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Ideas for teaching economics

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Kelly Markson writes,


In several principles-of-economics textbooks, the first chapter is devoted to the basic elements of economics such as scarcity, tradeoffs, opportunity costs, incentives, marginal thinking, etc. Most instructors spend very little time with this chapter.

I spend weeks on these concepts. These principles are at the heart of economics, which is, essentially, the study of human behavior.

...I don't use graphs to illustrate the concept of tradeoffs. Instead, I have my students look at data such as the real-world military spending as a percentage of GDP of North Korea. And then we look at a satellite image that suggests some implications of these data. If you haven't seen it, check it out here...The North Korean government has made a tradeoff between guns and butter.

Thanks to Don Boudreaux for the pointer.

I probably will be teaching a high school econ course next year. I like to have students work out the arithmetic of starting their own business--so that they can understand labor, rental cost of capital, and the challenge of making a profit.

I'm also thinking of working really hard on basic economic concepts. One thought I had is to have the students write short papers explaining in their own words the concepts of comparative advantage, opportunity cost, and such.

I know a lot of teachers like market simulations, so I might consider that.

Other ideas?


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CATEGORIES: Economic Education



COMMENTS (31 to date)
Mr. Econotarian writes:

I think the most powerful concept of economics is the transaction.

Why do we trade with someone? Because we both are trying to achieve a better outcome, and in most circumstances both sides of a transaction enhance their wealth (there is consumer and producer surplus).

It is pretty obvious to most folks that you add wealth through manufacturing, but most people are ignorant that sales itself generates wealth by moving things from where they have less utility to a situation where they have more utility.

Imagine a plant can build a million bicycles, but unless they are sold to people, they are pretty useless stuck in a warehouse somewhere. If you sell a million of them, wow, you now have a million people enjoying bicycling!

As part of an into to economics, I think it is useful to pop statistical myths (for example, US manufacturing output has been continuing to rise almost every year, except for the last one of course, although US manufacturing jobs are flat, implying that workers are becoming more productive through improved capital machines).

pushmedia1 writes:

"I like to have students work out the arithmetic of starting their own business--so that they can understand labor, rental cost of capital, and the challenge of making a profit."

These are important lessons, but I don't think they're economic lessons. Economics is about global trade-offs (e.g. maximizing welfare or market clearing) not individual trade-offs. The latter often have interesting implications for the former, but that's incidental to economics just as nuclear physics is incidental to chemistry.

Put another way, individual rational decision making may imply certain prices and quantities in equilibrium, but its not necessary for that equilibrium. Experimental economics has shown us as much. Therefore, the study of economics doesn't require the study of individual rational decision making.

That being said, because these skills won't be taught in other classes, its probably worth it for you to teach them. I just hope your students don't confuse the study of rational decision making with the study of economics.

gnat writes:

I like to start with a Barney and Fred two good economy to develop the basic idea of gains from trade; and build up to a complex economy (where Barney and Fred are firms investing, forecasting, etc.) to illustrate the development of markets and money.

Nathanael Snow writes:

Have them play Settlers of Catan.

a cassel writes:

I never took an economics class, so take this for what it's worth; but I've often thought economics would be more understandable if money were banned from the lesson. Deal with trade, production, etc. but force students to focus on these in and of themselves, rather than as means to acquire what is after all only the medium of exchange. Discuss credit, currency etc as promises rather than money. A lot of things become clearer this way, I believe.

c141nav writes:

I have a close friend who used to teach economics. On the first day of class he always asked the same question, "How many of you voted today?"

Usually the first day of class is filled with hectic confusion that nearly all of them state they didn't know that today was an election. He then explains that every time you spend money you are 'voting' and with your most important resource.

Greg Ransom writes:

Robert Frank's idea explained in his _The Economic Naturalist_ sounds like a useful and challenging way to get kids to think economically:

http://www.econtalk.org/archives/_featuring/robert_frank/

Dan writes:

Interesting thought to have them create a simple business model. I think this could be valuable, but later in the course.

Teaching the "economic way of thinking" should definitely be your priority. Opportunity cost, incentives, marginal cost, etc., as Markson points out. Since taking my first economics course, whenever I hear a policy proposal I immediately think about what the unintended consequences will be, rather than the stated goals. I would not do so if I hadn't been introduced to the economic way of thinking. That's what you should focus on.

Mike writes:

I posted this over on Don's blog as well:

Econ 100 shouldn't be a watered down version of graduate micro. It should introduce students to concepts and, to steal the name of one fine textbook, the economic way of thinking.

That can and should be done with a minimum of math. How many people have read Henry Hazlitt and gotten excited about economics? How many people have taken Econ 100 or its equivalent at colleges across the United States over the last 60 years and gotten excited about it?

How many people not majoring or minoring in economics can remember their Econ 100 class 10 years later? How many people can remmeber lessons from Hazlitt or Fredric Bastiat or Milton Friedman's Free to Choose 10 years or moe after they read those books? How much math is in any of those books?

Don Lloyd writes:

"These principles are at the heart of economics, which is, essentially, the study of human behavior."

Let's change the North Korean light experiment.

Take all the GPS data from all the cars in the continental United States. Make a 2-D geographic real-time graph of auto density. Do we call this a study of driver behavior?

Of course not. The vast majority of the displayed data primarily results from the pattern of roads and destinations. The range of human driver behavior is too small to have much of a noticeable effect.

The same is true of economics. The first order effects are the result of economic law and the self-interest of individuals. You would have thought that by now all economists would have fully understood this and could justifiably limit themselves to the study of higher order effects.
But no, economists still look for a short water route to China and a free lunch.

Regards, Don

maurile writes:

As an introduction to "the economic way of thinking," I like the first two chapters of David Friedman's Price Theory quite a bit, and they are both online for free (along with the rest of the book):

What is Economics?
How Economists Think.

Jacob Oost writes:

The division of labor. Have them read excerpts from Wealth of Nations, about the pin factory.

Zac writes:

Endear yourself to your students: One chapter a week from MWG!

El Presidente writes:

Circular flow is indispensable when as one advances in theory. Without it Macro becomes unbearable abstraction and Micro is a multitude of dissociated spontaneous markets. I would dedicate at least one entire lecture to circular flow and the ways in which real and money flows can break down. It's presently relevant and perhaps will peak their interest.

I respect your willingness to teach a HS course. That's a formidable challenge that engages the skills of teaching much more than a typical collegiate course might. You really have to know how to evaluate in real time what students know, don't know, need to know, and are capable of learning. It's intense. :-)

I wish you well. Please let us know how it goes.

chipotle writes:
bjk writes:

AK's idea of teaching how a firm works first is a good idea. Mankiw begins with a chapter on "how to think like an economist," but "how to think like a businessman" is more basic for understanding how an economy works. Samuelson had a chapter on accounting, but Mankiw has only a few paragraphs on economic vs. business accounting and one brief mention of depreciation. If you don't understand, for instance, what depreciation is -- which is pretty basic, and yet few non-business people understand the concept -- then I don't see how you can understand an economy.

Joe Marier writes:

Also, you can check out Terry Pratchett's book Making Money, about a con artist who ends up running a central bank.

Snark writes:

Economics is tough to sell at the high school level. I would try capturing their attention by examining the economics of those subjects teenagers find most appealing. Some proposals:

- Book report on "More Sex is Safer Sex" due end of term

- Fashionomics: Hollister vs. Walmart

- Principles of Economics, Rap Version (courtesy of Greg Mankiw Blog)

liberty writes:

pushmedia1 said "Put another way, individual rational decision making may imply certain prices and quantities in equilibrium, but its not necessary for that equilibrium. Experimental economics has shown us as much. Therefore, the study of economics doesn't require the study of individual rational decision making."

This is another sad outcome of the micro-macro divide, I think. First off, it has nothing to do with equilibrium, which is not the heart of economics but just one model that people use to think about things.

People are not "rational" in the way that some have imagined, and certainly don't fit the mold of the perfect competition / general equilibrium assumptions. However, this does not mean that the cited "rationality" of how a business must deal with "labor, rental cost of capital, and the challenge of making a profit" is not important to economics-- it most certainly is!

Here is proof: private firms have to worry about these things or they will go out of business. Public firms (and firms receiving subsidy, bailout money, etc) do not.

Understanding what goes in to making a profit and how that decision is made, is totally key to economics. Where else can find the answer to such questions as "how will firms respond to a higher minimum wage?" or how about, "how will firms respond to transparency regulation?" or to patents, or to taxes... is this not perhaps key to all economic questions?

David Friedman writes:

One poster suggested "Settlers of Catan" (a board game). I had a recent blog post suggesting a college econ course using "World of Warcraft." It has a variety of internal markets, quite a lot of students are familiar with it, and it's interesting studying a market you are yourself involved in.

Let me also put in a plug for my _Hidden Order_, which is basically _Price Theory_ rewritten as a book aimed at the intelligent layman rather than a textbook. Unlike the earlier version it's still in print--which has the unfortunate consequence that I can't web it without my publisher's permission.

Rolo Tomasi writes:

My brother regretted not taking more economics in college and asked me (an econ major) what he should read to learn more about the subject. I told that if he read "Hidden Order" he would understand more than half the people I graduated with. The book is just awesome.

Hugo Pottisch writes:

One thought I had is to have the students write short papers explaining in their own words the concepts of comparative advantage, opportunity cost, and such.

Everybody knows that economics is the study of the economy. Most of us have a good idea what "studying" means. The big unknown is... Let them explain in their own words what "the economy" is.

Ask them what the economy is for. If anybody finds a "purpose" - send them to the engineering department. All too often people try to change the laws of aerodynamics rather than their airplane designs. Understanding the difference will do modern-day Icarus a lot of good.

Hugo Pottisch writes:

I know a lot of teachers like market simulations, so I might consider that.

You will give every student in the room a chocolate bar and a pack of cigarettes to prove a point?

Roger writes:

I know that some words and their connotations tend to distort how people think about economics. Especially words like "rational" or "utility"; people i know tend to think of them very differently and much more narrowly than economists might.

And I think that a lot of economics classes miss out on teaching what a miracle markets are. "I, Pencil" is a classic, but if you can get people to really think about how amazing a product like a car is and how much knowledge has gone into one, yet they're still so affordable, all due to the power of markets.

SheetWise writes:

Outside of what has been mentioned, I think asset lessons often neglect the value of location, and the change-of-use perspective.

bjk writes:

"Teaching the "economic way of thinking" should definitely be your priority. Opportunity cost, incentives, marginal cost, etc."

"Opportunity cost, incentives, marginal cost" could just as equally apply to the study of warfare or the family. But the economy is not a war and it is not a family. If there is anything uniquely economic about economics, then it has to be about uniquely economic subjects, and the only way to talk about economic subjects is in the language of accounting: profits, expenses, capital investment, depreciation, etc.

Even though I don't teach anymore, I have the opportunity to visit with students at a few colleges each year, deliver a guest lecture or two, and generally tell stories about the real world.

One of my favorite little econ examples comes from the late science fiction writer, Robert Heinlein, whom I had the opportunity to meet when I was a young man. In one of his books ("Time Enough for Love") he offered up the terrifically simple metric that you could measure the quality of an economy by noting the number of minutes of labor an average worker would have to clock-in to net a sufficient wage in order to be able to purchase whatever passed for a standard loaf of bread in that culture. Thus, if the average loaf of bread in a grocery store in America is $1, and the average net wage after taxes, etc., is $10 per hour, then the average worker must work 6 minutes to buy a loaf of bread.

It would be neat to have students make inquiries about this in both developed and under-developed countries, as well as free versus totalitarian states.

Matt writes:

An excercise I thought of recently that would show the benefits of trade pretty well in a classroom setting: Each person brings in 5 or 10 pieces of candy and have each one place a value on his/her pieces. Then let them trade however they want to, and after it's all done have them all value what they have at the end. The total for the class should be noticeably higher.

Dave writes:

I'll second Greg Ransom's mention of Robert Frank's Economic Naturalist assignments. I actually did them in his class. A key is to keep the word limit low, both for keeping the students focused and for ease of grading.

lizWCU0966 writes:

Kelly Markson expresses the importance of teaching the basic elements of economics such as scarcity, trade offs,opportunity costs, incentives, and marginal thinking. Perhaps Ms. Markson should just teach a class entitled Wal-Mart 101. Sam Walton opened the first Wal-Mart in 1962 and the economics of the United States was changed forever. In an effort to drive prices down Wal-Mart began importing their goods from China. They import so much in fact that if Wal-Mart were an individual economy, it would rank as China’s 8th biggest trading partner, ahead of Russia, Australia, and Canada. The trade off for this is that many small town businesses have not survived.
American manufacturers which once supplied Wal-Mart with goods had to lower their prices to a point that could no longer remain in business. Small privately owned stores closed when they couldn’t compete with Wal-Mart prices.
On the other hand Wal-Mart pharmacies with their $4.00 prescriptions have been a blessing to the elderly and low income. As for marginal thinking, Sam Walton realized early on the importance of computerizing inventory. Today Wal-Mart’s computer system is second only to the Pentagon’s.
Ms. Markson believes that these basic principles are really just the study of human behavior. So is greed the human behavior that keeps us shopping there? Or is it being frugal? Either way, as Wal-Mart continues to “roll back prices” we the consumer pay a higher price in other aspects of our daily lives.

Gustavo writes:

I come late to the conversation but I'm reminded of a quote (Milton Friedman maybe?) about the two most important things in economics being that demand slopes downward and there is no such thing a a free lunch.
I would spend my whole first day on supply and demand. My (real world) explanation of demand would be to go buy shoes at Wal-Mart "if the price is lower I buy more"; supply is my job "I get paid less I work less".
The trick is explaining how through the "magic" of prices the invisible hands solves the scarcity problem and "Paris is fed!"
Do use the North Korean example to highlight how the market solution to the scarcity problem produces light as opposed to the government (socialist/communist) solution produces darkness and poverty.

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