Changes

By comparing a change in price of a good to the change in the CPI, you can tell whether the real price of the good is becoming more or less expensive.  If the good’s price increases by less than the CPI’s increase, then the good has a real price that is falling.

By comparing a change in price of a good to the change in the CPI, you can tell whether the real price of the good is becoming more or less expensive.  If the good’s price increases by less than the CPI’s increase, then the good has a real price that is falling.

== Review Example: the NBA Draft ==

== Example: the NBA Draft ==

Every year the National Basketball Association (NBA) holds a "draft" for each team to pick a college or high school player who wants to play in the NBA.  The worst NBA teams are allowed to pick first (that is, pick the best incoming players) in order to even out the quality of the NBA teams.  That way the best new players go to the worst NBA teams, and hopefully improve them so that there is better competition in the NBA and the same teams (like Los Angeles) do not win the championship every year.

Every year the National Basketball Association (NBA) holds a "draft" for each team to pick a college or high school player who wants to play in the NBA.  The worst NBA teams are allowed to pick first (that is, pick the best incoming players) in order to even out the quality of the NBA teams.  That way the best new players go to the worst NBA teams, and hopefully improve them so that there is better competition in the NBA and the same teams (like Los Angeles) do not win the championship every year.

A dilemma arises when a team is making its selection of a particular player:  should the team pick (draft) the very best player available, regardless of the team's own needs for a player at a particular position, or should the team draft someone who fills a particular need on the team.  For example, if the team has good guards but needs a good center, should it draft someone who plays the position of center even though the best player available for that selection is a guard?

A dilemma arises when a team is making its selection of a particular player:  should the team pick (draft) the very best player available, regardless of the team's own needs for a player at a particular position, or should the team draft someone who fills a particular need on the team.  For example, if the team has good guards but needs a good center, should it draft someone who plays the position of center even though the best player available for that selection is a guard?

That dilemma presented itself to the Portland Trailblazers at a time when it had good guards, but needed a center.  The best player available at the time of its selection was Michael Jordan, a guard, but the team felt it needed to pick a center to fill a particular need of the team.  It decided not to pick Michael Jordan and selected a center instead.  The next team in the draft, the Chicago Bulls, then selected Michael Jordan and he eventually led it to six NBA championships.  The center selected by the Portland Trailblazers struggled and eventually left the NBA.

That dilemma presented itself to the Portland Trailblazers at a time when it had good guards, but needed a center.  The best player available at the time of its selection was Michael Jordan, a guard, but the team felt it needed to pick a center to fill a particular need of the team.  It decided not to pick Michael Jordan and selected a center/power forward named Sam Bowie instead.  The next team in the draft, the Chicago Bulls, then selected Michael Jordan and he eventually led it to six NBA championships.  Sam Bowie struggled in the NBA and never attained the level of success of Michael Jordan, who many felt is the greatest NBA player ever.

What does economics teach us about the decision by the Portland Trailblazers?  <explain more>

What does economics teach us about the decision by the Portland Trailblazers?  At the time of its decision, the team knew that there was a greater "market" demand for Michael Jordan than for Sam Bowie.  Had the team used economic analysis, it would have realized that Michael Jordan's "value" was higher due to the greater market demand for him, regardless of what the Portland Trailblazers' specific needs were.  Portland could have picked Michael Jordan and traded for Sam Bowie plus another good player, or Portland could have traded its draft slot and obtained extra value in addition to drafting Sam Bowie later.  But the team leaders did not view the selection in terms of the "market", but rather in terms of the team's own particular needs.  This mistake resulted in what some call "the single most collosal blunder in the history of basketball."<ref>http://www.bigbluehistory.net/bb/bowie.html</ref>

 

==Income and Substitution Effects==

==Income and Substitution Effects==