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Economics in Two Lessons: Chapter 4

March 15th, 2018

Thanks to everyone who the first three chapters of my book, Economics in Two Lessons. I’ve learned a lot from the comments and made changes in response to some of them. These chapters have been a bit abstract, but now I’m moving on to some applications, which might be more interesting for some readers. Here’s the introduction to Part II

Lesson 1, Part II: Applications

The economic analysis showing how market equilibrium prices reflect the opportunity costs facing producers and consumers is elegant and, for a certain kind of mind, convincing.

For most of us, however, it’s more useful to see how the logic of prices and opportunity costs works in particular cases, sometimes in ways that conflict with strongly held intuitions. This will also give us more insight into the ways in which prices can fail to reflect opportunity costs for society as a whole, some of which we will examine in Lesson 2.
end

Now here’s the draft of Chapter 4:Lesson 1: Applications. Again, I welcome comments, criticism and encouragement.

The book so far is available
Table of Contents
Introduction.
Chapter 1: What is opportunity cost?
Chapter 2: Markets, opportunity cost and equilibrium
Chapter 3:Time, information and uncertainty

Feel free to make further comments on these chapters if you wish.

  1. Smith
    March 15th, 2018 at 11:54 | #1

    On airline salaries – in the US, it is not just the workers without specialised skills who are badly paid. A typical pilot’s salary is around $30,000. How can the airlines attract pilots by paying so little? They can because many if not most commercial pilots are retired air force pilots and they get an air force pension, so they are content with the small salary. There is a real sense in which the US Government subsidises the costs of airlines (salaries and training costs), so deregulation has not been as pure as the text says.

  2. David Richardson
    March 15th, 2018 at 12:47 | #2

    The airline example you describe is a very good illustration of the forces at work whereby deregulation at the product level has impacts in the labour market to the detriment of the workforce. It is worth collecting these examples.

  3. Tim Dymond
    March 16th, 2018 at 09:37 | #3

    Hi John, I wonder if you’d consider including a diagram e.g. a decision tree, to illustrate opportunity cost? I appreciate this may not be your ‘house style’, but I have found them useful for following the lines of reasoning for calculating opportunity cost. I confess I got a little lost in the mixture of historical detail and opportunity cost decisions in the airfares example. The rest of the chapter re the College and advertising case studies were very illuminating.

  4. John Quiggin
    March 16th, 2018 at 15:58 | #4

    @Tim Dymond

    Hi Tim,

    I’m not averse to diagrams, but I’m not quite sure what you have in mind. Can you point me to examples of things I could adopt or adapt?

  5. Tim Dymond
    March 16th, 2018 at 17:33 | #5

    @John Quiggin

    Sure. The PowerPoint on the end of this link is unfortunately large, however it does have some examples beginning around slide 28: https://www.brown.edu/Departments/Engineering/Courses/en193-194s7/Lectures/engine90-crawford-DECISION-MAKING.ppt

  6. March 16th, 2018 at 20:12 | #6

    @Smith
    Smith: do you have a source for $30,000? Googling, I get multiple hits well over $100,000, in line with intuition.

  7. John Quiggin
    March 17th, 2018 at 12:01 | #7

    @James Wimberley

    This source says $20 000 for co-pilots, who I assume must have most of the skills required for pilots

    https://www.theguardian.com/world/2010/jan/11/pilot-exhausting-hours-wages

    Without committing to a specific number, it seems reasonable to say that pilots have lost as a result of deregulation.

  8. John Quiggin
    March 17th, 2018 at 12:03 | #8

    @Tim Dymond

    Thanks. I’ll give this some thought.

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