ECON CREW: real life "marginal" thinking?

dpakman91 · 10-30-2007, 11:03 AM

I need to come up with a few examples of thinking in terms of the margin (i.e. marginal cost/marginal benefit) from "real life," rather than economic examples. what i mean is a personal decision that can be made that involves the same time of "margina benefit" thought process. any ideas?

Publius · 10-30-2007, 11:22 AM

Originally Posted by dpakman91

I need to come up with a few examples of thinking in terms of the margin (i.e. marginal cost/marginal benefit) from "real life," rather than economic examples. what i mean is a personal decision that can be made that involves the same time of "margina benefit" thought process. any ideas?

Working overtime. Is the marginal benefit of getting time and a half worth more to you than the marginal cost of spending more time away from your family. Inversely for the company, is the marginal benefit of getting extra production from a worker worth more to them than the marginal cost of paying that worker 1.5 times their normal wage

That's the easiest to understand real world example (& is part of the logic behind laws setting overtime wage at 1.5 times the normal wage).

dpakman91 · 10-30-2007, 11:29 AM

Originally Posted by Publius

Working overtime. Is the marginal benefit of getting time and a half worth more to you than the marginal cost of spending more time away from your family. Inversely for the company, is the marginal benefit of getting extra production from a worker worth more to them than the marginal cost of paying that worker 1.5 times their normal wage

That's the easiest to understand real world example (& is part of the logic behind laws setting overtime wage at 1.5 times the normal wage).

definitely, i agree, but that's why i'm having trouble. in the context of what i'm looking to do, that's still too "economic" of an example. something more related to non-dollar examples might be even better. how could i take your example and take one more step back from an economic answer?

more like something about a decision on a vacation, a hobby, etc

Publius · 10-30-2007, 11:33 AM

Originally Posted by dpakman91

definitely, i agree, but that's why i'm having trouble. in the context of what i'm looking to do, that's still too "economic" of an example. something more related to non-dollar examples might be even better. how could i take your example and take one more step back from an economic answer?

more like something about a decision on a vacation, a hobby, etc

Do you have a Six Flags or other theme park close-by?

The marginal benefit of going to Disney World instead of <insert local theme park here> is a larger park with more to do, but the marginal cost is a significantly longer trip away from home. Do the marginal benefits of going to Disney World outweigh the marginal costs?

Publius · 10-30-2007, 11:34 AM

Cost/Benefit analysis can honestly be applied to any situation, as long as their is a discernible positive and negative to the choice...

A person with irritable bowel syndrome could love French Onion soup, but it wreaks havoc on their bowels. Is the marginal benefit of enjoying a bowl of French Onion Soup worth more to that person than the marginal cost of spending their evening on the toilet? If yes, have the soup. If no, find something else to eat.

avsp · 10-30-2007, 11:38 AM

another beer, (benefits vary depending on how many you've already had)
similarly
another lover (assumption simulteanously not serialy)
another child

or, having just caught up, another roller-coaster ride

a wafer thin mint at the end of a meal etc

Publius · 10-30-2007, 11:40 AM

Another beer is a good one.

Is the marginal benefit of one more beer (a stronger buzz, perhaps) worth more to you than the marginal cost of that beer (another $3 paid to the bar, or the increased hangover tomorrow, etc)?

dpakman91 · 10-30-2007, 11:40 AM

Originally Posted by Publius

Cost/Benefit analysis can honestly be applied to any situation, as long as their is a discernible positive and negative to the choice...

A person with irritable bowel syndrome could love French Onion soup, but it wreaks havoc on their bowels. Is the marginal benefit of enjoying a bowl of French Onion Soup worth more to that person than the marginal cost of spending their evening on the toilet? If yes, have the soup. If no, find something else to eat.

haha nice, i will use that example except with a sausage and pepper grinder at fenway park.

Publius · 10-30-2007, 11:43 AM

Originally Posted by dpakman91

haha nice, i will use that example except with a sausage and pepper grinder at fenway park.

instructional AND topical.

dpakman91 · 10-30-2007, 11:43 AM

while we're at it, what do you guys think about ranking these in terms of MOST ELASTIC to LEAST ELASTIC?

a) Sneakers
b) New Balance sneakers
c) iPods
d) Movie tickets
e) Automobile tires
f) lima beans

I have it this way:

e) Automobile tires
c) iPods
b) New Balance sneakers
a) Sneakers
d) Movie tickets
f) lima beans

hard to say on a lot of them since it's a question of how many substitutes there are too..

avsp · 10-30-2007, 11:51 AM

Originally Posted by Publius

Another beer is a good one.

Is the marginal benefit of one more beer (a stronger buzz, perhaps) worth more to you than the marginal cost of that beer (another $3 paid to the bar, or the increased hangover tomorrow, etc)?

the marginal beer may be of negitive utility which is why its the obvious example to me

i assumed the question was to look at the problem in a fashion not measured directly by money, (on at least one metric)

as such the child one is measured in effort/fun

They're intoducing marginal cost rubbish collection here, (as opposed to a 'public good'), to encourage recycling Its driving me mad. It doesnt encourage recycling it encourages fly-tipping.

meanwhile

Originally Posted by Publius

Cost/Benefit analysis can honestly be applied to any situation, as long as their is a discernible positive and negative to the choice...

who are you & what have you done with the real Publius? etc

Publius · 10-30-2007, 11:56 AM

Originally Posted by dpakman91

while we're at it, what do you guys think about ranking these in terms of MOST ELASTIC to LEAST ELASTIC?

a) Sneakers
b) New Balance sneakers
c) iPods
d) Movie tickets
e) Automobile tires
f) lima beans

I have it this way:

e) Automobile tires
c) iPods
b) New Balance sneakers
a) Sneakers
d) Movie tickets
f) lima beans

hard to say on a lot of them since it's a question of how many substitutes there are too..

Least elastic to most elastic, with my rationale in parenthesis:

1.) Automobile Tires (with no specific brand mentioned, that means zero alternative as a way to shod the wheels of a car, which in most areas of the country is a required item to get around for life's daily necessities)
2.) Sneakers (with no specific brand mentioned, that leaves only a couple of alternatives (sandals, heels, etc.) for this necessary item)
3.) Movie tickets (no legal alternative exists for seeing a film when it is first released, but as this is not a necessity it falls below the other two)
4.) lima beans (while the nutrients they provide are necessary to life, there are numerous other vegetables, supplements, etc. which can provide it)
5.) iPods (several alternatives, also a purely luxury device, but newness of the technology makes it more likely to be slightly less elastic)
6.) New Balance Sneakers (dozens of market alternatives and a very old technology, making these a "luxury" item since they are a specific brand)

dpakman91 · 10-30-2007, 11:58 AM

Publius, wouldn't movie tickets really be more elastic than a food item, even if htere are many other food items available as substututes?

Publius · 10-30-2007, 12:00 PM

Originally Posted by dpakman91

Publius, wouldn't movie tickets really be more elastic than a food item, even if htere are many other food items available as substututes?

not necessarily... It is a luxury product versus a necessity product, but it is the sole form of that luxury versus literally thousands of forms of the necessity.

Would you be more likely to pay an extra $5 to see a movie in theaters, or an extra $5 to buy a pound of lima beans?

dpakman91 · 10-30-2007, 12:08 PM

Originally Posted by Publius

not necessarily... It is a luxury product versus a necessity product, but it is the sole form of that luxury versus literally thousands of forms of the necessity.

Would you be more likely to pay an extra $5 to see a movie in theaters, or an extra $5 to buy a pound of lima beans?

ok but come on, throwing out the number $5 isn't really reasonable since we arent' tlaking the same % increase in each product...but i do get the point.

Publius · 10-30-2007, 12:11 PM

Originally Posted by dpakman91

ok but come on, throwing out the number $5 isn't really reasonable since we arent' tlaking the same % increase in each product...but i do get the point.

Yea I know, I didnt feel like looking up the actual values. But still, are you going to be more likely to have an issue with a 25% increase in movie prices or lima bean prices? You may bitch more about the movie price, but when it comes down to it you're more likely to continue going the movies than you are to continue buying lima beans (assuming the alternatives for lima beans did not also increase in price).

dpakman91 · 10-30-2007, 12:42 PM

last one...

Upon hearing that you’re studying economics at Bentley, you have been asked to advise the Board of Trustees at Willabee College on tuition policy for undergraduates. They tell you that past studies indicate that the elasticity of demand for a bachelor’s degree from Willabee is -0.5. They also tell you that they would like to see student applications rise by 6% next year. If tuition is currently $19,000 and the Board would like total revenue to rise, what tuition would you recommend they charge next year to reach their goal? Show all your work.

I'm terrible at this. How would i even do it? Btw this is just a nongraded worksheet so no one is helping me cheat.

Publius · 10-30-2007, 12:47 PM

Originally Posted by dpakman91

last one...

Upon hearing that you’re studying economics at Bentley, you have been asked to advise the Board of Trustees at Willabee College on tuition policy for undergraduates. They tell you that past studies indicate that the elasticity of demand for a bachelor’s degree from Willabee is -0.5. They also tell you that they would like to see student applications rise by 6% next year. If tuition is currently $19,000 and the Board would like total revenue to rise, what tuition would you recommend they charge next year to reach their goal? Show all your work.

I'm terrible at this. How would i even do it? Btw this is just a nongraded worksheet so no one is helping me cheat.

A Beginner's Guide to Elasticity

dpakman91 · 10-30-2007, 01:54 PM

Originally Posted by Publius

A Beginner's Guide to Elasticity

well, what i'm getting is that if the demand elasticity is -0.5, basically for every 1% price increase, there will be a 2% demand decrease. Therefore, to get applications to increase 6%, there needs to be a 12% price decrease, which would make tuition $16,720.

Am i missing something? It seems almost too easy.

Publius · 10-30-2007, 01:56 PM

Originally Posted by dpakman91

well, what i'm getting is that if the demand elasticity is -0.5, basically for every 1% price increase, there will be a 2% demand decrease. Therefore, to get applications to increase 6%, there needs to be a 12% price decrease, which would make tuition $16,720.

Am i missing something? It seems almost too easy.

will that make total revenue rise? if not, yes.