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Scarcity in a World in Transition
Scarcity in a World in Transition Specialization
and Exchange Babe Ruth and Comparative
Advantage John A. Walgreen, Wheaton College Assume that you are Miller Higgins, the manager of the New York
Yankees in the early 1920s. You have just acquired a player named Babe Ruth
from the Boston Red Sox. The Babe is a fine athlete who both pitched and
played the outfield for Boston. If you use him as a pitcher, he will probably
win about 20 games a year. (Ruth's won‑lost record while pitching in
Boston was as follows: 1915, 18‑6; 1916, 23‑12; and 1917, 23‑13
‑‑‑ an outstanding record.) However, if he could play in every game (which pitchers cannot), Ruth can be expected to hit 50 home runs a year and to generate hundreds of runs and runs‑batted‑in. You recognize that it will be easier for the Yankees to find other players who can approach Ruth as a pitcher, but no one is likely to hit like Ruth. You correctly assess Ruth's comparative advantage as a batter and convert him to an outfielder, helping create a baseball legend who filled the record books with famous hitting feats. An extension of this example: See if your students can explain why Ruth didn’t pitch once every four games, and play the other games as a center fielder. Comparative Advantage and Little
League Baseball or Softball Judy Kamm, St. Louis Community College On a little league
team there is always someone who is a star in all positions. There is also someone who is bad no matter
where the coach plays them. Given a
little league coach has to employ all the resources by playing all his
players, the coach will play his star player at the position that player is
best at and play the worst player at the position that player is least
worst. And through specialization the
worst player will practice and perfect his or her skills. As well the star will get better at his or
her position. This specialization of
each player will lead to the best combination for the most efficient team. Individual Comparative
Advantages Ralph Byrns Some examples of the concept of comparative advantage: a.
Some
colleges trumpet their records in graduating athletes who are on scholarship.
Might some exceptional athletes be better off if they skipped college
entirely, devoting more of their prime years to pro athletics? b.
Would
small but wiry athletes or behemoths be more productive as jockeys? Which
should play pro linebacker? Production
Possibilities Frontiers Production Possibilities Problem Alice C. Gorlin, Oakland University Consider the production possibilities for two totally dissimilar
goods, such as apples and machine tools. Suppose that some resources are
suitable for apple production and some for the production of machine tools,
but that it is impossibility to shift resources from one product to another.
In this case, what does the production frontier look like? In this case, the production
possibilities “curve” is merely a point. [See point PPP in Figure 2-1.] Explain and show graphically.
Figure 2-1 Unemployment and the Production
Possibilities Frontier William P. O'Dea, SUNY at Oneonta My students frequently do not understand why unemployment does not
cause the production possibilities frontier to shift inward but rather causes
a society to operate within its production possibilities frontier. To help them understand the distinction, I
use a sports analogy. I ask the
students to envision the performance that a professional athlete (I have been
using Ricky Henderson) fully utilizing his or her skills is capable of (the
number of stolen bases, the number of RBIs, the number of home runs,
etc.). I then ask them to consider
what would happen to Henderson's performance if he were upset with management
for refusing to renegotiate his contract upwards. They readily appreciate that, since he
would play with less than total dedication and enthusiasm, his performance
would suffer. I then ask them what
would happen to Henderson's performance if he were to seriously injure his
knee sliding into second base and to explain the difference between the
situations. The students have no
difficulty grasping that in the first situation while Henderson's actual
performance would suffer his potential would be unchanged and that as soon as
management meets his contract demands his performance would improve. They can also see that in the second case
Henderson's potential would be permanently reduced. To finish the exercise, I then tell the students
that an economy suffering from unemployment is analogous to an athlete playing
below his or her potential. Since the
potential is there but is not being fully exploited, pursuit of the proper
policies can enable the economy to improve its performance and return to its
frontier. Production Possibilities Curves
for Three Outputs Paul G. Coldagelli, Pennsylvania State
University‑Delaware Two dimensions
normally limit the trade‑offs we can illustrate with a PPF, but with a
little ingenuity a third output is accommodated. We do this by drawing a
family of curves rather than a single curve. Consider the three goods apples
(A), bananas (B), and coconuts (C).
Each curve in Figure 2-2 shows trade-offs between apples and bananas, holding
coconut production fixed. We portray changes in coconut output possibilities
by shifting the curve to a new position. How is the law of increasing cost
reflected for apples? coconuts? NOTE: The narrowing gap between successive curves as we move away
from the origin illustrates the increasing costs of coconuts.
Figure 2-2 Efficiency and the Production
Possibilities Curve Robert Charles Graham, University of North Carolina‑Charlotte Students need to understand the goals a
society tries to fulfill when it allocates its scarce resources, but they
often have difficulty in differentiating between technological and allocative
efficiency. The following illustration using the production possibilities
curve has helped students to understand this distinction. Draw Figure 2-3 on your chalk board. Remind students that every point on a production possibilities curve is technologically efficient, producing given outputs with the fewest possible resources. Then ask the students which of the five combinations represented by points A, B, C, D, and E should society produce. Students usually choose either point B, C, or D. At this point, the students should be informed that their answers are incorrect. Then, in an offhand manner, ask the students if you forgot to mention that this is a society of vegetarians, and again ask the students which output combination society should choose. The response for point E will be unanimous. Now stress the point that in order to determine which output combination society should produce, the student needs to know society's preferences. Only point E represents the best output combination, and therefore, it is allocatively efficient.
Figure 2-3 Ask Your Dog About Production
Possibilities Drew E. Mattson, Anoka-Ramsey Community College An economy may not operate on its Production Possibilities frontier,
just as a business may not always operate at capacity. How do I get students to understand this in
a way they will remember past the next exam?
I tell them about my neighbor's dog.
My neighbor keeps his dog tied at the corner of his yard where his
house meets a fence. The dog is on a
50-foot leash and therefore can run anywhere within the region defined by the
leash, the fence and the house. I can
illustrate many Production Possibilities ideas once the "dog" image
is established: 1. Why would a business or economy operate
WITHIN its frontier rather than ON the frontier? If my neighbor puts the dog's food dish
only 40 feet from the corner, the dog will only go as far as the
"incentive" just as a business will not operate at capacity if the
demand is for less than capacity. 2. How does an economy get the maximum
output? The dog can maximize the use
of the "resources" available to it by stretching the leash to the
limit and running back and forth along the quarter circle, the frontier. 3. Why does an economy make choices? If there is action at the fence in which
the dog has an interest and there is also action along the house the dog must
decide which action is the most interesting and by choosing one activity over
the other forgoes the opportunity to participate in the alternative activity. 4. Can an economy get beyond the
frontier? If I take a venison leg and
place it one foot beyond the frontier, this dog will take a run for it and
stretch the leash enough to grab the bone but will be "snapped"
back to the frontier. Given the right
incentive, an economy can perform beyond the frontier temporarily but will be
"snapped" back to the frontier once inflation kicks in. 5. How does an economy expand the
frontier? The leash is equivalent to
the limited resource base and by lengthening the leash, the frontier has been
expanded. Suppose I discover a little
extra cord in the garage and tie it on.
Perhaps I purchase a new length of cord.
Figure 2-4 Gary Sellers, University of Akron Most students have difficulty grasping the
principle of increasing cost. Suppose you have picked a basket of apples
which can be used to produce either cider or apple pies. Assume that if all
the apples are used in cider production, C10
could be produced in Figure 2-5. Suppose now you wish to increase the
production of pies from 0 to 1. Your goal is to acquire 1 pie at the minimum
sacrifice of cider. Some apples must be withdrawn from cider production.
Which apples do you use for the pie to achieve your goal? The apples vary in
size in quality. While all of the apple could be smashed into cider, any bad spots
would have to be cut out for pie production. Your goal would be achieved by
withdrawing the very best apples for use in the pie. Assume in the diagram
cider production must fall to C9
to acquire the first pie. Continue this example from 1 to 2 pies, 2 to 3, 3
to 4. Consider the fourth pie. We must again remove from the basket enough
apples to acquire 1 additional pie. We would take from the best remaining
apples enough to produce one pie but their quality is not as good as that
used in the first pie. Therefore we must take more apples out of the basket
to acquire the 4th pie than was required for the 1st, and the cost of the 4th
pie in terms of foregone cider production would be greater. That is, each
additional apple pie costs more in terms of cider production, yielding a
concave"from-the-origin" production possibilities curve. How would
the PPF curve look if every apple in the basket was exactly the same size and
quality? Use this example to illustrate constant costs.
Figure 2-5 Editor’s Note: The analogies between "PPFs" and
individual budget constraints should be emphasized to microeconomics students
so that they will perceive that the material is not completely new when they
confront budget constraints drawn for individuals and firms. Drink, Drugs, and the Law of
Increasing Opportunity Costs Richard Schiming, Mankato State University Introducing the law of increasing opportunity costs, I define it as
"when more and more time and effort is devoted to one activity, the cost
in terms of other activities sacrificed becomes greater and
greater." I then mention that
this is a principle of human behavior which everyone has seen in action. One example I use to illustrate this point
is the tragedy of alcoholism (or drug addiction). Initially, as an individual begins to drink
a little, the cost in terms of other activities sacrificed is relatively
small. But as more time and effort is
devoted to drinking, the opportunity costs become greater (lost job, divorce,
etc.). Finally, a skid row alcoholic
(or addict) who devotes all his time and effort to drink (or drugs)
has effectively sacrificed everything else: home, health, job, family,
friends, and future. This is the
logical conclusion to the law of increasing opportunity costs. Are the Costs Increasing or
Decreasing? Daniel Levy, University of California-Irvine After introducing in class the PPF with a bowed out shape, I ask the
students why the PPF has that shape. What if the PPF is a straight line? Or, what if it has a bowed in shape? By
comparing the three shapes they are almost always able to answer.
Alternatively, after suggesting that increasing costs yield standard concavity,
ask students what the PPF looks like with constant or increasing costs. They
should be able to come up with these shapes if they truly understand these
graphical constructs.
Figure 2-7 Consumption Possibility Frontier
(CPF) Daniel Levy, University of California-Irvine I use the
concept of CPF as an example to illustrate the use of the PPF. CPF is a
description of the Consumption Possibilities of the Economy (like the PPF
describes the Productions Possibilities of the Economy). Therefore, usually
the PPF and the CPF will be identical. But if, for instance, the economy
receives a transfer payment in kind from abroad, the two Frontiers will not
be identical. Here are some examples: a.
CPF
before and after receiving X from
abroad; the PPF remains unchanged:
Figure 2-8 b.
CPF
before and after receiving Y from
abroad, the PPF remains unchanged:
Figure 2-9 c.
CPF
before and after receiving X and Y from abroad. The PPF remains unchanged:
Figure 2-10 Joseph I. Phillips, Jr., Creighton University An analogy
traditionally presented in regards to Production Possibility theory is the
choice betweens Goods for the Present and Goods for the Future, the former
meaning consumer items for present consumption and the latter, capital goods,
research, education and preventive medicine. In the short run, if more of a nation's resources are allocated to the latter, the long run situation will theoretically bring a greater menu of choices between present and future goods than if the goods for present consumption choice predominates, all other things being equal. A useful analogy to explain this theory is to graph the PP Frontier, labeling the vertical axis, Disciplining the Young Child and the horizontal axis Permissive Child Rearing for Current Stress Avoidance. Sometimes, like the choice of consumer goods, the instant gratification of peace and quiet wins out over taking the time and effort to discipline which, theoretically, other things equal, should yield more positive results in the future. Cultivating the Production
Possibilities Frontier Norris A. Peterson, Pacific Lutheran University When introducing the production possibilities frontier, I ask for
five volunteers who would pretend to be profit‑mongering capitalists.
There is usually no shortage of volunteers.
I then assign each of them an "endowment" of land and
technology, as follows: FARMER PRODUCTION
OPTIONS A.
10
corn or 20 wheat B.
10 corn or 10 wheat C.
8 corn or 4 wheat D.
6 corn or 2 wheat E.
16 corn or 4 wheat They are instructed to try to make as much money as possible by
producing either corn or wheat or any linear combination of the two, given
their endowment. For example, Farmer A may choose 10 units of corn, or 20
units of wheat, but not both. Alternatively, Farmer A may choose 5 units of
corn and 10 units of wheat. Initially, the selling price of corn is $1 and wheat $.40. Each of them must decide what to produce. It does not take them long to figure out the rules of the game, and the rest of the class follows along. I record their choices on a graph showing total quantities of each as I vary the price of wheat up to $5 holding corn at $1, thus deriving a convex production possibilities set. From this exercise, several points can be brought up besides the usual
ones of scarcity, choice and opportunity costs, and I refer to this exercise
over the next several class sessions. Among the possible topics: a.
specialization
of resources and convexity of the PPF b.
law of
increasing cost c.
only
relative prices matter d.
prices
reflect opportunity costs e.
the
invisible hand leads to allocative and technical efficiency f.
law of
supply (record only the quantity of wheat while varying its price, holding
technology, endowments and the price of corn constant) g.
shifts
in supply (vary the price of corn and observe supply of wheat; change
technology or endowments; increase number of producers) h.
incentives
matter (e.g., tell each "farmer" that to qualify for government
assistance (class points?) at least 2 units of corn must be produced. Ralph Byrns A production
possibilities example that stresses that the PPF is concave from below
because resources differ in suitability for different forms of production is
to assume that the two goods considered are extremely disparate, say, beef
and IRS Form 1040s, as shown in Figure 2-11. Appeals to factor heterogeneity
as resources are shifted then drive home the concavity of typical PPFs. For
example, start at point a in Figure 2-11, where 1040s
but not cattle are produced. Ask students to describe the kinds of resources
that will first be freed from accounting for cattle production. Help them
draw stereotypes by suggesting that the first unit of labor moved into
ranching might be an illiterate, snuff-dippin'
6'4" World Champion Goat Roper and Bronco Buster; the first land would
be in some desolate stretch of West Texas; and the first capital, a saddle
and a cuttin' horse. Naturally, few 1040s are lost
when these resources are moved onto the beef industry, but much beef is
gained, as the economy moves to point b. Now ask about the last resources
moved into ranching as society forgoes its last 1040s (at point c) and moves
to full specialization in beef (point d). The answer, of course, is that the
last unit of labor moved into ranching is a 350-pound, myopic CPA who tries
to herd scrawny calves down the sidewalks of Manhattan while astraddle a
Shetland pony. Other pairs of disparate goods can be juxtaposed to make this point about resource suitability and increasing costs: bowling versus treaty negotiation; religious sermons versus constructing high rise office buildings, etc. One excellent exercise that you might have students work through is "Apabana", in Chapter 2 in our Student Guide for Learning Economics, which will help students intuit how climate can shape forms of specialization.
Figure 2-11 Allocation
Mechanisms Some Simple Economics of Dorm
Food Gary Galles, Pepperdine University A hurdle that must be overcome in almost every principles class is to
convince students that economics is useful in understanding their daily
lives. To help overcome this obstacle, I have found that dormitory eating can
provide some memorable illustrations (especially for freshmen new to dorm
eating) of simple economic analysis. Here are some of them. a. Since the monetary price of a marginal
helping falls to zero, the quantity of food consumed tends to rise compared
to the case where you must pay for each helping (as at a restaurant), and
students tend to gain weight. This is just an application of the law of
demand. b. With a zero monetary price for each
helping, other non‑price rationing devices will be used to hold down
the cost of providing food services. One such typical device is at the salad
bar, where the most expensive ingredients (bacon bits, tomatoes, etc.) are
the hardest, longest reach, and are in relatively small containers that
frequently run out, and may be slow to be refilled. c. Another non‑price rationing technique
that has been tried is ration tickets to main dishes. The main effect of this
is to create a black market of sorts whereby ration tickets move from girls
(who wouldn't have used them) to boys (who wish to use more of them than
their allotment), which tends to minimize any effect of such a plan to reduce
quantities consumed (especially since meal plans can't discriminate in price
between boys and girls). d. Some things about college life tend to
shift the demand for dorm food to the right. In particular, since food is a
complement to socializing, studying, and anxiety for many people, all of
these tend to increase demand (particularly during exam periods) and the
quantity of food consumed, making any weight problems worse. e. Another non‑price rationing device is
rationing by portion size. Since the cost of seconds consists largely of the
time spent in line to get more, by providing smaller servings (particularly
on large plates that take up much of the room on the tray), a dorm can reduce
the total amount consumed by increasing the time costs in line. Similar
practices include placing items in separate bowls or plates, which use up
more food tray space, and in providing relatively small glasses, which both
take up more space and require more trips to get refills. f.
Since
carbohydrates are typically the cheapest way to provide calories, dorms will
tend to offer starchier main dishes and cheaper high calorie desserts (like
pudding) than students would choose if they were forced to pay for the food
per item. g. Some dorms offer full meal plans only, as a
way of presenting an all or nothing choice to the student, as a way of extracting
more revenue from food service. I conclude by making
some joke about the students not knowing that economics could predict weight
gains upon going to college (and that colleges requiring more mental effort
might have a worse problem, by raising the opportunity cost of exercising),
and emphasizing that since there is an aspect of scarcity in everything,
economics (the science of making good decisions when faced with scarcity) can
be useful everywhere. No Tickets + No Cover Charge =
No Cost? Eric Steger, East Central University To illustrate the fallacy of no cost if there are no tickets or cover
charges, I relate the following story. Recently my 10-year-old daughter informed me that a new group would be performing at a well known international "Rock & Roll" cafe and that she wanted to attend the concert. I found out that there would be no tickets or cover charge, but the cafe seats only 250 people. I explained to my daughter that the concert would not have a dollar price but the cost would be significant due to waiting in line for several hours plus temperatures would be above 100 degrees. As I expected, long lines existed and the temperature was above 100 degrees. Students quickly see the fallacy of "no cost" if there are no tickets or cover charge. Choosing Miss America:
Artificial Augmentations Gary M. Galles, Pepperdine University We spend so
much time talking about money as the relevant rationing criterion in classes
that we sometimes fail to adequately stress the fact that people who desire a
good compete in whatever dimension they think will serve as the rationing or
allocating criterion. A humorous way to emphasize this involves a recent Miss
America contest. Being Miss America is a scarce good (at least to those in the contest). Therefore, it must be allocated by some criteria. There are three official criteria: poise, talent and beauty. Given that contestants are attempting to acquire a scarce good with limited resources, their choices about how to compete (how much time, effort, etc. to devote to each category) will reflect the relative importance they believe each category has in determining the winner, as well as initial endowments (comparative advantages) in each area. What do they believe matters? In a recent New York State Miss America Pageant, a girl was disqualified for padding her bust line. She responded by suing the Miss America Pageant people, arguing that due to bereavement after a relative's passing she had lost 15 pounds and with it some of her bust line, so that it was only fair to let her pad herself up to her "usual" bust measurements. (Which is more important then: bust size or physical shape? Losing 15 pounds may have improved her appearance in other ways. After all, don't many people diet for exactly the purpose of improving their appearance?) What did this girl reveal about the rationing criteria she thought mattered? I conclude with some
sort of joke about having forced myself to watch one of these, including the
talent and poise competitions. No one who ever watched one of these
competitions should be surprised at the conclusion reached by this beauty
contestant. Lord of the Flies/Blue Lagoon:
Robinson Crusoe Updated Laddie J. Sula, Loras
College One way to generate
a great deal of discussion on the first day of class and provide insight into
the nature of economics is by asking, "How many have read the book Lord of the Flies or seen the
movie?" (Even for those who haven't, most know the story). I continue
"Let's assume that we have been shipwrecked on an island. It is six
o'clock in the morning. The sun is coming up. What do we do?" After an
initial silence, someone usually suggests that we have to pick a leader (an
opportunity to digress into voting theory, etc.); others suggest that we
should look for food. This raises the intended points of WHAT should our
primitive economy produce and, as the discussion unfolds, HOW should it be
produced (who finds coconuts, who builds huts). Then, after some discussion
on resource allocation, I note that the sun is setting in the west. We have
produced a certain amount of output, but now the question arises regarding
FOR WHOM does the production take place (distribution)? This immediately gets
us into the efficiency and equity questions and sets the stage for continued
discussion during subsequent classes of the positive/normative debate and
views of conservatives, liberals, and radicals and their policy perspectives
to name only two. I have found this an excellent way to show the students how
exciting economics is and provide them with the major themes I want them to
remember from the first class. Tradition in Modern Mixed
Economies Mark E. Schaefer, Georgia State University We often gloss
over the importance of tradition when we discuss the ways that modern
economies use a mixture of tradition, command and markets to solve the
problems of What, How and For Whom. To correct this imbalance, I ask the
students to help me list on the chalkboard all the elements of tradition that
they can think of in the US economy. After a blank moment, a few minor items,
like sending cards on Mother's Day, will be mentioned. Then someone else will
volunteer that the tradition of giving gifts at Christmas has an important
seasonal impact on the economy. I ask for other traditions of major impact. Someone
will usually remark that our written Constitution has many economic elements
which have been in effect for a long time, such as the free trade zone
agreement by each state not to levy tariffs on goods imported from other
states in the union, in exchange for the same treatment of its exports to
those states. Someone else will then say that every country has a legal
system which carries agreements across time. I ask how a legal system changes
over time. They respond that earlier (or preceding) rulings in cases similar
to present ones set the framework for current court decisions, e.g., the
assignment of liability somewhere between buyer beware and seller beware in
cases of faulty products. Thus, a system of precedent in the evolution of
common law gives tradition an important role in providing stability to the
framework within which people deal with one another peacefully and
efficiently. Traditions help to coordinate expectations among participants in a deal and may contribute to group efficiency by reducing negotiating costs at each repetition of deal making, e.g., the general presumption of basic honesty of reputable sellers reduces monitoring costs. We then rely on the courts to remedy the occasional cases of abuse. By contrast, if every one expects cheating as the first response, then suspicion feeds on itself and every one is worse off because some beneficial deals are never even attempted. Note that following the ways that have been discovered slowly and painfully in the past through trial and error is more likely in subsistence economies (near the edge of starvation) and that willingness to take risk rises with the cushion above subsistence which has been earned slowly by the thrift engendered by being on the edge of survival is more likely as the cushion grows larger. Thus, past success (due to caution and thrift) may lead to current excess (may change the behavior away from risk avoiding and toward risk seeking) and set the stage for the future collapse back to subsistence, or below it to starvation and dying out. Tradition is partly risk aversion and partly creation of public goods through passing on the habit of self restraint in the form of taboos (e.g., don't be greedy when killing game or harvesting wild crops, thus leaving some for your future and the tribe's future). Long standing rules of obligation on sharing the kill or the crop is insurance against starving if your individual luck turns bad while others in the tribe are prospering. Healthy customs and habits carry groups through hard times (e.g., Londoners better survived the bombing by Hitler in 1940 because of their traditions of courtesy toward one another and stiff upper lip, or perseverance, in the face of adversity). Selecting a Bonus Allocator Les Morford, Montcalm Community College During one of the first
sessions of the semester, I announce that I am giving ten bonus points on the
first test (enough to make the exercise worthwhile without being too
generous). The class is to decide within a half hour who is to become
"custodian" of these ten points. This person is free to distribute
them as he or she wishes but must announce the disposition of the points
within one week. Having announced this, I sit down in the back of the room
and say no more. Typically, there is five minutes of awkward silence, after
which some attempt at organizing begins. In most cases, their discussion
involves the basis of distribution (need, equally, effort, lottery ...)
rather than who is to be the custodian. Incidentally, the most frequently selected method is lottery, usually determined in the 29th minute. Most classes are unwilling to trust the judgment of the custodian to distribute the points. Most "custodians" follow the mandate they are given; a few have broken promises they made during discussion and/or ignored the mandate. The number of points the instructor can make based on this exercise is usually lengthy. Curt L. Anderson, University of Minnesota‑Duluth The first day of
class I point out that the essence of economics may be summarized with the
following situation. I tell the class that the Dean (or some other school
official) has declared that I only can "give out" X amount of A's
in the course (usually X is 10% of the class size). I then ask how I could
decide who gets the A's and who doesn't. Many schemes are offered including
the following: alphabetically, bribes to the instructor (willingness to pay),
random draw, weight, and even by merit and achievement. This example
establishes that there are plenty of allocation mechanisms to use and that
the choice depends on one's objective. I note that the merit system is used
because it yields the best indication of a student's understanding of the
material. I also note that in a market economy the willingness‑to‑pay
mechanism is used for most goods because it appears to accomplish the goal of
getting society the most from its scarce resources. Ralph Byrns Point out that
our assumption that self interest is the dominant human motivation suggests
that, no matter which allocative mechanism is used to resolve a particular problem, people will try to gain by altering either
themselves or the rules of the game. Allocative mechanisms only shape the
form of competition; no mechanism can eliminate competitive behavior, and
many mechanisms create inefficiency. Students will want to offer their own
ideas about the inefficiency of brute force, tradition, queuing, and random
selection. Examples of competition encouraged by particular allocative
mechanisms include: a. Adjusting
To Brute Force: War was
long the dominant way for tribes and nations to compete. Today, whenever the
ability to acquire and retain control over goods and services seems
determined by brute force, people take karate lessons, buy 357 magnums, put steel grates on their doors and windows, or hire
bodyguards. These are all ways of competing through brute force. You may also
want to discuss "vigilante-ism" as an adjustment when people
perceive the police and courts as unable or unwilling to control brute force. b. Beating
The Queue: When queuing is significant in allocating goods and services, there
is competition in beating the queues. Reservation lists at restaurants are a
way to minimize the queue. Getting an early reservation in beating the
queues. Reservation lists at restaurants are a way to minimize the queue.
Getting an early reservation is an important form of competition if you want
to eat at a popular restaurant. When people want to travel, they frequently
make several airline reservations to try to ensure that they get seats.
Airlines respond to this form of competition by overbooking flights. (Ask
your students if any of them have ever been "bumped" off a flight.)
For other kinds of events, people are often hired to wait in line for others,
and business firms may even emerge to perform this task. (Point out that this
is one of the services provided by ticket scalpers.) Another
way to compete at queuing is for someone in a group to wait through a queue
and hold places in line for other group members; most of your students will
be familiar with this procedure at first‑run theaters. Your students
will find it interesting that in the former Soviet Union, shortages were
common and average Russians often spend 20 percent of their free time waiting
in lines. The Soviet hierarchy, however, had well-stocked stores that only
they could enter. This was their way to beat the queue. c. Finessing
Random Selection: Some
people try to cheat at state lotteries, poker, bingo, or other games where
rewards are presumably random, or somewhat so. When random selection (the
lottery system) is used for the military draft, some young men intentionally
rupture their eardrums or exaggerate trivial injuries in hopes of avoiding
military service; others try to qualify as conscientious objectors, or
falsely profess homosexual tendencies, or cultivate criminal records or drug
problems. Still others don't register for the selective service system, or go
underground, or desert after being drafted, or immigrate to Sweden or Canada.
NOTE: providing an extended litany of such behaviors helps drive the point
home to students that people can be extremely ingenious in finding ways
around mechanisms they don't like, or to exploit favorable circumstances. d. Exploiting
Tradition: For many years,
an "old boy" network consisting of upper class men drawn from the
"Eastern establishment" (most of them graduates
of Ivy League law schools) ran the U.S. State Department and the CIA. Family
ties were important, almost as though people were employed as breeding stock
instead of as diplomats or spies. In these or other situations where nepotism
and in‑breeding within a hierarchy is significant, competition
frequently takes the form of people grossly overstating their family
connections, using letters of introduction, joining fraternities or country
clubs, wearing "rep" ties with pin-striped, three-piece suits, etc. e. Using
Government: The public
choice literature abounds with examples of how people compete for power in
government and then use it for their own ends. Vote trading, lobbying, and
log-rolling are only a few examples of the strategies individuals and special
interests use to secure policies that are favorable to them. How special
interests secure import quotas and tariffs that reduce social welfare but
protect the jobs of highly paid workers and the interest and profits of the
stock and bondholders in senile industries is an example that students are
prepared to understand. Within your own community, you can probably find
examples in zoning laws, government subsidies of convention centers or
downtown malls, etc., where government power has been used in ways that were
not, on balance, socially beneficial. Use variants of
Arrow's impossibility Theorem (from the text) as simple examples to show that
government decision making may reflect consumers' choices only crudely, while
allowing individuals to choose for themselves (whenever goods are rival and
exclusive) yields a "fine tuned" reflection of their preferences. Ralph Byrns If you want to address the roles of merit and credentials as
additional allocative mechanisms, draw on the following discussions, which
parallel the text's treatments of alternative allocative mechanisms, but are
not included in this edition because of space constraints. a. Merit: Beauty pageants, amateur athletics and
academic grades are among the systems that rely on merit as an allocative
device. Winners of Olympic medals and Rhodes scholarships are commonly able
to transform their awards into life-long patterns of high status and material
well being. Next to competition in the marketplace, competition for
recognition of merit is probably most within the spirit of traditional
capitalism. A problem arises, however, if a society unduly rewards people in
accord with their performance in competitive games instead of their actual
productivity. Another difficulty is that determining how meritorious someone
is requires that someone else makes judgments that are unavoidably
subjective. Is the second runner‑up in a Miss America pageant
unarguably homelier or less talented or charming than the winner? While
seemingly appropriate at times, a system based universally on
"merit" would be judged capricious and unfair by most of us, and
charges of favoritism would abound. b. Credentials: Ask your students why they attend college.
Many will respond that a college education seems necessary for the careers
they want to pursue. People compete by acquiring credentials (some of them
phony or exaggerated) when college degrees or experience are criteria for
employment, etc. This may be a good time to discuss whether college training
inherently causes people to be more productive, or alternatively, if degrees
serve primarily as signals about characteristics that firms want in their
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