Community Service and Economics

It's no surprised that there is an underwhelming level of community service in our society, even though there are dozens of organizations in need of volunteers. Washington State University even has a designated office on campus to help connect students with volunteer opportunities. Since I started teaching, I knew that integrating community service into my courses was a priority. I really started it last semester with a canned food drive:

For a mere 3 bonus points (0.3% of their final grade), I volunteered to take canned food or toiletries to the CAC Food Bank on their behalf. The results were overwhelming to say the least. The class of 200 students responded by bringing in over 500 cans of food, 68 paper products, and dozens of "other" goods.

The first response I received from fellow faculty members was, "what does this have to do with economics?" I quickly told them nothing, and that I wanted to give them the opportunity to give back to the community. So I took the challenge to implement economics and community service together. Using a GoFundMe All-Or-Nothing Campaign, I challenged my 100 person course to raise a little over $500 to donate to the local YMCA. If the class meets the goal by the deadline, the YMCA will receive $500 and every person in the class (regardless of whether they donate) will receive 15 bonus points, plus some incentives along the way.

Hopefully our well versed economists know what economic theory will suggest, but do you think that will be the actual result? Can the students overcome the theory and reach the socially optimal outcome? I guess we'll find out in 16 days!  Do you have any other ideas on how to link community service with economics? 

Diminishing Marginal Utility with Swiss Cake Rolls

This challenge would have definitely centered around Twinkies, had it not been for their bankruptcy and subsequent disappearance from shelves. Hopefully a deal can be reached to bring back the golden rolls of glory in time for this summer. Until then, Swiss Cake Rolls must suffice.

Early in every semester, I like to engage the class in a "real life" example of some type of economic phenomenon. Too often, instructors jump in with the dull routine of supply vs. demand, and efficiency vs. equity. Instead, I like to grab a few students, make them engulf 10 Swiss Cake Rolls (voluntarily of course), and then ask them how they feel. Luckily for the class, that concept won't be taught for a few weeks, but it at least gets them excited about economics.

For those unfamiliar with diminishing returns, as people employ additional units of inputs, their output increases at a decreasing rate. What does that have to do with Swiss Cake Rolls? Consider our hungry eaters as trying to maximize their utility (output) by consuming the delectable dessert (inputs). They were extremely happy with the first one, but the second one didn't bring them nearly as much satisfaction, nor did the subsequent desserts. On the consumer side, this is referred to as diminishing marginal utility. The video should help show the effects of diminishing returns. Thankfully no one had negative returns:

Rum and Coke: A Case of Complements

During my Fundamentals of Microeconomics class I routinely used alcohol for almost every section of my lessons. Why? College students understand alcohol much better than they do wheat and butter. Almost every chapter can be adapted to include some reference to alcohol, its production, or its consumption.

A fellow Twitter economist (@Patelnomics) posted a nice graphic of complements. I'm not sure where the source originated, but I found it from his, so I'll give him proper credit. Without a doubt, this is a great example of stores bundling complementary goods to reduce the search costs of buyers.

What was your favorite example of complements as an economics student? What did your professors use that you found boring?

Everyday Economics - Bank of America

I've challenged my Principles course to find economics in their everyday life. For the most part, they've all done an excellent job, even if some of them have worked in backwards. To make sure I wasn't asking too much, I tried it myself, and it didn't take long (granted I'm getting a PhD in this, so it's a little easier). As I went to the bank today to withdraw money from the ATM, this note was pinned to the teller window:

Last week we discussed monopolistic competition and how firms try to differentiate themselves from their competitors through various means. One of the results of many monopolistically competitive firms is the excess capacity generated by trying to achieve the lowest average total cost. In the case of Bank of America, it appears that they are attempting to lower their average total cost by discontinuing the drive-thru service. Not long before the date above, a new bank opened in Pullman, implying there must be some short-run profit in the banking industry. Perhaps this is a ploy by BOA to maintain their profits through cost reduction.

Ranked Nationalities Gets Help From the Toronto Star

I'm on the cusp of submitting my first research article to the Journal of Sports Economics, and came across an article in the Toronto Star from October 28, 2012 regarding the foiled attempt by Major League Soccer to sign Swedish superstar Olof Mellberg. Toronto and Mellberg came to an agreement that the Swedish defender would play for Toronto (one of the least successful teams this year) for $3 million over 2 years. Once submitted to the league, it was rejected because the league is in charge of all player's salaries and felt that it's best to consider the longterm health of the league when signing designated players.

Reporter Cathal Kelly believes that if finical reasons weren't to blame, it had to be for two other possible reasons. Mellberg is a Swede, who appeals to none of MLS's ethnic target markets or because he's a defender and not a flashy forward. The belief still follows that the league must not find Swedish players marketable to the MLS audience, which is exactly the finding I investigated when examining ranked nationalities. Only the top countries in Europe received wage premiums relative to their English counterparts, which suggests that owners/fans prefer (and our willing to pay for) players from England, Germany, Italy, or France for example, but not "lower tiered Europeans" like the Swedes.

What convenient timing for my research and poor timing for Olof.

The Day After Halloween Treats

Talk about supply and demand: Every year following major candy holidays (Valentines Day, Easter, & Halloween) most major retailers mark their candy down by 50% or more! Why though, isn't it the same candy it was the day before?

It's all about supply and demand. Most candy is themed for the particular holiday, or broken into fun size packaging. The demand for this particular type of candy ends the day after the holiday. An decrease in demand will mean lower prices and lower quantities sold. It's no surprise that the stores dump all of their candy from storage out and mark the price in half:

This means HUGE payoffs for people willing to open individual packages to get at their favorite candies. It's not surprising either that chocolate candies are the first to vanish. Think of this as a market with a price ceiling, the store has decided that all candy will be sold at the same price, which results in a shortage of chocolate candy:

Incentives and Cheating

People amaze me when they talk about not understanding why athletes cheat. Many of them think they play for the love of the game (even the beautiful game), but few realize that they are responding to incentives. If undergraduates (and graduate students) are willing to cheat in order to gain 5 extra bonus points, then athletes will surely cheat to gain a few million dollars. Each sport has some economist (myself included) that try to estimate the value of different productivity measures. For soccer, goals and assists are valued heavily (paper forthcoming). In baseball, you may recall the phrase "chicks dig the long ball," and it's true!

So when you hear stories of steroids, blood doping, or oxygenation, just remember it's because sports consumers (you!) value these things. The large tv and incentive based contracts all revolve around a simple 101 lesson: incentives. If you think sports are immune, look around your own life.