Thursday, January 31, 2008

OC & PPC's

Some things to think about... :) These could be things to answer for your two weekly postings!

1. Suppose a retailer promotes his or her store by advertising a drawing for a "free car". Is this car free because the winner pays zero for it?

2. Attending college is expensive, time-consuming, difficult, and requires effot. Why do people decide to go to college?

3. Give one positive and one normative statement for the same topic.


Unfortunately, most problems for PPC"s involve drawing, which...is difficult on here.

Some links:

http://www.reffonomics.com/pp1.html an animated gif on the PPC. You'll see a lot from this guy.

AmosWEB - on PPC's -- http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=production+possibilities+curve



And...I think that's all I have tonight.

KM

19 comments:

Vicky said...

I'm going to comment about the college thing: People go to college because they want to learn things. It is an investment in human capital and improves your ability to maximize your utility! Plus, if your parents will pay for it, why not go? And people go to meet people, and get wasted and live away from mom and dad for a while, but to still have that security net.
And it doesn't have to be pure economics. I'm going to be a teacher, and I know it's probably going to be hard for me to find a job (even with a broadfield social studies and an english minor). But I'm doing it anyway. It's about the reward for helping kids, and it's what I want to do with my life.

savannahc said...

2) Like Vicky said, going to college helps improve your human capital. Although the immediate cost of college is tremendous, many people become trained in a specific area and are, in the end, better off than they would have been if they hadn't attended college. In other words, the explicit costs are high, but the things you gain from it are worth it. Although college is time consuming, for many people it is an important step to preparing them for independence. Many people would struggle were they to leave their house immediately after high school and try to make a living to support themselves. College gives them the time to slowly adjust to the responsibilities of independence. (which also probably makes you better off in the long run).
There are many other reasons people go to college, and like Vicky said, they aren't all about economics.

(p.s. while thinking about this question I was thinking about the idea that "people do things to make themselves better off" and how it is true, but not always in the way that economists tend to think of it is. better off doesn't necessarily mean earning more money. If someone has a strong desire to be liked and considered generous and thoughtful or just to get the wonderful feeling that they have just improved someone else's life, they will donate lots of money to charity, or spend their time volunteering, or take jobs that pay little, but help people. As mentioned in this, sometimes the "better off" involves feelings, not money, which is why (as with anything else) the whole idea of economics doesn't always work. Just a thought. Pardon the poor grammar and inappropriate lower case letters.)

KM said...

The economics of a decision don't have to be about money. In fact, most of the time, they are not.

You (everyone) constantly makes decisions based on marginal analysis. What will I get out of this? vs. What will it cost me? regardless of whether that cost is implicit or explicit. I could be...washing dishes, finishing cleaning the living room, working down in the studio, grading papers, or sleeping right now. My benefit to coming here instead is: not having to do the dishes (ugh), seeing how my students are doing with any studying they may have taken the time for, and ...well, there are more. Costs? All those things.

Sleep comes to mind the most right now. I'm old. How sad is it, 10:30 on a Saturday, and all I can think is...why am I not in bed? :)

Vicky said: "And it doesn't have to be pure economics. I'm going to be a teacher, and I know it's probably going to be hard for me to find a job (even with a broadfield social studies and an english minor). But I'm doing it anyway. It's about the reward for helping kids, and it's what I want to do with my life."

That's the lovelies of it all. We make those decisions, regardless of how irrational it might seem, because of the thinking at the margin that we all do. For Vicky, the benefit outweighs the cost - or she wouldn't do it.

This can apply to anything in life - studying, which college to attend, whether to get a job after school...drug use, sex outside of marriage, whether or not to cheat on your income taxes, where to fly on vacation...

btw - there's always jobs in Social Studies. The question is - can you set yourself apart from the other candidates well enough to get the job? Another thing that's true in any situation where you have many people vying for the same thing.

What makes you unique?

Lydia said...

2. Attending college is expensive, time-consuming, difficult, and requires effot. Why do people decide to go to college?

College again. It's true that college is an enormous investment in both time and money, but most people do it because it's an investment in human capital. College gives us the skills we need to succeed in our specific job field, as well as other general skills, such as working with people, meeting deadlines, and communication. Increasing our human capital (which is inevitable unless you spend 4 years drunk off your butt) makes us more productive in the real world, and therefore wealthier. the investment in a college education therefore pays off in most people's lifetime.

martywiese said...
This comment has been removed by the author.
martywiese said...

I'd answer the college one, but everyone else seems to have already analyzed it back-to-front, sideways, and upside-down, so I guess I'll do the car question...

Question #1:

Just because the initial price of the car is $0 does not mean that it has no cost. Nothing is truly "free." There is always some hidden cost. In the instance of this car, the winner does receive a free automobile. However, he or she will still have to pay the price of gas, insurance, vehicle registration, maintenance, repairs, etc. Within the first few weeks that the owner has the car, he or she will notice these costs, especially the closer the fuel gauge creeps towards "empty." Granted, these costs are to be expected with owning any vehicle. No car does not need some form of fuel, registration, maintenance, etc. No car owner is going to own such a piece of machinery without paying for it.

These costs may increase with so-called "free" cars, as well. Cars that a dealership is giving away are no doubt not of the highest quality; they are a marketing scheme, albeit an effective one, but one that will not function if the dealership is giving away free porsches. These "free" cars will most likely be loaded with hidden problems, such as faulty systems, a lack of unnecessary "niceties" or add-ons, or low gas mileage. In the end, paying to get these parts fixed or installed, or purchasing extra gas, may add up to the cost of purchasing a high-quality vehicle in the first place.

Lastly, there are always externalities associated with driving any car, especially one of a lower degree of quality. Cars emit pollution and cause wear and damage to public roads that taxpayers' dollars go towards fixing. Short of taxing gas to make people who drive more pay more, these externalities do not have any immediate cure. However, this does not mean that they do not take their toll, and definitely do not mean that any vehicle is "free" in any sense of the word.

caitlin said...

Free Car:
Technically this car is not free at all. The initial purchase price will be taken care of, but there are many expenses still left. When you win the free car you will have to pay taxes on the value of the car, the registration, and licensing. Taxes alone could be quite a bit of money. Also, if the car breaks down or needs a tune up, those costs will come out of the "free" car winners pocket. Another requirement in most states is insurance, which is a never ending fee. Using a car also includes the purchase of gas, oil, windshield washer fluid, and the list goes on. All of these costs continue to increase year after year.

Marty has a good point on the pollutions emitted into the atmosphere. The pollution in turn also speed up the damage to public roads and in return needs to be repaired more often, which means more tax dollars!

JoelleBender said...

People attend college despite the monetary and time costs for many reasons. When being trained for a specific job, this gives you an advantage over everyone else applying for that job who lacks the same education and qualification that you do. It also allows you to seek a higher paying job, since employers of such jobs are willing to pay more since a limited number of people excell at these jobs. Others choose to attend college for the experience. Most kids don't want to spend the few years after high school hanging out in a somewhat boring small town. College offers new opporunities and expereinces that they would otherwise not have been able to experience.

magila said...

I’m going to have to answer the car question as well, much like everyone else. While I haven’t read everyone’s posts, I skimmed a little bit and I’m sorry because I know I’m talking about things that have already been mentioned…

But anyway, the initial price of a car is definitely not the last payment involved with vehicle ownership. Unplanned repairs necessary for the car to run properly are needed all the time. My fuel pump died after four months of owning it and that put me about 800$ in the hole. Also, insurance is a huge monthly cost of owning a car. Even if one chooses not to get insurance, he or she would have to shell out the cash needed post-crash to repair the cars involved.

Gas is one of the most obvious costs in car ownership, and along with burning a bigger hole in the car owner’s pocket, the gas-guzzlers of the world are also burning a hole in the ozone layer. Global warming is a huge externality involved with cars, as I know Marty and Caitlin have already mentioned. Human lives is a pretty large price to pay as well and those are often sacrificed with car crashes and bridge collapses (twin cities, anyone?). With that, a great deal of money is spent by taxpayers to repair roads every year.

There are a lot of optional (though sometimes difficult to avoid) costs of owning a car as well. I hit (I prefer to say gently nudged) a dumpster once and though I don’t care enough about my ugly beast of a car to get rid of the huge green marks on it, someone with a pretty little mustang might. Cosmetic repairs are very important to some car owners. Interior repair, car washes and waxes, and car systems fall under this category as well. My brother, for example, had a $1500 dollar sound system in his $500 dollar ‘89 Buick at one time.

Lastly, people are usually taxed when they win things. Whenever I watch the Price Is Right I can’t help but think how much I would hate to win one of those cars only to find out the taxes are more than I could possibly afford.

frenchie said...

In response to the "free car," the car is not really free. It may initially be free for the one who wins it, but the winner will also have to pay for vehicle registration, insurance, gas, auto repairs and so on. The retailer who is promoting the car is also paying for the car by using it as a form of advertising.
Both caitlin and marty also make a good point about pollution emitance into the atmosphere. This does destroy our roads much faster and increase taxes. Honestly, who wants to be paying for taxes?!
Therefore, even if the initial cost of the car is "free" the car is not really "free" in any way. Nothing is free nor will it ever be. Everything has a price whether it's out in the open or hidden.

belzmat said...

#2

People attend colleges because of the changes in the economy over time, which has changed from times years ago when unskilled workers could find thousands of jobs to choose from, whereas in todays world skilled jobs have become the more desireable and economic choice for the average person. College in the short term is an expensive investment, but in the long run it pays major dividends in a persons human capital.

Abby W said...

In response to the car question:
First of all, just because the winner does not have to pay for the car does not mean that the car is free. There are costs involved in producing cars, and that means that SOMEBODY paid for the car. The company doing the drawing has to make the money to cover those costs. They may do this by increasing prices on other vehicles, products, or services. Another option is lowering wages of employees. In either case, the workers and consumers end up paying for the car that was "free" for the contest winner. In addition, all of the costs associated with driving a vehicle (as described by my classmates) apply to the winner.

Katie Erickson said...

The car situation:
This car may appear free, but in the long run it is not. The winner of the car is still taking time to go to the car place and enter, and they will need to pay for gas and maintenance for the car. Nothing is free.

Katie Erickson said...

college question:
People decide to go to college so that they can get a more productive job that they enjoy and make more money doing. The goal with attending college is to receive a degree to get a job that will, in time, pay for the education it took to get, as well as pay more money and give more satisfaction to the worker.

Abby W said...

3) positive: Though the winner does not have to pay the initial cost of the car, there are costs associated with owning a vehicle.

normative: The retailer should cover the additional costs of owning/driving the vehicle.

Lucas S. said...

Response to #1: All decisions involve costs in some fashion, however difficult they may be to initially see. In this case, there have been costs involved that both directly affect he who wins this promotion, as well as many others associated with the car company. The winner now possesses a new car that he or she may not have been financially prepared for. The various expenses, (gas, car maintenance, etc.) that come with now compound those of any other vehicles the winner still has. In terms of the company, they must have compensated in some way to balance out this free promotion. Since there must be an investment of money in making a car, the company very likely had been raising prices on other products or possibly cutting the salaries of its employees for some time. Therefore, this "free" car was indirectly paid for by a variety of sources.

Lucas S. said...

Response to #3:

Positive: The winner will now face the basic costs that come with maintaining ownership of a vehicle.

Normative: The company should have ensured the winner that he or she will have these costs paid at least for the first year or so.

waugale said...

The "free" car:
No, the car isn't technically free. Once you take into account how much the car cost will the retailer in the first place, it isn't free at all. The retailer has to buy the car in the first place, and lose all the money when they give it away to the lucky custemter. Sure, they may get more business because people want that car, but the opportunity cost for them is high. After the contest is over, people won't necessarily keep coming back.

JohnKotz said...

College is about the tradeoff that is recieved after it is complete. At first it may be expensive and hard work but in the long run, someone who goes to college increases their capital and because of this they are more likely to get a job and recieve more income. Also, college is a bout building independence. College allows one to learn what living on your own, without your parents is all about.