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Once again with my A2 class I successfully used whiteboards to get across the concepts of positive and negative externalities. Below are the graphs done by Sarah Cheng. As I have stated before whiteboards are a very useful way of getting across difficult graphs.
The externalities topic at A2 Level Economics involves being able to draw and understand four graphs. A different way of teaching this area of the course was to get students to use A3 size whiteboards so that they could practice drawing these graphs. This proved to be very successful with students for the following reasons:
- the novelty of using whiteboards
- if they made a mistake this could be easily rubbed out and they could start again
- it allowed me to go around the class to correct graphs where necessary
- students took pride in their graphs
- the best set of graphs was posted on the econfix blog
- students who were struggling could learn off others
Going over monetary policy with my A2 class and have modified a mind map done by Susan Grant from a CIE Economics Revision Guide. Useful for those who are sitting the June AS and A2 Economics papers.
Below is an informative clip from The Economist on foreign aid. Useful for A2 students looking at developing economies and foreign aid.
Rich countries are giving away more in aid than at any other time on record. In 2016 more than $140bn was distributed around the world. According to the latest breakdown in 2015 America gave the most money away – nearly $31bn to at least 40 countries and organisations such as the world bank. This included $770m to Pakistan and $250m to Mexico. This may sound generous but the United States has the largest economy in the world. American foreign aid spending in 2015 was only 0.17% of the gross national income. Far less than other rich countries. Sweden and Norway are the biggest givers, donating over 1% of their gross national income to foreign aid. The biggest receivers of aid in 2015 were Afghanistan, India, Vietnam, Ethiopia and Indonesia. Afghanistan received $3.8bn and India $3.1bn. Despite being the second biggest economy in the world, China received $1.5bn in development aid in 2015. This included around $750m from Germany and $67m from Britain. The total amount of foreign aid is at an all time high – up 9% in 2016. This is largely down to the generosity of six countries who meet or exceed the United Nations foreign aid target, donating more than 0.7% of gross national income.
With the A2 Essay paper next week I thought something on the kinked demand curve might be useful. I alluded to in a previous post that one model of oligopoly revolves around how a firm perceives its demand curve. The model relates to an oligopoly in which firms try to anticipate the reactions of rivals to their actions. As the firm cannot readily observe its demand curve with any degree of certainty, it has got to estimate how consumers will react to price changes.
In the graph below the price is set at P1 and it is selling Q1. The firm has to decide whether to alter the price. It knows that the degree of its price change will depend upon whether or not the other firms in the market will follow its lead. The graph shows the the two extremes for the demand curve which the firm perceives that it faces. Suppose that an oligopolist, for whatever reason, produces at output Q1 and price P1, determined by point X on the graph. The firm perceives that demand will be relatively elastic in response to an increase in price, because they expects its rivals to react to the price rise by keeping their prices stable, thereby gaining customers at the firm’s expense. Conversely, the oligopolist expects rivals to react to a decrease in price by cutting their prices by an equivalent amount; the firm therefore expects demand to be relatively inelastic in response to a price fall, since it cannot hope to lure many customers away from their rivals. In other words, the oligopolist’s initial position is at the junction of the two demand curves of different relative elasticity, each reflecting a different assumption about how the rivals are expected to react to a change in price. If the firm’s expectations are correct, sales revenue will be lost whether the price is raised or cut. The best policy may be to leave the price unchanged.
With this price rigidity a discontinuity exists along a vertical line above output Q1 between the two marginal revenue curves associated with the relatively elastic and inelastic demand curves. Costs can rise or fall within a certain range without causing a profit-maximising oligopolist to change either the price or output. At output Q1 and price P1 MC=MR as long as the MC curve is between an upper limit of MC2 and a lower limit of MC1.
Criticisms of the kinked demand curve theory.
Although it is a plausible explanation of price rigidity it doesn’t explain how and why an oligopolist chooses to be a point X in the first place. Research casts doubt on whether oligopolists respond to price changes in the manner assumed. Oligopolistic markets often display evidence of price leadership, which provides an alternative explanation of orderly price behaviour. Firms come to the conclusion that price-cutting is self-defeating and decide that it may be advantageous to follow the firm which takes the first steps in raising the price. If all firms follow, the price rise will be sustained to the benefit of all firms.
If you want to gradually build the kinked demand curve model download the powerpoint by clicking below.
I picked up the OEC site from Michael Cameron’s blog ‘Sex, Drugs and Economics’. The Observatory of Economic Complexity is a tool that allows users to quickly compose a visual narrative about countries and the products they exchange. It was Alexander Simoes’ Master Thesis in Media Arts and Sciences at the MIT Media Lab. The project was conducted at The MIT Media Lab Macro Connections group. Alex’s Advisor was César A. Hidalgo, principal investigator of Macro Connections. Since its creation in 2010, the development of The Observatory of Economic Complexity has been supported by The MIT Media Lab consortia for undirected research.
The graphics on each country and products are superb and include:
- Trade Balance
It also includes Economic Complexity Index which measures the knowledge intensity of an economy by considering the knowledge intensity of the products it exports. Below are some images on New Zealand trade.
New Zealand Exports – 2015
New Zealand Imports – 2015
Been doing some more revision sessions on CIE AS economics and went through how the elasticity of demand varies along a demand curve. Notice in Case A that the fall in price from Pa to Pb causes the the total revenue to increase therefore it is elastic – the blue area (-) is less than the orange area (+). In Case B the opposite applies – as the price decreases from Pa to Pb the total revenue decreases therefore it is inelastic – the blue area (-) is greater than the orange area (+). In Case C the drop in price causes the same proportionate change in quantity demanded, therefore there is no change in total revenue – it is unitary elasticity. Remember where MR = 0 – PED = 1 on the demand curve (AR curve).
In my teaching I am very keen on using whiteboards so that students can get used to drawing graphs and also writing essay plans. It makes it very easy for me to go around the classroom to check on their accuracy and I have to say that the students enjoy the whiteboards even if it does lead to a little doodling. The boards are just over A3 size and are perfect to draw some of the more complex graphs in NCEA and CIE economics. Below are some externality graphs by A2 student Jonathan Ta.
Below is a pdf download of a presentation on consumer behaviour that I did for our Yr12 and Yr 13 students last week. It focuses on the following:
Hedonic Treadmil – Paradox of Choice – Algorithms and Choice – Happy Money – Well-being around the world.
Click here to download. I particularly like these images.
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