Economics

Discussion 1:

Watch the video clip from Jingle All the Way . (View Transcript.)

Consider the following: Prices serve a rationing function. When quantity demanded exceeds quantity supplied, prices rise to alleviate the shortage. When quantity supplied exceeds quantity demanded, prices fall to alleviate the surplus. However, when prices are inflexible, shortages and surpluses persist. Other rationing mechanisms must develop.

1. Using demand and supply analysis, describe a specific situation that you have witnessed where a shortage occurred. Why were prices unable to adjust in this market?

2. Combining what you learned from your readings as well as from the video clip, what other rationing functions could develop to alleviate that shortage?

Citation: Barnathan, M., Columbus, C., Radcliffe, M. (Producers), & Levant, B. (Director). (1996). Jingle all the way [Motion picture]. United States: Twentieth Century Fox.

Discussion 2

Watch the video clip from Bart Gets an Elephant. (View Transcript.)

Consider the relationship between price elasticity of demand and total revenue, and why Homer didn’t make the smartest business decision when raising the price of admission. For this week’s discussion question, you should pick two products: one that is relatively price inelastic and another that is relatively price elastic. You can determine a product’s relative price elasticity by considering the Determinants of the Price Elasticity of Demand listed in your textbook. You should begin by defining your product in terms of the determinants and then describe how increases in the price would affect total revenue.Would it make good business sense to be the one producing and selling these products? Why or why not?

Discussion 3

Watch the video clip from Cool Hand Luke . (View Transcript.)

Consider how marginal benefits and marginal costs fit into Luke’s decision, and how the concept of diminishing marginal utility is at work as Luke eats more and more eggs.

a. What is driving his marginal benefits to continue to exceed his marginal cost?

b. Consider how Luke’s decision would change if he had to actually pay for each egg he eats. How would this affect his choice to continue eating?

c. Consider the concept of marginal utility per dollar spent (i.e. MU/P) and how it affects the consumption decisions we make. Think of a time when you ended up buying your second choice instead of your first choice. Explain how that decision was made because it wasn’t only about marginal utility for you, but about marginal utility per dollar spent.

Citation: Carroll, G. (Producer), & Rosenburg, S. (Director). (1967). Cool Hand Luke [Motion picture]. United States: Warner Brothers.