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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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This concept from chapter 7 helps to predict what is happening and what will happen with the implementation of different policies.

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Prescribes what should happen, which involves value judgments. This is what is happening when you ask "Which is the better outcome, and what policy should the government adopt?"

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Efficient outcomes won’t make everyone happy.

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Efficient outcomes won’t make everyone happy.

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Increasing economic efficiency rarely makes everyone happy, because most policies help some people and harm others

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This chapter introduces us to the tools of welfare economics, which we use to assess how different outcomes affect economic well-being.

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I thought the books use of Uber as an example was really interesting, so I went to look for more information on them as a company. This article also mentions the services affect on the taxi industry.

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Uber: An Overview

The ride-sharing business revolutionized a business model that had been functioning in the same way for generations: On a busy city street, a person in need of a ride stood on a street corner and waved down a taxi. On quieter streets, or in towns without roving taxis, the person would phone a local car service and request a pickup.

Now, there's an app for that.

E-hail services like Uber allow you to hire a driver using a smartphone from almost any location at any time. ("Almost" because drivers are in short supply in outer suburbs and rural areas.) Proprietary software locates drivers circling nearby and generally offers a selection of options, from the cheapest carpooling choice to luxury wheels. The price is set and paid in advance.

Uber's famous " surge pricing" revises the cost of its rides from hour to hour based on local demand. As more calls are made, prices tick up, drawing more drivers out to score customers. As demand subsides, prices tick down.

Bright-yellow taxicabs once dominated the streets of Manhattan. By 2020, there were four times as many ride-sharing vehicles on the streets as taxis. Those vehicles were summoned by apps offered not only by Uber and Lyft but by Via, Juno, and Gett.

Clearly, Uber and its competitors such as Lyft have dramatically changed the personal transportation industry, with a mix of both benefits and drawbacks for customers and drivers. Let's look at them.

Convenient and Cashless

Instead of chasing down a taxi on a street, or calling and waiting for a car service, e-hail app users can hail a car from any location and have it arrive in minutes. Uber doesn't even need to ask you for an address. It knows where you are.

Because the passenger's credit card is linked to the e-hail account, no cash changes hands. At the destination, the driver stops the car and the passenger gets out and walks away. A receipt is sent via email, with links to options for rating and tipping the driver.

Professional Service

Drivers for Uber and its competitors use their own cars, and they seem incentivized to keep them clean and well-maintained. The cheapest options are late-model compacts, not junkers.

The riders input their destinations into the app, and the drivers use navigational software to get there. Wrong turns are unlikely.

The drivers are generally polite and well-spoken. They never refuse to take you to any particular destination. They don't even know your destination before they accept your call.

Does this sound like a case of damning with faint praise? That depends on what city or cities you were accustomed to catching taxis in.

Unprofessional drivers are weeded out because passengers get to rate the driver's performance. A consistently low rating will force a driver out of Uber or its competitors.

All of the above and more foster a positive experience for ride-sharing customers.

Competitive Pricing

It is impossible to come up with a definitive or average price for an Uber. Its pricing scheme varies with every city, and that surge pricing model changes the prices constantly based on demand.

According to Consumer Reports, longer trips are generally cheaper by Uber but short trips can be more expensive. And the vast majority of trips by Uber are short. So, an Uber ride from the airport to a suburb should save you money, but a mile-long trip across a neighborhood could well be cheaper in a cab and would definitely be cheaper by bus or subway.

Consumer Reports also warns that the surge pricing model for both Uber and Lyft can mean much higher prices at busy times of the day.

The bottom line: Uber can be less expensive than a taxi or car service, but not consistently. One point in its favor, though, is that Uber tells you exactly what the prices will be for the options available at that time before you confirm the trip.

Safety and Flexibility For Drivers

Safety is an important advantage for drivers working with Uber and other e-hail services. The riders using the service have registered their identities and their credit card numbers on the app. They are not random strangers on the street.

Because the transaction is cashless, a driver doesn't risk unpaid fares or need to carry cash for change.

Rude, aggressive, and disruptive passengers are weeded out because drivers rate their customers. Consistently low ratings or reports of unsafe behavior toward drivers can cause the deactivation of an account.

Unlike yellow cab taxi drivers who work 12-hour shifts or black car drivers who are scheduled by dispatchers, Uber drivers enjoy considerable freedom and flexibility. Drivers log in and out of the system anytime they choose and pick their own hours.

Drivers avoid expensive taxi rental leases by using their own vehicles. They also pay their own fuel and maintenance costs. All else being equal, this may mean more profit for drivers.

Drivers are also spared any office politics because the app renders dispatchers irrelevant.

Controversial Labor Practices

Uber has become a prime example of the gig economy at work. Its workers are not guaranteed a minimum wage, they have to supply and maintain their own vehicles, and have few if any benefits.

That is becoming controversial in some cities where Uber operates. In 2018, New York City mandated a $17.22 minimum wage for drivers. In 2019, California legislators passed California Assembly Bill 5 (AB5), a law classifying ride-sharing drivers as employees, not independent contractors, but the state's voters later reversed that by voting in Uber-sponsored Proposition 22 in November 2020.

Some Uber drivers say they struggle to earn even a minimum wage once Uber takes its cut. They also bear most of the costs associated with the service, such as fuel, maintenance, and repairs.

Surge Pricing

"Surge pricing" for Uber, or "prime time pricing" as it is called by Lyft, is controversial among customers. It's a classic use of the free market principle of raising or lowering prices according to supply and demand. For Uber customers, this means how many cars are available (supply) and how many passengers want to ride in them (demand).

Compared to a straightforward surcharge, this automated system can lead to quite dramatic differences in pricing between any two points. At super peak times, a price could double or triple. That can mean a hefty expense during rush hour or during a snowstorm.

Safety concerns have emerged in some cities and states where the transportation industry regulations are lax and it's easy to enter the e-hail network as service providers. Although this has a positive effect by increasing the supply of drivers, these drivers might not be as motivated to reach high standards of professionalism and safety.

Negative Impact of Price Competition

Price competition can be destructive for any industry. Increasingly, Uber, Lyft, and other e-hail services are engaged in an intense battle to provide the cheapest service. They are directly competing with each other, and with traditional taxi and car services for both customers and drivers.

With competition from other ride-sharing services and the continuous hiring of new drivers, average earnings are being pushed downward. This means that drivers have to work longer hours to earn an income comparable to what they would have earned a year or two ago.

This has led to a precipitous drop in earnings for taxi drivers, too. Prices for New York City taxi medallions, essentially a metal permit to drive a cab, plummeted from about $1.3 million to $160,000 over a few years, leaving drivers scrounging for rides and drowning in debt.

Disclosure: The author of this article has an affiliation with Uber, Lyft, and HailO.

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The popularity of e-hail apps like Uber has reshaped the personal transportation business and created a new set of industry players and rules.

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This chapter talks about how normative and positive analysis are what is used to figure out what should be done in regard to different policies, and the possible effects of implementing them. This podcast does the same with the context of inflation and unemployment, and what government policy can do to affect it.

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Inflation has spiked, even while the economy still recovers. What can the Fed do? It's one of the biggest and most rapidly evolving questions facing macroeconomists today. In this Extra Slice of The Pie, Chicago Booth's Christina Patterson provides a crash course in how monetary policy works and what economists have learned by studying it empirically.

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Can Monetary Policy Solve Inflation and Unemployment? | BFI

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Inflation has spiked, even while the economy still recovers. What can the Fed do? It's one of the biggest and most rapidly evolving questions facing macroeconomists today. In this Extra Slice of The Pie, Chicago Booth's Christina Patterson provides a crash course in how monetary policy works and what economists have learned by studying it empirically.

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The gain from buying something at a price below the highest price you were willing to pay (which is your marginal benefit).

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exists when government policies lead to worse outcomes. These outcomes will often happen because of politicians.

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To increase economic surplus, produce more of an item if the marginal benefit of one more is greater than (or equal to) its marginal cost.

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where buyers and sellers exchange money for goods only if they both want to. And you only want to buy or sell stuff if it’ll make you better off

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https://www.barchart.com/story/news/7277683/arabica-coffee-slips-on-increased-producer-selling-in-brazil

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Want to use this as
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Save this setup as a Chart Templates

Switch the Market flag

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Open the menu and switch the
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Right-click on the chart to open the Interactive Chart menu.

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Arabica Coffee Slips on Increased Producer Selling in Brazil

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March arabica coffee (KCH2 ) this morning is down -3.60 (-1.41%), and Mar ICE Robusta coffee (RMH22 ) is up +4 (+0.18%). Coffee prices this morning are mixed with robusta climbing to a 1-month high. Arabica is consolidating below Thursday's 10-1/4 year nearest-futures high on signs of increased selling by...

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Visual Representation of Consumer Surplus

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Visual Representation of Consumer Surplus

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https://www.youtube.com/watch?v=oL20S7c0ZJE

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Producer surplus = total revenue – total cost.

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The majority of people agree that the distribution of economic advantages is also important. That is why, in practice, most economists go beyond efficiency to examine the distributional effects of new policies—that is, who gets what—and whether the conclusion appears fair or equitable. According to this viewpoint, it's not just the amount of the pie that matters, but also how it's sliced.

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In developed markets, economic growth will be above average in 2022. We expect a 60% possibility of above-trend growth and inflation, a 30% chance of mild stagflation, and a 10% chance of recession.

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In developed markets, economic growth will be above average in 2022. We expect a 60% possibility of above-trend growth and inflation, a 30% chance of mild stagflation, and a 10% chance of recession.

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Equity is also important (but ignored by efficiency).

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Equity is also important (but ignored by efficiency).

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As a result, real-world policy disputes are rarely solely about efficiency. They also concentrate on equity, which is concerned with determining whether a policy will result in a fair distribution of economic advantages. When evaluating efficiency and equity, you must consider both the size of the pie and how it is split.

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When markets don't provide a good or service efficiently, that's a market failure.

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When markets don't provide a good or service efficiently, that's a market failure.

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Market Failures, Taxes, and Subsidies: Crash Course Economics #21

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Stage one: Positive analysis describes what is going to happen.

The first stage of analysis is to ask: What is going to happen if we adopt this policy? This calls for a purely objective analysis, describing and forecasting the effects of the policy. For instance, you can use the supply-and-demand framework to predict the likely consequences of raising the minimum wage. You can use it to forecast the number of people who’ll get a pay raise, to estimate how much their pay will increase, to assess the effects on the profitability of employers, and to predict how many jobs businesses will eliminate due to these higher wages. An in-depth analysis might even detail the characteristics of those who’ll gain and lose from such a policy. This type of inquiry, an assessment that describes what is happening or predicts what will happen, is called positive analysis.

Stage two: Normative analysis assesses what should happen.

The second step asks: Which is the better outcome, and what policy should the government adopt? Answering this question requires a value judgment about which outcome is better. In the first step, economists merely describe likely effects. The second step requires making a judgment. What should be done? Whenever you opine on what should happen—whenever you use words like should or ought—you’re doing normative analysis, because your conclusions rest on normative, or value judgments.

Think about the minimum wage: Should it be raised or not? Positive analysis is helpful, because it lays out the likely consequences of the policy, outlining who’ll gain, who’ll lose, and what the stakes are for all concerned. But to assess whether the policy is worth pursuing, you need to evaluate whether the gains to some people outweigh the losses to others, and that requires a value judgment. It depends on how you weigh the benefits of higher wages for low-wage workers against the costs of lower profits for employers and the pain of unemployment for those who lose their jobs. Whatever view you hold, I bet that at least one of your classmates has a different set of values and so comes to the opposite conclusion.

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The efficiency criterion favors the outcome that yields the most economic surplus. Economic surplus measures the benefits that follow from a decision, minus the costs you incur. Efficient outcomes won't make everyone happy because most policies help some but hurt others. Economic efficiency simply assesses whether economic surplus rises and this can only occur if the gains in economic surplus in those that are helped are larger than the declines from those that are hurt. Efficient outcomes hold the potential to make everyone better off. Focusing on efficiency is that whenever economic surplus rises, it is possible for those that are helped by it to help those that were harmed by it. Equity is also important, but ignored by efficiency. It is rare for new policies to compensate those people that are harmed. This is why the argument that it is possible for everyone to be better off, is just that, a possibility.

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This picture has been circulating the internet for awhile. Although it's a little rudimentary, it has helped me understand the definition of equity, a key concept in chapter seven

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Market failure occurs when the forces of supply and demand lead to an inefficient outcome. Market failures are common, and their frequency and severity should temper your enthusiasm for market forces.

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1. Market power

2. Externalities

3. Information problems

4. Irrationality

5. Government regulations

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This video discusses the difference between equity and efficiency in economics. When we say that an allocation of goods is "efficient" we mean there is no way (given the current resources and technology) to make someone better off without making at least one person worse off. Such an allocation of goods is Pareto Efficient.

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Interesting take on market failure in colleges

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Interesting take on market failure in colleges

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Colleges Are Fueling the Pandemic in a Classic Market Failure (Published 2020)

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Financial pressures explain why many campuses have brought students back. But there is a textbook solution, two economists say: government intervention.