Re: income and substitution effect
So far we have that i. and s. effects are useful to a) teach Marshallian demand b) teach difference between nominal and real income c) students going on to graduate school d) useful but for reasons that can't be remembered! :) e) useful as a hurdle/signal f) not useful at the intermediate/mba level Regarding Marshallian demand this is true but just raises the question what is the use of Marshallian demand at an intermediate level? (Note almost all textbooks discuss i. and s. effects but most do not teach M. demand.) As I said in my post, for welfare analysis, income and substitution effects become important but this is not taught at the I. level. I don't see how i. and s. effects teach nominal and real income but am willing to be enlightened. c) is possible but it means that teaching i. and s. effects is a waste for most students. Surely there are enough useful things to teach that are also difficult? thus i. and s. effects is not needed for the hurdle. Thus the bulk of the posts, and a number I have received offlist, increase in my mind the hypothesis that this material is a waste of time (relative to other things that could be taught). Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: income and substitution effect
I'm not disagreeing, but I am curious: what would you teach instead? __ Do you Yahoo!? Yahoo! Shopping - Send Flowers for Valentine's Day http://shopping.yahoo.com
Re: income and substitution effect
knowing what i and s effects are all about teaches people to evaluate which types of tax cuts will entail higher production - and which types of tax cuts will do the reverse... jacob braestrup danish taxpayers association So far we have that i. and s. effects are useful to a) teach Marshallian demand b) teach difference between nominal and real income c) students going on to graduate school d) useful but for reasons that can't be remembered! :) e) useful as a hurdle/signal f) not useful at the intermediate/mba level Regarding Marshallian demand this is true but just raises the question what is the use of Marshallian demand at an intermediate level? (Note almost all textbooks discuss i. and s. effects but most do not teach M. demand.) As I said in my post, for welfare analysis, income and substitution effects become important but this is not taught at the I. level. I don't see how i. and s. effects teach nominal and real income but am willing to be enlightened. c) is possible but it means that teaching i. and s. effects is a waste for most students. Surely there are enough useful things to teach that are also difficult? thus i. and s. effects is not needed for the hurdle. Thus the bulk of the posts, and a number I have received offlist, increase in my mind the hypothesis that this material is a waste of time (relative to other things that could be taught). Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366 -- NeoMail - Webmail
Re: income and substitution effect
I do agree that one of the few applications of i. and s. effects is to labor supply (this was mentioned in my first post). (This is because labor is one of the few goods where the income effect is likely to be large.) Hence that is the context in which I teach the material. It is appalling, therefore, that most textbooks teach i. and s. effects early on and leave labor supply to an entirely different part of the text. Bill, do you really mean to say that you think that Giffen goods are a real phenomena???! Even the classic, Irish potato famine has much better explanations (e.g. Rosen recent JPE) than in terms of Giffen goods. As to what to teach instead there are many choices e.g. most intermediate classes don't cover the Coase theorem or any law and economics, finance is another topic that could be taught more at the i. level. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: income and substitution effect
Hi Alex, I cannot point with conviction to any example of a Giffen consumption good and I don't consider it to be a very important consideration. My claim was not that any demand curves _do_ slope up, but that you want your students to know that it is a logical possibility and what is required for it to be true if for no other reason than to innoculate them against arguments that they may later here that assume only income effects. Also, I always make a point of mentioning Veblen goods since I do think that that is a real (though not very important) phenomena. I always found that if I didn't mention Veblen goods someone in the class would always raise the issue of snob appeal. When I taught principles I would always integrate policy relevant examples into all my discussions and not wait to the end of the course to cover topics. For every concept I would give them a real world application of it. For is I did labor supply and income taxes. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 02/12/03 12:36PM I do agree that one of the few applications of i. and s. effects is to labor supply (this was mentioned in my first post). (This is because labor is one of the few goods where the income effect is likely to be large.) Hence that is the context in which I teach the material. It is appalling, therefore, that most textbooks teach i. and s. effects early on and leave labor supply to an entirely different part of the text. Bill, do you really mean to say that you think that Giffen goods are a real phenomena???! Even the classic, Irish potato famine has much better explanations (e.g. Rosen recent JPE) than in terms of Giffen goods. As to what to teach instead there are many choices e.g. most intermediate classes don't cover the Coase theorem or any law and economics, finance is another topic that could be taught more at the i. level. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
RE: income and substitution effect
Alex, I believe that it is certainly worth the trouble for students who go on to graduate studies, and perhaps for others as well. I usually discuss Friedman's Marshallian Demand curve piece and the income/substitution effect conversation is necessary for this. In addition, it just helps students to understand the differences between real and nominal income, they will do better in Macro if they understand this whole concept. Lee Coppock -Original Message- From: Alex T Tabarrok [mailto:[EMAIL PROTECTED]] Sent: Tuesday, February 11, 2003 11:40 AM To: armchair Subject: income and substitution effect Almost every intermediate micro text spends a great deal of time on income versus substitution effects. This is a somewhat tricky concept for students to understand so one would hope that the payoff to learning the idea is high. But what is the payoff? One of the few applications is to labor supply which most textbooks put much later in the text and don't connect to the income and substitution effect anyway. Most textbooks don't do any sophisticated welfare analysis either. So is it really worthwhile to learn this material? Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
