Pre-workshop assignment directions:

My pre-workshop assignment:

1. Learning Objective: “Use a production possibilities frontier to analyze opportunity costs and trade-offs” from Economics 4E by Hubbard & O’Brien. Problem 1.4 from the end of the chapter aims to help students practice this and reads:
“Draw a production possibilities frontier that shows the trade-off between the production of cotton and the production of soybeans. (a) show the effect that a prolonged drought would have on the initial production possibilities frontier. (b) suppose genetic modification makes soybeans resistant to insects, allowing yields to double. Show the effect of this change on the initial production possibilities frontier.”

2. In terms of significance, I do not believe this would capture the interest of most students. Additionally, many students may believe they do not have enough knowledge of farming to feel comfortable working this problem without additional information. Students might get hung up on their perceived lack of knowledge about cotton and soybean production and would focus on that rather than discussing the inherent trade-offs and impact of technological change on production.

3. To increase the relevance and significance by using a recent event and giving students some background information to go with the PPF SLO, I would have students read the article “Thanksgiving Pecan Pies at Risk After Irma Ravaged Orchards” from September 16, 2017 and then do the following:
Suppose cotton and pecans are Georgia’s two main crops. Draw a production possibilities frontier that shows the tradeoff between cottons and pecans. Next, demonstrate what has happened to Georgia’s production possibilities as a result of Hurricane Irma. (As suggested in Phil Ruder’s example, the reporting on this could be done via a “gallery walk” in which teams show their initial and modified PPFs.) As a result of Hurricane Irma, many trees were destroyed. What is the best policy response to restore Georgia’s production possibilities of pecans?

A. Distribute seedlings, via the state agricultural board, to farmers to replace destroyed trees
B. Have the state agricultural association transplant more mature trees from Texas or Mexico and give them to farmers to plant
C. Allow the higher prices farmers will receive for pecans over the next couple years act as an incentive for farmers to plant more pecan trees
D. Pay farmers for each new tree planted with the payment amount depending on the maturity of the tree.

Please note: this is my first attempt at creating a TBL AE so be kind. (In my classes, we create a PPF in real time with an activity but I didn’t think it would work for TBL.)

1. Case, Fair & Oster (2017). Principles of Economics, 12th ed. Chapter 22: Unemployment, Inflation, and Long-Run Growth. Student Learning Objective #2: Describe the tools used to measure inflation and discuss the costs and effects of inflation.
One of the six problems assigned to meet this learning objective states:
Consider the following five situations. In which situation would a borrower be best off and in which situation would a lender be best off?
a) The nominal interest rate is 6 percent and the inflation rate is 3 percent.
b) The nominal interest rate is 13 percent and the inflation rate is 11 percent.
c) The nominal interest rate is 3 percent and the inflation is -1 percent.
d) The real interest rate is 8 percent and the inflation rate is 7 percent.
e) The real interest rate is 5 percent and the inflation rate is 9 percent.
2. While this problem addresses the costs of inflation (who benefits who losses) and serves to enhance understanding of the difference between real and nominal interest rate, it does not comprehensively address the costs and effects of inflation. In addition, the problem only addresses the costs and not measures of inflation (to be fair, the text includes multiple problems that address both. I am picking on this to address SLO example). The problem has potential to initiate debate on who gains, who losses and why, however, the wording might hinder this debate. The wording makes it appear more of a yes/ no problem.
In terms of significance, it falls short in that it does not extend to how one can use this information to make lending or borrowing decisions. Besides, inflation has far reaching effects on the economy. A problem that covers beyond lender and borrower to include the economy as a whole would trigger debate and ensure that the students have a better understanding of application of concepts.
3. In order to ensure that the problem addresses the SLO more comprehensively and meets the 4S criteria I would recommend breaking this SLO into two. That is, a) be able to measure and explain measures of inflation; b) explain the costs of inflation. Some of task I would add include:
Assign the articles and videos below and require students to respond to the critical thinking questions that follow.
The confusion over inflation - https://www.khanacademy.org/economics-finance-domain/macroeconomics/inflation...
Are Low Interest Rates Better for Savers or Borrowers? - https://www.stlouisfed.org/open-vault/2018/february/low-interest-rates-better...
Inflation - The Economic Lowdown Podcast Series, Episode 4 - https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-...

That is,
a) If inflation rises unexpectedly by 5%, would a state government that had recently borrowed money to pay for a new highway benefit or lose?
b) Identify several parties likely to be helped and several parties likely to be hurt by inflation. Explain
c) If, over time, wages and salaries on average rise at least as fast as inflation, why do people worry about how inflation affects incomes?
d) Who in an economy is the big winner from inflation?

Pre-workshop assignment:

1. Student learning objectives: learn to use cost curves to address the effect of changes in input prices on firm profit or loss, changes in firm and market quantity and price in the short and long run.

The problem “as is” comes from N. Gregory Mankiw (2015), Principles of Economics 7th edition, Cengage Learning, chapter 14, p. 297.

# 1 “Many small boats are made of fiberglass, which is derived from crude oil. Suppose that the price of oil rises.
a. Using diagrams, show what happens to the cost curves of an individual boat-making firm and to the market supply curve.
b. What happens to the profits of boat makers in the short run? What happens to the number of boat makers in the long run?”

1. How well would I expect the “as is” version to meet the (TBL 4S) significance criterion? Why?
Within context of the class, this would meet that criterion reasonably well in some respects. Students would see that cost curves can show how a company would be subject to important changes with respect to profits when their raw material prices change, and that this would affect the overall market price and quantity for the good in the short and long run. It would require some more building of context, however, to make the wider implications apparent. The question as is does not very well address the notion of “multiple data sources, with incomplete or contradictory information…” (“Flipping Your Class with Team Based Learning,” TBL Pre-institute reading http://learntbl.ca/wp-content/uploads/2014/06/major_TBL_institute_prereading_... ). Also it may not use differing student perspectives.

How likely would the exercise be to lead to debate within teams and among team reporters?

It would lead to some back and forth within teams as they try to figure out which cost curves apply, and how economic profit (loss) is relevant to firm decision making and market adjustment of price and quantity. Debate among reporters would be less likely once the teams figure out how the curves and profits are affected for the firm, and how price and quantity reacts to economic losses.

2. Re-write exercise:
Many small boats are made of fiberglass, which is derived from crude oil. Suppose that the price of oil rises.
As team members you will need to use cost curves and profit definitions to make the best decision for your firm, “Unmoored and Happy, LLC” (you may opt for another firm name if you wish). Additionally, you will want to get an idea of how the entire industry will react as a benchmark for how “Unmoored” is doing. Decide what type of cost considerations (cost curves) are useful for your decision, given the change in the price of oil. Consider what will happen to your profits, and also what may happen to that of other boat makers.

After considering the above factors, make a decision that fits one of the descriptions provided below, and be ready to defend and elaborate on that decision. When prompted, you will hold up your card with the indicated letter. You will then provide a brief explanation and there will be a discussion about your team’s answers. Your reasoning should be the focus of such discussions. A reporter will be randomly selected once your team has made a decision.

a. We as a firm have enough of an economic profit cushion, therefore this change would not lead to any new action. The market as a whole would not be subject to significant changes except for a small increase in the price of these boats.

b. As a firm, the oil price increase would cause a short term hardship, but we would just “weather the storm,” until things get better; some firms would leave the market, but that would allow our firm to make long run economic profit.

c. The oil price increase would cause hardship for our firm. We would continue to produce in the short run, but look for another product to get into. If the price of oil remains high, we would sell our assets and get out due to our economic losses. Other firms that would do the same resulting in a smaller market and higher boat prices.

d. The short-run, long-run distinction is artificial and irrelevant for our firm. The higher price of oil is a red flag that this boat-building business is just too sensitive to the vagaries of the oil market; we would sell our assets and get out. Other firms would follow suit, and the market would shrink.

This question would be given after readings and/or videos on cost curves, profit maximization, market structure, discussion the assumptions of perfect competition, and the concepts of accounting, normal and economic profit. An iRAT and tRAT would have been conducted.

Comment: I think the re-write makes the significance of the problem more apparent. Whether the firm (and therefore its owner and employees) are successful depends on correctly addressing the increasing price of oil. The usefulness of economic profit may become more apparent than in the initial formulation. Someone assessing this market from outside could benefit as well from such an analysis. It may take advantage of differing perspectives, although this is less clear. Some students may be more prepared to provide technical analysis, while others might use summer or other outside-of-class employment to lend a view from their line of work. Another student might have some experience observing changes other raw material prices, drawing an analogy from a family business or local shop.

In closing:
I am going to anticipate one (more) criticism (or perhaps just state it as a self-criticism): Does this question inappropriately expect principles students to be too sophisticated, and lead them to gloss over crucial steps in a rush to champion a specific result? Is there too much packed into this one problem – cost curves, long run, short run, types of profit, firm and market adjustment, and market structure all rolled into one problem?

Thank you for reading this; I welcome your comments and criticisms!

1. SLO: Identify factors that will cause the demand curve to shift and factors that will cause the supply curve to shift and show how supply and demand together set the price of a good and the quantity sold.

• Problem 9, Chapter 4, Principles of Microeconomics, Gregory Mankiw, 7th Edition, Cengage:
"Consider the following events: Scientists reveal that eating oranges decreases the risk of diabetes, and at the same time, farmers use a new fertilizer that makes orange trees produce more oranges. Illustrate and explain what effect these changes have on the equilibrium price and quantity of orange."

2. While the problem deals with two changes affecting the market, the way the problem is written is not very significant. I am not sure students are as interested in the market for oranges. If the question was related to the market for orange juice, which may affect their consumption decisions, then they may find it relevant. Still, many students have a meal plan and don’t purchase so many groceries.

I think the exercise will lead to a discussion about which curve(s) shifts and how the shift(s) affects the equilibrium price and quantity. Most students will think that they can identify the direction of change for both prices and quantities. Realizing that one can’t be determined can be achieved through the discussion.

3. Re-write the exercise:
Consider the market for airplane tickets from your local airport. Suppose there is a proposal to renovate the airport to add more gates to be ready at the beginning of March. At the same time, during March, most local schools and colleges, including your college, have Spring Break. Suppose you want to travel by plane during Spring Break, use a supply and demand diagram to illustrate the way the market for airplane tickets changes in March.

1. Given the above, the equilibrium price of airplane tickets __________ during March.
a) increases
b) decreases
c) stays the same
d) cannot be determined

Note: my concern is that students may not realize that demand changes as well. If they don't realize that, they will think the answer is straightforward. If they recognize that both supply and demand shift, they will realize that the analysis is more complex.

My pre-workshop assignment.

From Colander's Economics, 8e, chapter 7 (Describing Supply & Demand: Elasticities), Questions and Exercises at end of chapter, #19.

1. SLO: Relate price elasticity of demand to total revenue.

In the discussion of elasticity and raising and lowering prices, the text states that if you have an elastic demand, you should hesitate to raise your price, and that lowering price and can possibly increase profits (total revenue minus total costs). Why is the word possibly used?

2. I actually think it's pretty good for the significance criterion because it requires understanding of several concepts, and thinking critically about how they fit together. Also, many students who take principles are business majors and will likely see the value of answering a question like this. I think it's likely to lead to debate as students talk through how Ed related to TR, and how an increase in P may or may not lead to increase in profit, especially because some students might not think about considering costs at first, so the answer is not immediately obvious. I think it could perhaps be improved as a TBL AE by making it a more specific example applied to a particular market where students would also need to determine whether or not the good in question has elastic or inelastic demand. I would also take out the prompt about profits to make that part a little more challenging and make the answer even less obvious. In its current form, it doesn't meet the single choice criterion for 4S TBL AEs.

3. My suggested improvement to better meet the 4S TBL AE criteria:

Suppose that you manage a company which produces and sells t-shirts, and your goal is to maximize profits. What is the best action to take regarding pricing in order to increase your profits?

A. Increase the price of your t-shirts.
B. Decrease the price of your t-shirts.

It is most likely that answer B is better, but it is not completely obvious, even though students might think so at first. My hope is that some students would figure out the key to this question (which is hinted at in the original version of this question). If no students get that without the prompt about profits, the instructor may need to bring that up during the debate/debriefing discussion period after teams reveal their answers.

1. Case, Fair & Oster (2017). Principles of Economics, 12th ed. Chapter 22: Unemployment, Inflation, and Long-Run Growth. Student Learning Objective #2: Describe the tools used to measure inflation and discuss the costs and effects of inflation.
One of the six problems assigned to meet this learning objective states:
Consider the following five situations. In which situation would a borrower be best off and in which situation would a lender be best off?
a) The nominal interest rate is 6 percent and the inflation rate is 3 percent.
b) The nominal interest rate is 13 percent and the inflation rate is 11 percent.
c) The nominal interest rate is 3 percent and the inflation is -1 percent.
d) The real interest rate is 8 percent and the inflation rate is 7 percent.
e) The real interest rate is 5 percent and the inflation rate is 9 percent.
2. While this problem addresses the costs of inflation (who benefits who losses) and serves to enhance understanding of the difference between real and nominal interest rate, it does not comprehensively address the costs and effects of inflation. In addition, the problem only addresses the costs and not measures of inflation (to be fair, the text includes multiple problems that address both. I am picking on this to address SLO example). The problem has potential to initiate debate on who gains, who losses and why, however, the wording might hinder this debate. The wording makes it appear more of a yes/ no problem.
In terms of significance, it falls short in that it does not extend to how one can use this information to make lending or borrowing decisions. Besides, inflation has far reaching effects on the economy. A problem that covers beyond lender and borrower to include the economy as a whole would trigger debate and ensure that the students have a better understanding of application of concepts.
3. In order to ensure that the problem addresses the SLO more comprehensively and meets the 4S criteria I would recommend breaking this SLO into two. That is, a) be able to measure and explain measures of inflation; b) explain the costs of inflation. Some of task I would add include:
Assign the articles and videos below and require students to respond to the critical thinking questions that follow.
The confusion over inflation - https://www.khanacademy.org/economics-finance-domain/macroeconomics/inflation...
Are Low Interest Rates Better for Savers or Borrowers? - https://www.stlouisfed.org/open-vault/2018/february/low-interest-rates-better...
Inflation - The Economic Lowdown Podcast Series, Episode 4 - https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-...

That is,
a) If inflation rises unexpectedly by 5%, would a state government that had recently borrowed money to pay for a new highway benefit or lose?
b) Identify several parties likely to be helped and several parties likely to be hurt by inflation. Explain
c) If, over time, wages and salaries on average rise at least as fast as inflation, why do people worry about how inflation affects incomes?
d) Who in an economy is the big winner from inflation?

1. Consider Student Learning Objective (SLO) 3 from chapter 11 Externalities, Property Rights, and the Environment of Frank et al. Principles of Economics, 7th ed. The SLO reads, “Explain how the effects of externalities can be remedied and discuss why the optimal amount of an externality is almost never zero.”
Problem 7 at the end of the chapter purports to develop student learning to meet that objective.

Suppose the supply curve of portable radio rentals in Golden Gate Park is given by P = 5 + 0.1Q, where P is the daily rent per unit in dollars and Q is the volume of units rented in hundreds per day. The demand curve for portable radios is P = 20 – 0.2Q.
a. If each portable radio imposes 36285 per day in noise costs on others, by how much will the equilibrium number of portable radios rented exceed the socially optimal number?
b. How would the imposition of a tax of 36285 per unit on each daily portable radio rental affect efficiency in this market?

2. This problem could feasibly be used as an AE in which reports were accomplished via a gallery walk of the appropriate graphical analysis or via a number and a short sentence writ large on a team whiteboard or sheet of scratch paper. However, the problem has several critical flaws. Chief among these is the computational nature of the problem, which will result in the more technically able students tutoring the less technically able students rather than in a rich discussion of trade-offs within and between teams.
Regarding the significance of the problem, I rate it as lacking significance. Even in the days of yore when portable radios were a thing, who ever encountered a business renting them out? The radios here seem only slightly better than widgets as a focus of a problem.
So, based on the criteria of “likely to inspire debate among students” and significance, the problem falls short.

3. The following TBL AE is not perfect but it does meet better the 4S criteria and encourages debate among students.

The class views the PBS news story Who will pay for water pollution cleanup divides urban and rural Iowa (https://www.pbs.org/newshour/show/will-pay-water-pollution-cleanup-divides-ur...) then considers the following AE. (I require student reporters to be ready to present from their notes the analysis of the externality issue with a relevant framework from the text as well.)

Consider the issue of nitrate pollution by farms in Iowa fouling the Racoon and Des Moines Rivers, the sources of drinking water for the City of Des Moines.
What policy measure should be enacted to remedy the problem?
A. Ban nitrate emissions from farms.
B. Tax each ton of nitrate fertilizer applied.
C. Assign property rights over the river water clearly to the City of Des Moines.
D. Assign property rights over the river water clearly to farmers.

My pre-workshop assignment.

From Colander's Economics, 8e, chapter 7 (Describing Supply & Demand: Elasticities), Questions and Exercises at end of chapter, #19.

1. SLO: Relate price elasticity of demand to total revenue.

In the discussion of elasticity and raising and lowering prices, the text states that if you have an elastic demand, you should hesitate to raise your price, and that lowering price and can possibly increase profits (total revenue minus total costs). Why is the word possibly used?

2. I actually think it's pretty good for the significance criterion because it requires understanding of several concepts, and thinking critically about how they fit together. Also, many students who take principles are business majors and will likely see the value of answering a question like this. I think it's likely to lead to debate as students talk through how Ed related to TR, and how an increase in P may or may not lead to increase in profit, especially because some students might not think about considering costs at first, so the answer is not immediately obvious. I think it could perhaps be improved as a TBL AE by making it a more specific example applied to a particular market where students would also need to determine whether or not the good in question has elastic or inelastic demand. I would also take out the prompt about profits to make that part a little more challenging and make the answer even less obvious. In its current form, it doesn't meet the single choice criterion for 4S TBL AEs.

3. My suggested improvement to better meet the 4S TBL AE criteria:

Suppose that you manage a company which produces and sells t-shirts, and your goal is to maximize profits. What is the best action to take regarding pricing in order to increase your profits?

A. Increase the price of your t-shirts.
B. Decrease the price of your t-shirts.

It is most likely that answer B is better, but it is not completely obvious, even though students might think so at first. My hope is that some students would figure out the key to this question (which is hinted at in the original version of this question). If no students get that without the prompt about profits, the instructor may need to bring that up during the debate/debriefing discussion period after teams reveal their answers.

[quote=Jimena Gonzalez]
1. SLO: Identify factors that will cause the demand curve to shift and factors that will cause the supply curve to shift and show how supply and demand together set the price of a good and the quantity sold.

• Problem 9, Chapter 4, Principles of Microeconomics, Gregory Mankiw, 7th Edition, Cengage:
"Consider the following events: Scientists reveal that eating oranges decreases the risk of diabetes, and at the same time, farmers use a new fertilizer that makes orange trees produce more oranges. Illustrate and explain what effect these changes have on the equilibrium price and quantity of orange."

2. While the problem deals with two changes affecting the market, the way the problem is written is not very significant. I am not sure students are as interested in the market for oranges. If the question was related to the market for orange juice, which may affect their consumption decisions, then they may find it relevant. Still, many students have a meal plan and don’t purchase so many groceries.

I think the exercise will lead to a discussion about which curve(s) shifts and how the shift(s) affects the equilibrium price and quantity. Most students will think that they can identify the direction of change for both prices and quantities. Realizing that one can’t be determined can be achieved through the discussion.

3. Re-write the exercise:
Consider the market for airplane tickets from your local airport. Suppose there is a proposal to renovate the airport to add more gates to be ready at the beginning of March. At the same time, during March, most local schools and colleges, including your college, have Spring Break. Suppose you want to travel by plane during Spring Break, use a supply and demand diagram to illustrate the way the market for airplane tickets changes in March.

1. Given the above, the equilibrium price of airplane tickets __________ during March.
a) increases
b) decreases
c) stays the same
d) cannot be determined

Note: my concern is that students may not realize that demand changes as well. If they don't realize that, they will think the answer is straightforward. If they recognize that both supply and demand shift, they will realize that the analysis is more complex.
[/quote]

Hi Jimena,
Cool example! Even I get excited at the prospect of traveling during Spring Break and I’m sure many students would too. My suggestions are twofold.
First, rewrite the Supply and Demand increases so that they are clearer. I did not immediately understand the proposal to add more gates as an increase in Supply as I interpreted it as a proposal, not an action that would happen. I agree with you, the students may not recognize immediately the increase in Demand for tickets around that time too. Here is a suggestion for rewrite:

Consider the market for airplane tickets from your local airport. It’s just about to complete a two-year renovation, and many more gates will be added at the beginning of March, just in time for Spring Break. At the same time, during March, most local schools and colleges, including your college, have Spring Break, and this is a time when many students choose to travel. Suppose you too want to travel by plane during Spring Break. Which of the following statements would you think better describes what will happen in the market for airplane tickets?

Second, rewrite the different options to give them more subject for discussion. As is, the exercise seems to suggest that there is only one possible correct answer. This is, to me, the most challenging part of the AEs. :)
Thank you for reading,
Joana

Pre-workshop assignment:

1.
SLO: Effects of price controls on economic activity. Understand the efficiency and equity implications of market interference. Discuss and evaluate response strategies to the unintended consequences of market interference. From 'Essentials of Economics' by D.Mateer,L.Coppock and B.O'Roark , Chapter 4: Market Efficiency, I have selected the following end of chapter question:

Imagine the city council decides the that the market price for student rental apartments is too high and passes a law that establishes a rental price ceiling of 0 per month. The result of the price ceiling is a shortage. Which of the following caused the shortage of apartments?
a. Both suppliers and demanders. Landlords will cut the supply of apartments, and the demand from renters will increase.
b. A spike in demand from many students who want to rent cheap apartments.
c. The drop in supply caused by apartment owners pulling their units off the rental market and converting them into condos for sale.
d. The price ceiling set by the city council.

2.
In terms of significance I think this question even though it addresses a topic that most students are affected by it is not complex enough to engage all students and to lead in a discussion. All answers rely heavily on the students figuring out that such a policy leads to a movement along both curves and not a shift of the curves. This could be used as a short activity that should not take more than 5 min discussion among groups or even as a multiple choice question in an iRAT.

3.
As an economics expert you are asked to advise the Secretary of Labor in proposing a plan to accompany the new minimum wage that is enforced. As a topic of long standing debate between economists and politicians, minimum wage is associated with an increase in unemployment. Which of the following policies should accompany the minimum wage in order to best compensate for the increase in unemployment. Consider the implications on economic activity of all choices and form a detailed response as to why you chose one of them.

A. Increase in government spending towards the educational sector. Government should invest in increasing the quality of human
capital.

B. Increase in government spending directed at vocational education and training to those that are unemployed.

C. The government should intervene in the labor market by increasing the amount of public sector jobs.

D. The government should increase unemployment benefits.

1. SLO: Identify factors that will cause the demand curve to shift and factors that will cause the supply curve to shift and show how supply and demand together set the price of a good and the quantity sold.

• Problem 9, Chapter 4, Principles of Microeconomics, Gregory Mankiw, 7th Edition, Cengage:
"Consider the following events: Scientists reveal that eating oranges decreases the risk of diabetes, and at the same time, farmers use a new fertilizer that makes orange trees produce more oranges. Illustrate and explain what effect these changes have on the equilibrium price and quantity of orange."

2. While the problem deals with two changes affecting the market, the way the problem is written is not very significant. I am not sure students are as interested in the market for oranges. If the question was related to the market for orange juice, which may affect their consumption decisions, then they may find it relevant. Still, many students have a meal plan and don’t purchase so many groceries.

I think the exercise will lead to a discussion about which curve(s) shifts and how the shift(s) affects the equilibrium price and quantity. Most students will think that they can identify the direction of change for both prices and quantities. Realizing that one can’t be determined can be achieved through the discussion.

3. Re-write the exercise:
Consider the market for airplane tickets from your local airport. Suppose there is a proposal to renovate the airport to add more gates to be ready at the beginning of March. At the same time, during March, most local schools and colleges, including your college, have Spring Break. Suppose you want to travel by plane during Spring Break, use a supply and demand diagram to illustrate the way the market for airplane tickets changes in March.

1. Given the above, the equilibrium price of airplane tickets __________ during March.
a) increases
b) decreases
c) stays the same
d) cannot be determined

Note: my concern is that students may not realize that demand changes as well. If they don't realize that, they will think the answer is straightforward. If they recognize that both supply and demand shift, they will realize that the analysis is more complex.

Pre-workshop assignment:

1. SLO: Understand specialization and its relationship to the production possibilities model and comparative advantage.
Based on chapter 2.2 The Production Possibilities Curve, in the text book "Principles of Microeconomics" by Libby Rittenberg and Timothy Tregarthen, Saylor URL: http://www.saylor.org/books/ 14.01SC textbook, https://ocw.mit.edu/ans7870/14/14.01SC/MIT14_01SCF11_rttext.pdf, p. 63- 87.


A student learning activity intended to promote that SLO:
TRY IT!
Suppose a manufacturing firm is equipped to produce radios or calculators. It has two plants, Plant R and Plant S, at which it can produce these goods. Given the labor and the capital available at both plants, it can produce the combinations of the two goods at the two plants shown:

Output per day, Plant R
Combination Calculators Radios
A 100 0
B 50 25
C 0 50
Output per day, Plant S
Combination Calculators Radios
D 50 0
E 25 50
F 0 100

Put calculators on the vertical axis and radios on the horizontal axis. Draw the production possibilities curve for Plant R. On a separate graph, draw the production possibilities curve for Plant S. Which plant has a comparative advantage in calculators? In radios? Now draw the combined curves for the two plants. Suppose the firm decides to produce 100 radios. Where will it produce them? How many calculators will it be able to produce? Where will it produce the calculators?


2. The exercise reflects the SLO and if students know how to solve it, they presumably understand the topic of comparative advantages and efficient production. The solution can even be the basis for a quick discussion. Yet- BORING… Not significant, irrelevant (Radios? Calculators? Have someone heard of smartphones…?) and above all- the students couldn’t care less. Not about plant R and plant S and not about efficient allocation of resources and optimal production. I also clearly remember the confusion I had as a student with this problem, was never sure I’m solving it correctly.


3. One of my favorite activities to understand, practice and discuss comparative advantages and optimal production is the excellent movie: “Money Ball” with Brad Pitt. After learning the chapter and watching the movie, the following questions could be raised for discussion:
A. What was so different and unique about the approach of this baseball coach?
B. How was he able to reduce costs of hiring players so dramatically, in a way which changed this game management forever?
C. Give examples from the movie of comparative advantages as opposed to absolute advantages and their use in an efficient production.
D. Where else in your life can you implement this approach?
E. Discuss the role of data, statistics and analysis in the movie.

Pre-workshop assignment:

1. Student learning objectives: learn to use cost curves to address the effect of changes in input prices on firm profit or loss, changes in firm and market quantity and price in the short and long run.

The problem “as is” comes from N. Gregory Mankiw (2015), Principles of Economics 7th edition, Cengage Learning, chapter 14, p. 297.

# 1 “Many small boats are made of fiberglass, which is derived from crude oil. Suppose that the price of oil rises.
a. Using diagrams, show what happens to the cost curves of an individual boat-making firm and to the market supply curve.
b. What happens to the profits of boat makers in the short run? What happens to the number of boat makers in the long run?”

1. How well would I expect the “as is” version to meet the (TBL 4S) significance criterion? Why?
Within context of the class, this would meet that criterion reasonably well in some respects. Students would see that cost curves can show how a company would be subject to important changes with respect to profits when their raw material prices change, and that this would affect the overall market price and quantity for the good in the short and long run. It would require some more building of context, however, to make the wider implications apparent. The question as is does not very well address the notion of “multiple data sources, with incomplete or contradictory information…” (“Flipping Your Class with Team Based Learning,” TBL Pre-institute reading http://learntbl.ca/wp-content/uploads/2014/06/major_TBL_institute_prereading_... ). Also it may not use differing student perspectives.

How likely would the exercise be to lead to debate within teams and among team reporters?

It would lead to some back and forth within teams as they try to figure out which cost curves apply, and how economic profit (loss) is relevant to firm decision making and market adjustment of price and quantity. Debate among reporters would be less likely once the teams figure out how the curves and profits are affected for the firm, and how price and quantity reacts to economic losses.

2. Re-write exercise:
Many small boats are made of fiberglass, which is derived from crude oil. Suppose that the price of oil rises.
As team members you will need to use cost curves and profit definitions to make the best decision for your firm, “Unmoored and Happy, LLC” (you may opt for another firm name if you wish). Additionally, you will want to get an idea of how the entire industry will react as a benchmark for how “Unmoored” is doing. Decide what type of cost considerations (cost curves) are useful for your decision, given the change in the price of oil. Consider what will happen to your profits, and also what may happen to that of other boat makers.

After considering the above factors, make a decision that fits one of the descriptions provided below, and be ready to defend and elaborate on that decision. When prompted, you will hold up your card with the indicated letter. You will then provide a brief explanation and there will be a discussion about your team’s answers. Your reasoning should be the focus of such discussions. A reporter will be randomly selected once your team has made a decision.

a. We as a firm have enough of an economic profit cushion, therefore this change would not lead to any new action. The market as a whole would not be subject to significant changes except for a small increase in the price of these boats.

b. As a firm, the oil price increase would cause a short term hardship, but we would just “weather the storm,” until things get better; some firms would leave the market, but that would allow our firm to make long run economic profit.

c. The oil price increase would cause hardship for our firm. We would continue to produce in the short run, but look for another product to get into. If the price of oil remains high, we would sell our assets and get out due to our economic losses. Other firms that would do the same resulting in a smaller market and higher boat prices.

d. The short-run, long-run distinction is artificial and irrelevant for our firm. The higher price of oil is a red flag that this boat-building business is just too sensitive to the vagaries of the oil market; we would sell our assets and get out. Other firms would follow suit, and the market would shrink.

This question would be given after readings and/or videos on cost curves, profit maximization, market structure, discussion the assumptions of perfect competition, and the concepts of accounting, normal and economic profit. An iRAT and tRAT would have been conducted.

Comment: I think the re-write makes the significance of the problem more apparent. Whether the firm (and therefore its owner and employees) are successful depends on correctly addressing the increasing price of oil. The usefulness of economic profit may become more apparent than in the initial formulation. Someone assessing this market from outside could benefit as well from such an analysis. It may take advantage of differing perspectives, although this is less clear. Some students may be more prepared to provide technical analysis, while others might use summer or other outside-of-class employment to lend a view from their line of work. Another student might have some experience observing changes other raw material prices, drawing an analogy from a family business or local shop.

In closing:
I am going to anticipate one (more) criticism (or perhaps just state it as a self-criticism): Does this question inappropriately expect principles students to be too sophisticated, and lead them to gloss over crucial steps in a rush to champion a specific result? Is there too much packed into this one problem – cost curves, long run, short run, types of profit, firm and market adjustment, and market structure all rolled into one problem?

Thank you for reading this; I welcome your comments and criticisms!

Reply to Professor Ficano "...differences between monopoly and competition..”

I revised this comment since the initial posting on May 25 in case you looked at this before. I’ll try to be a little more constructive this time.

I find the questions the students should touch on very useful. It seems you are experienced in this and have probably thought this over before: I predict some of my students would get overly flustered worrying that they have to address too much in one answer. They then may drift into a “listing” type answer. I do sense you want to make sure they address all these issues in some way. Does it make sense to elevate three of the most important questions for full discussion, and subsume some of the others under larger headings? Part of this is done already with the graphing questions, so perhaps that just means some minor reorganization.

Again, you may have a good system that addresses my concern. I am sure I can learn much from how you debrief. Thank you for sharing!
Craig

My pre-workshop assignment.

From Colander's Economics, 8e, chapter 7 (Describing Supply & Demand: Elasticities), Questions and Exercises at end of chapter, #19.

1. SLO: Relate price elasticity of demand to total revenue.

In the discussion of elasticity and raising and lowering prices, the text states that if you have an elastic demand, you should hesitate to raise your price, and that lowering price and can possibly increase profits (total revenue minus total costs). Why is the word possibly used?

2. I actually think it's pretty good for the significance criterion because it requires understanding of several concepts, and thinking critically about how they fit together. Also, many students who take principles are business majors and will likely see the value of answering a question like this. I think it's likely to lead to debate as students talk through how Ed related to TR, and how an increase in P may or may not lead to increase in profit, especially because some students might not think about considering costs at first, so the answer is not immediately obvious. I think it could perhaps be improved as a TBL AE by making it a more specific example applied to a particular market where students would also need to determine whether or not the good in question has elastic or inelastic demand. I would also take out the prompt about profits to make that part a little more challenging and make the answer even less obvious. In its current form, it doesn't meet the single choice criterion for 4S TBL AEs.

3. My suggested improvement to better meet the 4S TBL AE criteria:

Suppose that you manage a company which produces and sells t-shirts, and your goal is to maximize profits. What is the best action to take regarding pricing in order to increase your profits?

A. Increase the price of your t-shirts.
B. Decrease the price of your t-shirts.

It is most likely that answer B is better, but it is not completely obvious, even though students might think so at first. My hope is that some students would figure out the key to this question (which is hinted at in the original version of this question). If no students get that without the prompt about profits, the instructor may need to bring that up during the debate/debriefing discussion period after teams reveal their answers.

1. Chapter 7 – Government Actions in Markets
SLO: Explain how a price floor works and show how the minimum wage creates unemployment, inefficiency, and unfairness.
Question: Why would an increase in the minimum wage to per hour lead to more unemployment for teenage and low-skilled workers?

2. Significance Criterion
A Significant problem is one that is relevant and complex. This question is relevant but it may not be complex enough. Some debate will arise from a question like this.

3. Re-write Question
What effect would an increase in minimum wage to per hour cause in the labor market for teens and low-skilled workers? Read this article “Fight for 15” article in XYZ Newspaper. Are you for or against an increase in minimum wage to for restaurant workers in Atlanta?
Students would have to come to a specific choice of whether to be for or against a minimum wage increase.
They could break up into smaller groups and discuss the pros and cons of raising the minimum wage and then come together as a group to weigh in.
a. We are for raising the minimum wage to for restaurant workers because they need a living wage
b. We do not support an increase in minimum wage to for restaurant workers because this will lead to an increase in unemployment
c. Raising the minimum wage will have little or no effect on unemployment in the restaurant labor market
d.

[quote=Ioanna Avgeri]
Pre-workshop assignment:

1.
SLO: Effects of price controls on economic activity. Understand the efficiency and equity implications of market interference. Discuss and evaluate response strategies to the unintended consequences of market interference. From 'Essentials of Economics' by D.Mateer,L.Coppock and B.O'Roark , Chapter 4: Market Efficiency, I have selected the following end of chapter question:

Imagine the city council decides the that the market price for student rental apartments is too high and passes a law that establishes a rental price ceiling of 0 per month. The result of the price ceiling is a shortage. Which of the following caused the shortage of apartments?
a. Both suppliers and demanders. Landlords will cut the supply of apartments, and the demand from renters will increase.
b. A spike in demand from many students who want to rent cheap apartments.
c. The drop in supply caused by apartment owners pulling their units off the rental market and converting them into condos for sale.
d. The price ceiling set by the city council.

2.
In terms of significance I think this question even though it addresses a topic that most students are affected by it is not complex enough to engage all students and to lead in a discussion. All answers rely heavily on the students figuring out that such a policy leads to a movement along both curves and not a shift of the curves. This could be used as a short activity that should not take more than 5 min discussion among groups or even as a multiple choice question in an iRAT.

3.
As an economics expert you are asked to advise the Secretary of Labor in proposing a plan to accompany the new minimum wage that is enforced. As a topic of long standing debate between economists and politicians, minimum wage is associated with an increase in unemployment. Which of the following policies should accompany the minimum wage in order to best compensate for the increase in unemployment. Consider the implications on economic activity of all choices and form a detailed response as to why you chose one of them.

A. Increase in government spending towards the educational sector. Government should invest in increasing the quality of human
capital.

B. Increase in government spending directed at vocational education and training to those that are unemployed.

C. The government should intervene in the labor market by increasing the amount of public sector jobs.

D. The government should increase unemployment benefits.
[/quote]


I like this rewritten question. I think that choices A and B are quite similar, and I would probably combine them into a single selection.