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| | Consider these two alternatives for picking players for a football team. The first approach would be decide who you think would do best for each position based on their family background, their height and weight, an interview, and your intuition. The second approach would be to have tryouts for each position and select the player who did the best at the tryout competitions. Obviously the result would be much better with the second approach, as many players would be surprisingly good (or bad) at certain positions and it would become obvious during the competition. Use competition for your benefit to obtain the best. | | Consider these two alternatives for picking players for a football team. The first approach would be decide who you think would do best for each position based on their family background, their height and weight, an interview, and your intuition. The second approach would be to have tryouts for each position and select the player who did the best at the tryout competitions. Obviously the result would be much better with the second approach, as many players would be surprisingly good (or bad) at certain positions and it would become obvious during the competition. Use competition for your benefit to obtain the best. |
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| | + | == Benefits of Competition == |
| | + | |
| | + | Free enterprise is based on competition bringing out the best in business and the lowest prices for consumers. If a price is too high or a business too inefficient, then competition is what brings a competitor along to do better. |
| | + | |
| | + | Opponents of competition say it is wasteful to have multiple people or companies produce the same thing. Or they do not like the way that competition causes someone to lose. Many parents oppose competition in school, because for every winner there is a loser, and that might be their child. Actually, in difficult competitions there can be dozens of losers for every winner. Tournaments, for example, have one winner but many losers. |
| | + | |
| | + | However, the same people who oppose competition in business or school can be found watching professional sporting events like the Super Bowl, or entertainment competitions like American Idol. If they are having a medical operation, wouldn’t they want the doctor who had the best grades and track record? Or if they are flying on an airplane, wouldn’t they want the pilot who did the best in flight school and on the job? If competition there is acceptable, then why not in business and school also? |
| | + | |
| | + | Competition, in fact, yields enormous benefits for the losers as well as the winners. Competition is a great motivator. It is also an essential part of the “invisible hand” that channels work and supplies towards their most useful purposes. Competition increases efficiency. Competition encourages innovation. It allows to people to do what was thought to be impossible. Whenever we are beaten by a competitor, and all of us experience that many times, we are left to ask ourselves why our competitor was better than we were. Next time, we can do better. |
| | + | |
| | + | The U.S. Constitution itself can be understood as system using competition for power to prevent anyone from becoming too powerful. It established three separate branches of government to serve as checks and balances on each other. No individual or branch can grab too much power because the system protects and promotes competition. |
| | + | |
| | + | Competition is also a great way to motivate yourself. Virtually no one likes 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 my 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. |
| | + | |
| | + | 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, 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. |
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| | == Competition and Innovation == | | == Competition and Innovation == |
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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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| − | == More == | + | ==Example: Homeschool Dinner Event== |
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| − | <Rule Against Perpetuities>
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| − | <average total cost versus "total cost" - do a table>
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| − | <"green" energy: windmills in Penn. and W.Va., solar panels: are they efficient or a waste? Takes 10 years to recoup the cost of installing solar panels on a home>
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| − | | |
| − | Free enterprise is based on competition bringing out the best in business and the lowest prices for consumers. If a price is too high or a business too inefficient, then competition is what brings a competitor along to do better.
| |
| − | | |
| − | Opponents of competition say it is wasteful to have multiple people or companies produce the same thing. Or they do not like the way that competition causes someone to lose. Many parents oppose competition in school, because for every winner there is a loser, and that might be their child. Actually, in difficult competitions there can be dozens of losers for every winner. Tournaments, for example, have one winner but many losers.
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| − | | |
| − | However, the same people who oppose competition in business or school can be found watching professional sporting events like the Super Bowl, or entertainment competitions like American Idol. If they are having a medical operation, wouldn’t they want the doctor who had the best grades and track record? Or if they are flying on an airplane, wouldn’t they want the pilot who did the best in flight school and on the job? If competition there is acceptable, then why not in business and school also?
| |
| − | | |
| − | Competition, in fact, yields enormous benefits for the losers as well as the winners. Competition is a great motivator. It is also an essential part of the “invisible hand” that channels work and supplies towards their most useful purposes. Competition increases efficiency. Competition encourages innovation. It allows to people to do what was thought to be impossible. Whenever we are beaten by a competitor, and all of us experience that many times, we are left to ask ourselves why our competitor was better than we were. Next time, we can do better.
| |
| − | | |
| − | The U.S. Constitution itself can be understood as system using competition for power to prevent anyone from becoming too powerful. It established three separate branches of government to serve as checks and balances on each other. No individual or branch can grab too much power because the system protects and promotes competition.
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| − | | |
| − | The system of political competition has worked well. When Chief Justice John Marshall expanded Supreme Court power so much that it invalidated a Georgia law applying to Indian land, President Andrew Jackson refused to enforce the Court’s ruling. A century later President Truman ordered a government takeover of the steel mills, and the Supreme Court asserted its power and blocked him. The competition for power prevents any branch from growing too strong.
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| − | The benefits of competition extend even to political campaigns. The presidential race in America is increasingly competitive. So competitive, in fact, that no presidential candidate has won even 50% of the vote from 1992 through 2000. The intense competition tends to keep the power in the hands of the people. A dictator who does not have to face reelection has far more power than an American president does, thanks to this political competition in America.
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| − | | |
| − | Competition is also a great way to motivate yourself. Virtually no one likes 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 my 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.
| |
| − | | |
| − | 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, 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.
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| − | ==Homeschool Dinner Event==
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| | To illustrate the practical aspects of microeconomics, consider a dinner event we held in 2004 and 2005. The goal was to maximize attendance while making a small profit. | | To illustrate the practical aspects of microeconomics, consider a dinner event we held in 2004 and 2005. The goal was to maximize attendance while making a small profit. |
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| | It is trying to raise money for a good cause, and sets its prices on the high side. A popular, conservative congressman is the guest speaker. Do you think this pricing maximizes the amount raised for the worthy cause? Does this use price discrimination? | | It is trying to raise money for a good cause, and sets its prices on the high side. A popular, conservative congressman is the guest speaker. Do you think this pricing maximizes the amount raised for the worthy cause? Does this use price discrimination? |
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| − | == The "Marketplace of Ideas" ==
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| − | <add section about the "marketplace of ideas">
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| − | ==Harmful Goods and Services, and Addictions==
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| − | The colony of Virginia survived and thrived by turning to tobacco and slavery. Much of the economy, even today, is based on vices and harmful activities. This is sad but true. The largest building west of the Mississippi, which includes all of California and many other states, is located in Las Vegas, built on gambling. In fact, Las Vegas has far more hotel space than any other city in the United States, including even New York. The people staying in those hotels are hurting themselves and losing their money through gambling, which may be an addiction for them.
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| − | [[Abortion]] is a very harmful activity that exists because some are making millions of dollars from it, and giving some of that money to politicians who support them. Smoking exists because tobacco companies earn big profits from it, even though it kills many people each year. Beer is destroying people’s livers but making billions of dollars for beer companies.
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| − | Go into a typical convenience store and you will find that they do a brisk trade in cigarettes, pornography, alcohol and lottery tickets. Those four categories probably account for most of their profits. The people paying for those goods are both losing money and hurting themselves.
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| − | In the “underground” (illegal) economy, drug trafficking accounts for an enormous amount of commercial activity. Drugs are extremely hurtful, but drug dealers make money out of getting people addicted to drugs and paying money for them. Often people die of overdoses from drugs.
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| − | What do these harmful economic activities have in common? They exploit addictions. The prices on these goods and services can be increased much more easily than on anything else. Someone addicted to drugs is still going to try to buy it even if the price increases by 10%, 20%, 50%, or 100%. The same can be said for gambling, pornography, alcohol and almost every other vice. They are profitable to sellers who exploit the addiction. Buyers lose their money and ultimately their lives.
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| − | == Imbalance in Information ==
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| − | Imbalances in information are a reason for the delay in pricing to reach equilibrium. Buyers do not immediately realize when they can obtain the same good more cheaply another way. For many years people continued to pay high costs for renting telephones after it became legal to buy inexpensive ones. The effects of competition are not often felt overnight. A lower-priced competitor has to educate the public of the availability of its goods, and that takes time.
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| − | There is also a more permanent imbalance in information between the buyer and seller of a good. The seller always knows more about his good than the buyer does. The seller does not want to disclose the disadvantages, weaknesses, defects, and outright dangers of his good. The buyer has to beware in paying money to the seller for a good: caveat emptor (Latin for “let the buyer beware”).
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| − | Tobacco companies did not want to disclose that cigarettes cause cancer. [[Abortion]] providers do not want to disclose that [[abortion]]s can cause infertility (inability to have children) or severe premature birth and health problems in future children, breast cancer, and psychological problems. There would be far fewer abortions if full disclosure of their harm were made prior to performing the service, and if taxpayer money was not used to fund the service.
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| − | Disclosure of harm is a problem for used car dealers who do not want to tell buyers that a car is a lemon (i.e., constantly needs fixing). Food manufacturers do not want to disclose all the fat and artificial ingredients in their products.
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| − | Governmental regulations require some of these disclosures (but not for abortion in New Jersey, which is one reason why New Jersey has more abortions than other states that do require full disclosures). Mandatory disclosure about goods and services may be the best and only effective type of governmental regulation. Food packaging now must state what the ingredients are and how much fat is contained. The buyer doesn’t have to guess about this information. The buyer must still beware, but can do so with more information than before.
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| − | 13. Should sellers of goods or services required to fully disclose to the public the harm that their goods or services causes? Discuss, providing a specific example of a harmful good or service.
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| | ==Assignment== | | ==Assignment== |
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| | <references/> | | <references/> |
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| − | == References ==
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| − | <references/>
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| | [[Category:Economics lectures]] | | [[Category:Economics lectures]] |
| | {{DEFAULTSORT: Economics Lecture 07}} | | {{DEFAULTSORT: Economics Lecture 07}} |