150 pages, and then, I think it was the Judge who got me. He was beginning to give me nightmares just as he gives the kid nightmares. And then the third time, it went off like a shot. I went straight through it and was exhilarated. I said, “My God! This reminds me of Thomas Pynchon at his best, or Nathanael West.” It was the greatest single book since Faulkner’s As I Lay Dying. In fact, I taught it for several years in a class I gave here at Yale—interestingly enough, in a sequence starting with Faulkner’s As I Lay Dying, moving on to Miss Lonelyhearts, then The Crying of Lot 49, and the fourth in the sequence was Blood Meridian.
I finally wrote something about it, and I was contacted by his people at Random House; they were going to put out a nice cloth-bound library version of it, and they requested to put what I had to say about it in a book called How To Read And Why in as an introduction, and I of course consented. Certainly, the book holds up; I wish that the rest of McCarthy, both before and after, was that good. I think the Border Trilogy has its moments, especially the first volume [All The Pretty Horses], but the second [The Crossing] and third [Cities Of The Plain]—especially the third—were disappointments. I was not one of the admirers of No Country For Old Men, which I found strained and the brutality coming through it all so… Nothing really mitigated it. The negative protagonist has none of the legitimacy or grandeur that Judge Holden has. And The Road I’ll have to visit again, because it really wore me down, that book, until the last 40 or 50 pages, where the father-son bond, I felt, was conveyed with real beauty and majesty. I want to make sure my impressions of it were correct. But to have written even one book so authentically strong and allusive, and capable of the perpetual reverberation that Blood Meridian possesses more than justifies him. I don’t think McCarthy will ever match it, but still… He has attained genius with that book.

AVC: When you called it “the ultimate Western”, did you mean merely the paramount example of the genre, or its final expression?
HB: No, I meant the final one. It culminates all the aesthetic potential that Western fiction can have. I don’t think that anyone can hope to improve on it, that it essentially closes out the tradition. And in the sense that it serves as an extension of the pastoral tradition, it provides an interesting and ironic contrast with American Pastoral by my friend Philip Roth.

(Read the whole interview at A.V. Club)


Related post:
The Rhetoric of Blood Meridian