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| | {{Economics_Lectures}} | | {{Economics_Lectures}} |
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| − | ==Alfred Sloan and Charity==
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| − | Born in 1875 in Brooklyn, Alfred P. Sloan, Jr., was a hard-working student. After attending college, he went to work in ball-bearing factory in New Jersey. His employer was having financial difficulties, and Alfred persuaded his father to buy the troubled company at a discount. His father was an importer of coffee and knew nothing about the ball-bearing business. Alfred took it over and spent all his time and energy trying to make a success out of the struggling firm.
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| − | In just six months Alfred was able to revive the company, and then ran it for 17 years before selling it in 1916 at a handsome profit to the founder of the General Motors (GM) car company. Alfred then joined GM and spent five years studying its operation in detail as he worked there. He wrote and published “The Organizational Study,” which was the first treatise on management ever written. His inspiration was the U.S. Constitution and its system of checks and balances. Sloan’s vision was to divide GM into many small divisions that could have their own revenue and cost targets, and check and balance other divisions in the company. The high performers could be easily identified, rewarded, and given greater resources; the poor performers could be replaced.
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| − | Eventually Sloan himself was rewarded for his valuable work by being promoted to become Chairman of GM in 1923. When Sloan took over leadership of GM, it had less than one-fifth of the car market. Ford Motor Company, founded by the legendary Henry Ford, was much bigger and more successful, selling more than half of all cars in the market. But within a mere eight years, by 1931, GM surpassed Ford based on Sloan’s organizational principles. GM became the largest corporation in the world. Sloan’s vision was for GM to make “a car for every purse and purpose.” Many felt that GM's success was important to the success of the United States. “What’s good for GM is good for America” became a popular saying due to Sloan’s leadership of the company.
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| − | Sloan was an example of what some students discussed in their answer to the homework question about charity and the free market. Sloan made a fortune in the free market, and that enabled him to make enormous gifts to charity. He kindly donated much of his wealth to found the Sloan-Kettering Cancer Center in New York, considered the finest in the world for treating cancer.
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| − | Long after Sloan died, GM collapsed. In 2009, it failed and was taken over by the United States government. Most firms do fail, if not in the first few years then later. But Sloan's charity continues to help cancer patients at the Sloan-Kettering Cancer Center.
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| | == "Real" Price and the CPI == | | == "Real" Price and the CPI == |
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| | Now think about this: if inflation is 10% per year for three years, but one particular good keeps the same price during those three years, then its opportunity cost and real price actually decreased. Think about that. An honors homework problem asks you to explain why. | | Now think about this: if inflation is 10% per year for three years, but one particular good keeps the same price during those three years, then its opportunity cost and real price actually decreased. Think about that. An honors homework problem asks you to explain why. |
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| − | <older version begins here>
| + | == Competition == |
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| − | In this Lecture we introduce the concept of "perfect competition." Let's first learn what "competition" is, and let's learn it well.
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| − | According to the dictionary, "competition" was first used in 1605. Shakespeare had completed nearly all his plays by then, and a search of all of Shakespeare's works reveals that he never used the word, not even once.<ref>http://www.opensourceshakespeare.org/</ref> Imagine that: Shakespeare knew nothing of the word.
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| − | But perhaps competition has always existed. Leonardo da Vinci competed with Michelangelo, and the world benefited from their achievements. In math and physics, Isaac Newton competed with Gottfried Leibniz and a wellspring of accomplishments flowed. Sports rivalries are famous also for bringing out the best in each side.
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| | In business, it is the competition that brings out the best service, highest quality goods, and lowest prices. Wal-Mart competes with Target and K-Mart. Federal Express competes with UPS for shipping services. Phone companies compete with either for cell phones and home service. Television stations compete with each other; Fox News competes with CNN. Politicians compete with each other to win elections. The dictionary definition of the "free market," a term was first used in 1907, is "an economic market operating by free ''competition''."<ref>Merriam-Webster's Collegiate Dictionary (10th Ed. 1994).</ref> | | In business, it is the competition that brings out the best service, highest quality goods, and lowest prices. Wal-Mart competes with Target and K-Mart. Federal Express competes with UPS for shipping services. Phone companies compete with either for cell phones and home service. Television stations compete with each other; Fox News competes with CNN. Politicians compete with each other to win elections. The dictionary definition of the "free market," a term was first used in 1907, is "an economic market operating by free ''competition''."<ref>Merriam-Webster's Collegiate Dictionary (10th Ed. 1994).</ref> |
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| | Competition is also a great way to motivate yourself. Few like to work or study. But people dislike losing even more. Look around at achievements by others and then ask yourself: why not me? Sometimes, the achievers are those who overcome the greatest obstacles. At a local grocery store, the fastest checkout clerk has only one good arm. Yet he is more efficient than all the other clerks who have two good arms. Frequently the best athlete is the one with less God-given skills than others. Rather, the best athlete is often the one who tries the hardest, both in practice and in the game. The same is often true for the best student and the best business. | | Competition is also a great way to motivate yourself. Few like to work or study. But people dislike losing even more. Look around at achievements by others and then ask yourself: why not me? Sometimes, the achievers are those who overcome the greatest obstacles. At a local grocery store, the fastest checkout clerk has only one good arm. Yet he is more efficient than all the other clerks who have two good arms. Frequently the best athlete is the one with less God-given skills than others. Rather, the best athlete is often the one who tries the hardest, both in practice and in the game. The same is often true for the best student and the best business. |
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| − | In business, the major beneficiaries of competition are the most efficient companies and the consumers. The more competition by grocery stores in town, for example, the lower their prices are likely to be for the consumer. The most efficient grocery store (including considerations like location) will likely be the most profitable and the one that lasts the longest. Businesses know that they have to work hard to beat their competition. Without that competition, it would be very unpleasant for us to shop for goods and services. Communist countries have little competition and many unsatisfied consumers.
| + | Businesses themselves often dislike competition because it can reduce their ability to earn profits. To protect consumers, federal laws limit the ability of businesses to reduce competition. This is known as "antitrust law": it makes anti-competitive behavior by businesses illegal. |
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| − | Businesses themselves, however, often dislike competition because it can reduce their ability to earn profits. To protect consumers, federal laws limit the ability of businesses to reduce competition. This is known as "antitrust law": it makes anti-competitive behavior by businesses illegal. | |
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| | == Competition and Innovation == | | == Competition and Innovation == |
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| | In 19th century America, both silver and gold were accepted currency (as in 19th century America). But silver was a weaker form of money, and thus people preferred to buy things in silver rather than gold. People wanted to save the gold for themselves and get rid of the silver. The result is that the cheaper currency (silver) would be used more often to pay debts and buy things, and the gold would be driven out of the market. "Bad money drives out good." | | In 19th century America, both silver and gold were accepted currency (as in 19th century America). But silver was a weaker form of money, and thus people preferred to buy things in silver rather than gold. People wanted to save the gold for themselves and get rid of the silver. The result is that the cheaper currency (silver) would be used more often to pay debts and buy things, and the gold would be driven out of the market. "Bad money drives out good." |
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| − | Gresham's Law is named after Sir Thomas Gresham, who was the Master of the Mint under Queen Elizabeth I in the 1500s. | + | Gresham's Law is named after Sir Thomas Gresham, who was the Master of the Mint (a government agency that prints or coins money) under Queen Elizabeth I in the 1500s. |
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| | ===A Brief History of U.S. Money=== | | ===A Brief History of U.S. Money=== |
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| | == Exam Tips == | | == Exam Tips == |
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| − | We will have our midterm exam in two weeks (during class #9). Here are the topics that will be on the exam, with an approximate weighting similar to the CLEP exam (which is for college credit):
| + | Here are the topics that will be on the exam, with an approximate weighting similar to the CLEP exam (which is for college credit): |
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| | * 10%: The basics (defining economics, also scarcity and opportunity cost) | | * 10%: The basics (defining economics, also scarcity and opportunity cost) |
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| | Many questions on a multiple-choice exam can be answered correctly even though you didn't know the right answer beforehand, if you follow the above test-taking skills. One of my former students was told he would not have to take a particular exam in college, and he did not study for it, but was then surprised when the teacher made him take it anyway. Using these test-taking skills that he learned in my courses, he obtained the highest score -- higher than many students who studied many hours for the exam. | | Many questions on a multiple-choice exam can be answered correctly even though you didn't know the right answer beforehand, if you follow the above test-taking skills. One of my former students was told he would not have to take a particular exam in college, and he did not study for it, but was then surprised when the teacher made him take it anyway. Using these test-taking skills that he learned in my courses, he obtained the highest score -- higher than many students who studied many hours for the exam. |
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| − | A competition is often won by the person who trained hard ''and'' tried the most during the competition.
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| | ==Assignment== | | ==Assignment== |
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| − | Read and, if necessary, reread the above lecture. Our midterm exam is in two weeks and this assignment is lighter than usual so that you can begin preparing for the exam this week. But do answer 6 out of the following 7 questions: | + | Read and, if necessary, reread the above lecture. Answer 6 out of the following 7 questions: |
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| | 1. Identify the four elements of ''perfect'' competition. | | 1. Identify the four elements of ''perfect'' competition. |
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| | 2. Describe how you might use competition, perhaps even competing with yourself, to motivate yourself to achieve more. | | 2. Describe how you might use competition, perhaps even competing with yourself, to motivate yourself to achieve more. |
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| − | 3. What concept in economics have you had the most difficulty understanding so far? Describe what you did not, or do not, understand about it. | + | 3. Write the equations for TC, FC, ATC, and AFC, and give an example of how they would be used. |
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| | 4. Do you think the converse of Gresham's Law is true with respect to speech and conversation? Specifically, does good speech or conversation (such as discussing the Bible) drive out bad speech? Explain. | | 4. Do you think the converse of Gresham's Law is true with respect to speech and conversation? Specifically, does good speech or conversation (such as discussing the Bible) drive out bad speech? Explain. |
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| | 6. Suppose you decide you could profitably set the price for a homeschool dinner event at $15 per ticket, and it would have attracted 150 people. You also determine that 50 out of the 150 people who would have attended would have paid $20 per ticket and 10 out of the 150 would have paid $25 per ticket, and 5 out of the 150 would have paid $30 per ticket, because they would have enjoyed and benefited so much from it. However, this homeschool dinner event was never held because no one "got around to it." What is the loss in wealth or consumer surplus due to the fact that the event was ''not'' held? | | 6. Suppose you decide you could profitably set the price for a homeschool dinner event at $15 per ticket, and it would have attracted 150 people. You also determine that 50 out of the 150 people who would have attended would have paid $20 per ticket and 10 out of the 150 would have paid $25 per ticket, and 5 out of the 150 would have paid $30 per ticket, because they would have enjoyed and benefited so much from it. However, this homeschool dinner event was never held because no one "got around to it." What is the loss in wealth or consumer surplus due to the fact that the event was ''not'' held? |
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| − | 7. Is there perfect competition between homeschooling and public schools? If not, explain the imperfections. | + | 7. Explain what the "CPI" is, or discuss something you found interesting about the history of money. |
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| | ===Honors=== | | ===Honors=== |