Thursday, December 22, 2011

Test Questions I Have Used: The price of everything

In the final for my introductory microeconomics students, I posed a question based on a post on Wronging Rights. It involved an NGO buying up AK-47s in Africa to scrap and sell as jewelry in the West as a means of "doing something" about conflict. The question was to identify why this was a terrible idea, thinking about the incentives increased demand has on the supply side. WR subsequently put up a correction based on an email to the NGO. They do not go around buying guns from dealers, but they buy guns that have been confiscated by the government of the Democratic Republic of Congo and the UN. If anything, this encourages the government to confiscate more guns, which should do good things for reducing demand and supply.

On a midterm for the same class, I also posed a question based on the growing gender imbalance in some Indian states. Having 8 women to 10 men ought to increase the "price" of a bride that husbands pay, or in this case reduce the price the family of the bride has to pay the groom's family. This article from the World Bank discusses one campaign to encourage single men to get indoor plumbing and a toilet: No loo, no I do. And what do we find? Single men are becoming much more likely to have a toilet for prospective brides in states that have a low female-to-male ratio.

In class we also debated the ethics of kidney donations just in time for a slough of posts to go up around the blogsosphere about them.
Some of them also found their way into my final. This post was notable for arguing that kidney chains are actually mechanisms for compensating almost everyone in the chain, but not the first donor. So we're saying it is ethical to pay for a kidney with another kidney for someone else, but not in money. This one notes that the operation itself is riskier than working for the police or mining.

The next two didn't quite make it to this test. They might in another semester. If asked, I would have supposed that restaurants charge less for lunch than dinner because demand is lower, but restaurants still want to spread their fixed costs over as many patrons as possible. Marron reports on an interview with a restaurateur explaining why on the supply side. Though all of his explanations deal with lower costs, they are on optional frills that would not be justified if the demand for restaurant lunches were higher. Why does the A-team do dinner and B-team do lunch? Because there is less demand at lunch. Why is there a smaller menu if there is fiercer supply-side competition? Shouldn't that encourage greater variety, if demand were the same? But of course, answering that the price is higher for dinner because demand is higher is not a popular answer. It smacks of gouging consumers. That's why the smart business owner answers in terms of the changes to the cost structure they induce in response to higher or lower demand.

The price to adopt a baby in Texas (HT: a lot of blogs, but The .Plan got it to me first):
My wife and I are thinking of adopting and shockingly found in Texas, the cost for a white infant was $35,000 and the cost of a black infant was $17,000 – these are published numbers on private adoption websites.--Freakonomics commenter Brian on supply and demand in operation
Now, explain why. 

No comments:

Post a Comment