• Should We Stop Giving Holiday Gifts?

    Dec 25 • Thinking Economically • 225 Views

    According to Wharton School economist Joel Waldfogel, we might be better off if we stop gift giving. Dr. Waldfogel says that all too often, the value of the gift to the recipient is less than the price the giver paid. The resulting “deadweight loss” makes him conclude that holiday gift giving is not as beneficial as many assume.
    Perhaps this is an ideal example of economists knowing the price of everything but not the value or (opportunity) cost.
    Waldfogel discusses his research in a recent Slate article and today’s “Note”, a youtube interview:

    Deadweight Loss: Value that “disappears” because a price does not reflect a cost/benefit match. If you are willing to pay $30 for a t-shirt which cost a gift giver $50, then the deadweight loss is $20. If the giver got $10 of pleasure, still the deadweight loss in $10.00. More typically, deadweight loss refers to taxes and monopoly pricing.

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  • Pleasing Ricardo

    Dec 24 • Thinking Economically • 209 Views

    During the 1990s, ignoring the protests of horrified Italian cheesemakers, the US placed a tariff on Pecorino cheese. The reason was bananas. Favoring their former colonies, the EU taxed bananas coming from all other Latin American countries that were grown primarily by US firms like Chiquita and Dole. The Pecorino tax was a retaliatory policy.
    Finally the (banana) warring countries have agreed on a solution and all bananas will be treated equally. An article about the banana war is at:

    David Ricardo, a nineteenth century British economist, was the first to defend free trade through the idea of comparative advantage.
    Comparative advantage: When each nation produces goods and services that have a low opportunity cost (less sacrifice) and trade them for what they do not produce, production is more efficient throughout the world.

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  • Who Should Get A Kidney?

    Dec 23 • Behavioral Economics, Demand, Supply, and Markets, Households, Regulation, Thinking Economically • 217 Views

    Some say that it is unethical to pay someone for a kidney while others say it is unethical to use a method (a government list) that makes fewer donor organs available.
    As always, choosing is refusing.
    The debate continues in a recent NY Times article:

    opportunity cost: the alternative that was sacrificed when making a choice; e.g. if pizza is sacrificed when I eat yogurt for lunch then pizza is my opportunity cost.

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  • Congestion Pricing in Israel

    Dec 22 • Thinking Economically • 208 Views

    Run privately, guaranteeing 70kph (43.5 mph), a toll lane will be created on a busy Israeli road. More traffic–price up; less traffic, price drops. Another solution to the tragedy of the commons.
    To read more, go to http://www.jpost.com/servlet/Satellite?cid=1260930882954&pagename=JPost/JPArticle/ShowFull

    Should we be concerned that a toll road is regressive?
    Regressive: those who are less affluent pay a higher percent of their income than those that earn more.

    Tragedy of the Commons: When a resource is shared by many rather than privately owned, it tends to be “misused” or “overused”. For a pasture, “misuse” is over grazing; in the ocean, fish populations are depleted; in the air, factories pollute.

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  • Con and Pro Thoughts of Paul Samuelson

    Dec 21 • Thinking Economically • 240 Views

    in this week’s Barron’s, commentator Gene Epstein shares a rather different view of Paul Samuelson from most who eulogized his life. Epstein perceived the economist who has been elevated for bringing math to his discipline as the scholar who needed more so to recognize human unpredictability. Commenting on Samuelson’s analysis of the Soviet Union, he saw a naive individual who failed to see the reality of their false statistics.
    Because Epstein sounds rather harsh (although his basic opinions can be defended), I add here a link to a textbook inscription to Greg Mankiw from Paul Samuelson that is special.

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