"Remember that all models are wrong; the practical question is how wrong do they have to be to not be useful." - George E.P. Box
Markets fail. Assumptions are violated. The trick to understanding or appreciating the results we talk about in economics is to understand and appreciate which assumptions are more likely to fail, how badly those assumptions fail, and how relevant those failures are to the validity of the results of the analysis.
This recent post tears a one of the most highly regarded theorems in economics to shreds, in a sense. Basically, it's saying that the idea that a (perfectly) competitive equilibrium exists is hooey because:
1. markets aren't perfectly competitive;
2. information (about the present and future) is not perfect or even symmetric ("perfect information" here is not actually taken to mean "everyone knows everything", more like "there is uncertainty, but everyone knows the underlying probability distribution");
3. markets for the same good in different places or different times aren't necessarily separable;
4. markets aren't complete (especially futures markets).
How problematic any of these assumptions might be depends in part on the nature of a particular market. Which assumptions seem most egregiously violated TO YOU?
Friday, August 29, 2014
A Non-Convexity Example
Maybe there are examples of people preferring extreme values over certain ranges of consumption of a good to averages in between. I think education is a good example, because there are discrete cutoffs in the value (derived in terms of future salary or policy restrictions) at various cutoffs in the quantity of education "consumed" (invested in?). These cutoffs take place at about the 10th year (policy restriction on dropping out below age 16), 12th year (high school diploma), and 16th year (bachelor's degree). Since there is a "jump" in the market value of education at the diploma and degree levels, a consumer might prefer both 12 years and 16 years of education to some convex combinations in between (13 or 15 years education and correspondingly more consumption of "other goods"). Here is an example of what the resulting indifference curve might then look like:
Tuesday, August 26, 2014
Blogging Basics (Repost)
NOTE TO STUDENTS: COMMENTS AND/OR QUESTIONS POSTED TO THIS ENTRY DO NOT COUNT FOR GRADED CREDIT
Once you are logged in to Blogger using your SAU Google login, starting to write your blog post is pretty easy. Another way to sign in is to visit the blog website, and if you are not already logged in, you can click "sign in" at the top right of the screen, and log in using your "sau.edu" email address and email password.
If you have accepted the invitation to join the blog as an author, you will now see "International Trade Class Blog" in your blogroll and you can simply click the orange button with the pencil icon inside of it to create a new post. If you do not see this, and you have not accepted the invitation, then go to find the email and accept the invitation, or EMAIL ME requesting me to re-send the invitation.
Once you have begun a new post, there are a few things that I recommend. First, when you refer to an outside source (and you should always be incorporating some outside source to show a connection between the class theories and the real world), as I have done in today's post about industrial policy when referencing this article by Robert Atkinson and Michael Lind, you should embed the link into the text that you have selected by: (1) highlighting the text where you want the link to appear; (2) clicking the "Link" button at the top of the formatting bar in the "Compose" view of the post editor; and (3) pasting the URL of the web source you have mentioned in the box.
If you so choose, you can also upload images into your post by clicking the picture icon button (just to the right of the "Link" button"), then adding a link to a web location for your picture or uploading a picture into Blogger from your own computer. The same goes for videos (the button next over from the "picture" link. If your video appears on a website, but isn't available on YouTube, you can still embed it using by pasting the "embed code" from that website into the html code. I have done this for the "Daily Show" clip (which I know not to be available via YouTube) embedded below. This is slightly more advanced, but definitely doable.
Finally, if you really like doing your text editing in Word and not in your web browser, MS Word 2007 and up allows you to save your Blogger login information so that you can automatically publish to the blog directly from your Word application on your computer (and also save a local copy to your hard drive). In word, simply start as if you are going to create a new document, but instead select "New Blog Post" from the "New" dialog box. Word will prompt you for your blog's host (Blogger), as well as your login name/password. You may have problems linking the accounts if you maintain more than one blog with your "sau.edu" login name.
Once you are logged in to Blogger using your SAU Google login, starting to write your blog post is pretty easy. Another way to sign in is to visit the blog website, and if you are not already logged in, you can click "sign in" at the top right of the screen, and log in using your "sau.edu" email address and email password.
If you have accepted the invitation to join the blog as an author, you will now see "International Trade Class Blog" in your blogroll and you can simply click the orange button with the pencil icon inside of it to create a new post. If you do not see this, and you have not accepted the invitation, then go to find the email and accept the invitation, or EMAIL ME requesting me to re-send the invitation.
Once you have begun a new post, there are a few things that I recommend. First, when you refer to an outside source (and you should always be incorporating some outside source to show a connection between the class theories and the real world), as I have done in today's post about industrial policy when referencing this article by Robert Atkinson and Michael Lind, you should embed the link into the text that you have selected by: (1) highlighting the text where you want the link to appear; (2) clicking the "Link" button at the top of the formatting bar in the "Compose" view of the post editor; and (3) pasting the URL of the web source you have mentioned in the box.
If you so choose, you can also upload images into your post by clicking the picture icon button (just to the right of the "Link" button"), then adding a link to a web location for your picture or uploading a picture into Blogger from your own computer. The same goes for videos (the button next over from the "picture" link. If your video appears on a website, but isn't available on YouTube, you can still embed it using by pasting the "embed code" from that website into the html code. I have done this for the "Daily Show" clip (which I know not to be available via YouTube) embedded below. This is slightly more advanced, but definitely doable.
Finally, if you really like doing your text editing in Word and not in your web browser, MS Word 2007 and up allows you to save your Blogger login information so that you can automatically publish to the blog directly from your Word application on your computer (and also save a local copy to your hard drive). In word, simply start as if you are going to create a new document, but instead select "New Blog Post" from the "New" dialog box. Word will prompt you for your blog's host (Blogger), as well as your login name/password. You may have problems linking the accounts if you maintain more than one blog with your "sau.edu" login name.
Thoughts on "Fair Trade"
Fair Trade refers to an organization that certifies that goods sold with its marketing label have been sourced from producers at "fair" prices and have been grown using sustainable methods. In particular, the organization's mission states that products bearing its label have been negotiated directly with farmers or working families who choose to send their children to school, maintain environmentally-sustainable methods, and recognize employees' rights to organize in unions. The most common place we hear about "Fair Trade" is in our favorite coffee house, but the label can also be found on cocoa, apparel, flowers, wine, and soccer balls. A recent article even explains how "fair trade" - with no caps, since this would not seem to be sanctioned by "Fair Trade USA" - has been adopted by cocaine traffickers as a marketing tool to signal that their blow was not purchased or produced through criminal cartels or from corrupt law enforcement officials.
Fair Trade should not be confused with free trade, which refers to a policy regime enacted by a government in which goods are traded with very few discriminatory taxes or legal barriers that apply only to imports. Fair trade on the other hand is a marketing tool - branding - that differentiates its goods in terms of consumers' perceptions of quality. Also, while it is true that wholesale prices Fair Trade organizations pay farmers is nominally higher than that paid to corporate producers, much of that markup goes to the organizers who sponsor the label.
As we will learn later in the course, one of the most effective ways to raise wages in poorer countries is to tear down trade barriers, both in terms of import restrictions by developed countries and export restrictions by their home countries.
Fair Trade should not be confused with free trade, which refers to a policy regime enacted by a government in which goods are traded with very few discriminatory taxes or legal barriers that apply only to imports. Fair trade on the other hand is a marketing tool - branding - that differentiates its goods in terms of consumers' perceptions of quality. Also, while it is true that wholesale prices Fair Trade organizations pay farmers is nominally higher than that paid to corporate producers, much of that markup goes to the organizers who sponsor the label.
As we will learn later in the course, one of the most effective ways to raise wages in poorer countries is to tear down trade barriers, both in terms of import restrictions by developed countries and export restrictions by their home countries.
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