Deck 1: The Economic Way of Thinking

Question 1

How much do people have to know about one another in order to cooperate effectively? Contrast the situation of two family members who are planning to take a vacation together with the situation of motorists who are simultaneously using intersecting streets. How are "collisions" avoided in each case? What do you know about the interests, the personality, or the character of the people whose cooperation supplied your breakfast this morning?

Answer 1

The theory of economics is important for explaining the cooperation in different cases and the reasons for their collision. Every individual desires to reach the targets and thus decides actions according to the expected net advantage.
For effective cooperation, the individuals are required to observe the actions of others and then interact with them. It is required to know the ways to communicate their actions and plans to each other. Also, it is important to be able to read and understand the signals that are emerging because of others' actions for planning their own activities. Awareness is necessary regarding the rules and whether other participants are following them or not. Thus, there are certain customs and practices according to which the individuals pursue and manage plans and tasks.
There is a given situation that the two family members are planning to take a vacation together. Here, it is required that they have to take a decision regarding the destination to which both agree. For this, interaction between the two should take place as it is possible that their interests vary. So, in order to avoid any collision between the two, they need to coordination by interacting with each other.
Another situation is of the motorists who are using the intersecting streets simultaneously. This is being done by economizing their respective actions. By coordinating with other motorists, each of them is doing whatever seems correct. Chances of collisions and accidents are there but quite minimal. Otherwise there is always perfect coordination between all those plying on the same streets at the same time.
Though a particular method is not being followed by any driver, still the coordination is there because of unintended consequences. In the situation if the traffic lights are not working, the turn signals or break lights still send signals by each motorist to the fellow drivers. These simple interactions lead to effective coordination and avoid collision.
For supplying breakfast to an individual one morning, there are a number of people involved including farmers, bakers, supermarkets checkers, truck drivers and many more. The breakfast of an individual is ensured by coordination between all these.
Thus, the economic theory states that the choices or plans of every individual affects the opportunities available to others.

Question 2

What do you predict would happen if planners in Dallas decided to reserve one lane on each of its freeways for " urgent vehicles," with an urgent vehicle defined as any vehicle whose driver might be late for an important event if the vehicle were to be delayed by congestion in the regular lanes? Do you think drivers would stay out of the urgent vehicle lane? Or would it become just as congested as all the other lanes? Would such an idea be more likely to succeed in practice if drivers were generally less selfish and more considerate?

Answer 2

If planners in D decided to reserve a free lane in each of its freeways for the "urgent vehicles," as such the vehicles should move into the reserved lane. Even though it's not possible predict the actions of a single driver, still it can be said that while driving they will be aware of the net advantage of each lane and will continue to move into the reserved lane. Since, other lanes will be congested and slow, the drivers will continue to move to the lane created for the urgent vehicles as the reserved lane has lesser number of automobiles and is fast moving. This will happen until the speed in all the lanes is the same. This will happen until no driver notices any net advantage to be obtained by changing the lane.
However, one cannot ignore the laws of the game, that is, the rules which each of the players in the scenario follow. These rules are known to everyone and they know the available opportunities and resources when they have to operate under a set of rules. It is possible that the drivers won't move into the reserved lane because they are aware of the law. But, it will be very difficult to distinguish between more urgent and less urgent vehicles because everyone on the street wants to reach their destination at the earliest. Therefore, the theory of net advantage is most likely to come into play.
When the drivers move to the reserved lane, they do it not because they are selfish, but they are simply not aware that whose need is more urgent (unless of course the authorities make it clear that the lane be used by vehicles like ambulance). They try to follow their own interest single-mindedly and that is reaching their destination as quickly as possible. All they know about the other vehicles is their speed, direction and velocity of the vehicles and assume that other drivers also don't want to make an accident. This means that even though the drivers are less selfish and more considerate this idea will not succeed.

Question 3

A model of saintlihood and altruism, when Mother Teresa accepted the Nobel Prize for Peace in October 1979 and decided to use the $190,000 award to build a hospital for the treatment of people with leprosy, was she acting in her own interest? Was she behaving selfishly? Was she economizing? What about former Vice President Al Gore's promise to donate his portion of the $1.5 million 2007 Nobel award to the Alliance for Climate Protection?

Answer 3

When Mother T decided to spend the entire sum of $190,000 Nobel Peace Prize money she won in October 1979 in building a hospital for people suffering for leprosy, she was not being selfish, but she was most certainly economizing. She was not acting selfish because she was not doing it for her own personal benefit or make profits or as a means to get a luxurious life. However, she had a purpose in mind and in her case it was building a hospital for the poor. The prize money she received was an opportunity for her and she must have weighed the maximum benefit she could derive from that money.
Now, the question is if completely unselfish people act with the ends and means in their mind. As most people like to believe that most of us act unconsciously and not necessarily affected by our impulses, it is important to understand not all decisions in life are taken in this manner. When Mother Teresa decided to spend the money on building hospital it wasn't under an impulse. She made the choice because she was sure that the amount was enough to build a hospital which means she must have weighed her means with the ends she wanted to achieve.Ex-Vice President AG's promise to donate his portion of $5 million 2007 Nobel award to the Alliance for Climate Protection cannot be considered selfish, but definitely a decision taken with clear conviction. To understand why certain people go over and above their personal benefits, we have to supplement economic way of thinking with history, culture, politics, psychology and social institutions that played their roles in shaping their values.

Question 4

A newspaper item reported that two-thirds of all mothers who work outside the home "do it for the money, not by choice." Are those really alternatives? Either for the money or by choice?

Question 5

How important are monetary motives? A story in the Wall Street Journal of May 1, 1995, reported the results of a survey conducted by Kaplan Educational Centres of its students preparing to take the Law School Aptitude Exam. They were asked what attracted them to a career in law. Only 8 percent said they were attracted by the financial rewards. But 62 percent thought that others were attracted by the financial rewards. How would you interpret this disparity?

Question 6

Why do most people want larger money incomes? Former British Prime Minister Margaret Thatcher once suggested that people are motivated by money not because they are greedy, but because money gives them more control over their lives. What do you think most people are ultimately after when they make sacrifices in order to increase their money incomes?

Question 7

What happens when the rules of the game (written or unwritten) decree that important student government meetings won't start until everyone is present and that late arrivals will incur no penalty? Is it in anyone's interest to be punctual? Are these rules of the game likely to prove satisfactory over time?

Question 8

What are some of the more important rules that coordinate the actions of all those playing the "game" of this economics course? Who decided where and when the class would meet, who would teach it, who would enroll as students, what the textbook would be, when the exams would be given, and so on? Who decides where each student will sit? Do you find it odd that two students rarely try to occupy the same seat?

Question 9

Have you ever noticed that the grounds of city-owned parks are often more polluted than those of country clubs?
(a) Is it simply because people who use parks are less concerned with pollution compared with those who golf? Is that even true?
(b) Might the property-rights assignments have something to do with it? Who owns the city park? Who owns the country club?
(c) Though their grounds are often impeccably clean, country clubs tend to use powerful fertilizers that eventually seep into and pollute the water table below, causing problems for others in the surrounding community. Who owns the water table?

Question 10

What do we mean when we say, "That's just a coincidence; it doesn't prove anything?" How does theory enable us to distinguish relevant evidence from mere coincidence?

Question 11

Would you say that physicians who don't believe acupuncture works are biased if they reject it without trying it? If someone told you that you can get a perfect grade in this course, without studying, just by regularly chanting the mantra "invisible hand," would you believe it? Would it be a sign of bias or prejudice on your part if you totally ignored this advice even though you are extremely eager for a high grade in the course?

Question 12

Someone has calculated that American women with four years of college have twice as many babies on average as women with five years of college. Assume the data are correct. What conclusions would you draw? Would you infer that going to college for a fifth year reduces female fertility? Would you caution a woman who has just completed four years of college not to take a fifth year if she is determined to have children? What theories are you using?