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Instructions:  View instructions on the section padlet.

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Instructions:  View instructions on the section padlet.

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Team:  Students will do one chapter per section.  View your assigned padlet at this link.

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Team:  Students will do one chapter per section.  View your assigned padlet at this link.

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Quakers Invented The Price Tag | Planet Money | NPR

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You have an absolute advantage in producing a product if you can produce the product using the fewest inputs.

You have a comparative advantage if you can complete a task at a lower opportunity cost than anyone else.

A prediction market is one in which payoffs are based on occurrence of uncertain events.

Specialization, which is focusing on specific tasks, will increase output when it is based on comparative advantage

A knowledge problem exists when all the information needed to make a good decision is not available.

Internal markets are organized within a company to buy and sell scarce resources, often not using real money. These are used to solve a knowledge problem, allocate resources of a company more efficiently, and make better predictions.

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is a signal, an incentive, and a bundle of information.

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I never heard of predictions markets before. This explains how they can be used to hedge risk.

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Predicting the Future of Prediction Markets

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They make economic sense, but for some reason have never really taken off.

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I like the way this shows how to calculate opportunity cost.

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A great example of essential trade.

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Why Does the Most Monotonous Job in the World Pay $1 Million? - Freakonomics

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Why Does the Most Monotonous Job in the World Pay $1 Million? - Freakonomics

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Adam Smith famously argued that specialization is the key to prosperity. In the N.F.L., the long snapper is proof of that argument. Just in time for the Super Bowl, here’s everything there is to know about a job that didn’t used to exist.

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The benefits that come from reallocating resources, goods, and services to better uses.

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Managers can use internal markets to solve
knowledge problems, improve forecasts, and
allocate scarce resources.

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In this chapter it goes over how reallocation of resources leads into gains from trades. Because of this it opens up specializations of goods/services that are produced. Prices are indicators in this section that help predict whether a certain good/services are about to skyrocket and gives buyers incentives to consume more or less. As well as the type of formed markets help access the resources and use knowledge problem to better understand certain situations.

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Another Example of Comparative Advantage

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Another Example of Comparative Advantage

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Comparative advantage gives insight on how to better put your strengths and weaknesses while accessing the opportunity cost of each abilities.

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An absolute advantage tells you whose best at a task. In this example the USA has an absolute advantage in software production and China had an absolute advantage in producing manufactured goods.

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When the price of a good goes up meaning its valued higher suppliers are signaled to produce more.

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Gains from Trade Due to Comparative Advantage

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Gains from Trade Due to Comparative Advantage

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example:  managers at Ford need accurate forecasts of the number of each type of car they’ll sell each week. Traditionally they relied on forecasts put together by their internal analysts. But when Ford set up a prediction market and allowed its employees to bet on the outcome, the market yielded forecasts that were 25% more accurate.

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They reallocate stuff like resources, goods, and services to better uses, generating gains from trade.

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This was one of the podcast options a few weeks ago for our discussion posts! I noticed a few subjects mentioned in the podcast that were also mentioned in this chapter. I really enjoyed listening to this and think it is a great tool to understand the concepts discussed in this chapter!

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subscribe to Planet Money podcast

subscribe to Planet Money podcast

Find all episodes of Planet Money Summer School here.
In our second class, we find markets everywhere and discuss what makes them work and when they fail.

We start off with the basic tools to understand a market: supply and demand. We find that the price of an item isn't just about money; a price reflects all the information inside a market, from a buyer's willingness to pay to a supplier's cost to make that item.

Then, we put the concepts to work with the parable of the pickles. A food bank in Alaska gets sent a truckload of pickles, more than it could ever use. A food bank in Idaho gets sent a truckload of potatoes, the last thing it needs. With the help of economists, the food banks figure out a way to create a trading market, complete with information sharing and prices. We see how that works out as the food banks compete for the most coveted prize of all: a shipment of breakfast cereal.

Concepts:

Supply and demand

Local knowledge problem

Gains from trade

Information asymmetry

Monopoly

Assignment:

Pick an organization that you know well, maybe even your workplace. Are the decisions made from the top by people with limited information or are decisions made at the local level? Now imagine how that organization could change. Tell us about it. #PMSummerSchool
Subscribe to Planet Money's Newsletter

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SUMMER SCHOOL 2: Markets & Pickles : Planet Money

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In our second class, we meet our old friends supply and demand and do graphs using only the power of the human voice. Then, we show you how markets can be created anywhere by telling the story of a food bank that had too many pickles and not enough pancake syrup.

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If you are struggling to understand market forces this video does a great job of explaining how they work

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Comparative Advantage Vs Absolute Advantage

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Comparative Advantage Vs Absolute Advantage

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good video for deeper understanding

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Absolute Advantage vs. Comparative Advantage

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absolute advantage: the ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group.

comparative advantage: the ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity.

gains from trade:  gains from trade are the net benefits to economic agents from being allowed an increase in voluntary trading with each other.

internal markets: a system in which goods and services are sold by the provider to a range of purchasers within the same organization, who compete to establish the price of the product.

prediction market: A prediction market is a market where people can trade contracts that pay based on the outcomes of unknown future events. The market prices generated from these contracts can be understood as a kind of collective prediction among market participants.