Assignment #1:
(Due at 8:00 am, Thursday, August 31. Maximum length: 800 words.)
Here at Random House we've been publishing books for more than a hundred years. In recent years our sales -- and our profits -- have gone steadily downward, and the shareholders are restive. Some of them have pointed out that the relative price of books has declined over that period: our prices have increased, but they've gone up at less than the rate of inflation. Moreover, average household income has increased as well. So we ought to expect people to buy more books, not fewer.
I recently read something written by an economist who said that from the reader's point of view the cost of a book is not just its price at the bookstore; the book's cost also includes the opportunity cost of reading it. He says that the opportunity cost has gone up dramatically, and that this is related to increases in people's incomes. Can you help me explain this to our shareholders, and how it might account for falling book sales? Is there any way to calculate, or at least estimate, this opportunity cost?
Assignment #2:
(Due at 8:00 am, Thursday, September 14. Maximum length: 500 words.)
Rewrite Assignment #1, taking into account the comments provided on your first assignment and the general comments in my September 5 email.
Assignment #3:
(Due at 8:00 am, Thursday, September 28. Maximum length: 600 words.)
Congress goes into recess next week, and I'll be going home to my Arizona district to talk with my constituents. One issue that some of them are concerned about is ticket scalping. Lots of people who buy tickets to concerts and sporting events then resell the tickets through ticket brokers and online auctions. Some of my constituents have complained about this secondary market for tickets: they say these auctions and brokers raise the price of tickets, and that if the secondary market could be eliminated consumers would be able to buy the tickets at face value -- thereby saving consumers a lot of money and depriving the scalpers of their unfair profits.
Ticketmaster is lobbying for legislation that would allow issuers of tickets to restrict the secondary markets in which tickets can be resold. For many events Ticketmaster would provide the only legal market in which a ticket holder could, for example, auction off his tickets. Ticketmaster and some of my constituents argue that this legislation will put an end to the unfair practices in the chaotic secondary market for tickets, thereby keeping ticket prices down and making the market safer for consumers. Others argue that Ticketmaster and the producers of events will simply reap the unfair profits currently going to the scalpers; these folks want all secondary ticket sales banned. On the other hand, a few constituents have said the current situation is actually good for consumers, and that limiting secondary markets will make consumers worse off.
I heard a story about this issue on NPR the other day. Here's a link to a page where the story can be heard: NPR story. There's also a written transcript of the story.
You're my economic advisor. Please tell me what you think is the best policy, and why. Be sure to put your explanation in terms my constituents and the media will understand when I talk with them.
Assignment #4:
(Due at 8:00 am, Thursday, October 19. Maximum length: 600 words.)
Rewrite Assignment #3, taking into account the comments provided on your returned Assignment #3.
Assignment #5:
(Due at 8:00 am, Thursday, November 2. Maximum length: 400 words.)
It's been estimated that the Consumer Price Index overstates inflation by as much as 1%, costing the Federal government several billon dollars every year in excessive cost-of-living adjustments to Social Security, government pensions, and other government benefit programs. The most important source of bias in the CPI is said to be the "substitution bias" that occurs when consumers shift their buying patterns in response to changes in relative prices. Several years ago Congress created a commission (the "Boskin Commission"), made up of economists, to make recommendations about reforming the calculation of the CPI. Economists say the resulting changes have reduced but not eliminated the CPI's bias. But people who receive indexed government benefits have complained to me that the changes in the CPI have reduced their benefits and are therefore unfair.
I'm going to have to talk about this issue next week with several groups of retirees. You're my economics advisor, and I need your help on this one. Can you give me a concise, non-technical explanation of substitution bias in the CPI?
Assignment #6:
(Due at 8:00 am, Thursday, November 16. Maximum length: 400 words.)
I need to talk with some of my constituents about interest rates and bond prices. They want to know why the bonds they own are declining in value while interest rates are rising. It seems as if bonds ought to be worth more, not less, when the interest they pay increases. Can you help me out here by explaining (in non-technical language) why it is that bond prices move in the opposite direction to interest rates? Also, why is it that as interest rates have increased recently, the bonds I own that mature in 2008 didn't decrease very much in value, but the ones that mature in 2025 experienced a steep decline in price?
I need a really good explanation, but one that's simple, clear, and concise.
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