All the World's a Puzzle

EconTalk Extra
by Amy Willis
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Robert Frank on Dinner Table E... Greg Ip on Foolproof...

The "economic way of thinking" is something we at Econlib emphasize...a LOT. This week, EconTalk host Russ Roberts sat down again with "the Economic Naturalist, Cornell'S Robert Frank. Their subject...almost anything! They explored some puzzles, what Roberts calls "dinner table economics," such as why do brides buy their gowns, while grooms rent their tuxes. (Presumably, the gown will be worn once, while tuxes may have a longer useful life.)

So now let's see how we can liven up your dinner table conversation. Give some thought to the prompts below...Your puzzle(s) could even become the subject of a future episode!

puzzles2.jpg

1. Frank suggests that only a half dozen or so concepts "do the heavy lifting" in economics. What do you think those half dozen concepts are, and why? (Hint/Spoiler: Russ seems to think there are ten...)

2. Related to the first question...What was your own experience in an introductory economics course like? Was the economic way of thinking imparted and/or emphasized? What would have made your experience better?

3. It's your turn... Russ and Frank explored several puzzles this week...Frank notes that some of the best puzzles he's explored have come from his students, and coming up with such conundrums is in fact an assignment in his course. What puzzle would you pose for enterprising economic thinkers to solve?

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COMMENTS (9 to date)
John Alsdorf writes:

1. I'd just name "Price Theory" which, from reading I've done, seems to cover a lot of the other sub-topics such as supply and demand.

2. My first (and last) experience with economics in college--one of the top liberal arts colleges in the country--was pretty dismal. Now, part of that may have been that I was too young and inexperienced in the "real world" to appreciate how universally economics applies to all kinds of transactions, all kinds of human behaviors. But also, I don't think it was presented in a way that made it applicable. It wasn't until I was well into my 50s that I began to reflect on how pervasive economic principles are in life. Planet Money (and Travels of a T-shirt) helped introduce me to additional resources. EconTalk has taken it still further. One of the more valuable insights--and I apply it in investing (and in explaining decisions on the Motley Fool message boards; I know you, Russ, have been a visitor to the Fool HQ; watched the video of that event from NYC)--is the notion that, in a free market, BOTH parties to a transaction benefit have something to gain. That's quite fascinating, really; what might be motivating the person on the other end of this Options transaction to sell, when I'm buying, or vice versa? Is it possible that both parties can benefit? Yes.
3. I'm drawing a blank right now. Will have to come back if I come up with one.

Amy Willis writes:

@John, that's an interesting point about age/experience...I've taught all ages in Intro classes (from K-12 students on up), and I often say that my favorite sections ever were at a community college in a once-weekly night class. Part of that was the age variance (I was sometimes the youngest person in the room), but I also have attributed it to the sort of life experience you mention in your comment. (My own experience as a university student was equally dismal...) So should we conclude that younger individuals are less capable of intuitively understanding economics? I'm not sure I'm ready to make that leap, as I've also seen some pretty awesome economic thinking on the part of elementary school students...But you've got me thinking.

Anyone else?

Lori Mancell writes:

Gday from Australia,
My husband and I are listening to you while driving, we often take long car trips and that's our econtalk time. Thanks for the podcasts.
Best wishes for 2016!

Luke J writes:

2) The professor of my first "intro to micro" course introduced me to Econtalk in 2007 - 2008, so I consider this podcast as a continuation of that intro class. I believe the textbook was one of Mankiw's editions. I am not sure how essential it is to know how to calculate elasticity using the mid-point method, but thinking at the margins, understanding comparative advantage, and diminishing returns have all been helpful outside of the course.

John N writes:

I have an economics puzzle that I have a few thoughts about, but I'd like to hear other people's ideas.

Gyms charge their members a monthly fee to be allowed to use the facilities. They often also charge a joining fee (in my experience of ~$100-200). The cost of the gym adding a new member is close to zero, so why hasn't the joining fee been competed away to zero?

To put it another way: if there are competitive gyms that offer membership with zero joining fees, why do new customers continue to sign up to gyms where they're required to pay joining fees?

In many other sectors of the economy, businesses recognise that there is an acquisition cost per customer. Gyms and clubs of other kinds seem to be one of the few industries where the customer pays to be acquired. Why?

(an obvious first answer is that potential customers look at the full cost of membership - the distinction between monthly fees and joining fees is rather arbitrary so it doesn't make sense to look at just one of them. In that case, we might expect the gym to make the joining fee zero and make up the difference in monthly fees in order to get the maximum number of people through the front door).

Eli writes:

The "infinite babies" paradox

Sometimes I'm asked how many children my wife and I want. Of course, we never have to make that decision, we only ever have to decide whether we want one more, and then one more, and then one more after that.

If we don't have one more, then we may or may not regret that decision. If we do have one more, we will never regret that decision and forever be glad we made it. The idea of our last child not existing will be very sad whether it be our 1st child or our 10th.

Since we make the decision to have one more baby now based on our expected future utility, it seems we should just keep having babies until we can't anymore or it becomes too dangerous. It seems like one more baby is never the wrong decision, since our future selves will love that child and be glad it exists. So why not keep having baby after baby?

Is there something I'm missing or is this just another Selfish Reason to have more Kids?

Carolyn writes:

I don't remember my first econ course in undergrad, other than painful excel spreadsheets. However, my econ class at the Institute of World Politics was straight "economic way of thinking" and zero math. It was actually a stellar class that really made you think about public choice and other conundrums. Dr. Anne Bradley taught it, and she also pointed out this podcast to me. That class inspired in me a great interest in economics, to the point of buying and reading "Economic Way of Thinking" and Dr. Sowell's "Basic Economics." I enjoy the podcast immensely and am going through back episodes. I also wonder if about 15 years of aging played a part in my changed attitude towards economics (agony to excitement).

Alexis writes:

I worked a summer in a bike shop that rented bikes, downtown Qu├ębec City.
The price was about 30$ for a day, then 15$ per additional day and maybe 90$ for a week.

I see different reasons for the price:
- The time it took to adjust the bike and explain to the renters where to go. You need to show people who are not experienced urban cyclists, where are the paths and what route to take: the most enjoyable route is rarely indicated with signs! We weren't big enough a shop and didn't rent enough bikes to have an employee dedicated to then rentals, it would be done by a mechanic who otherwise charge 40$/h for his work.
- We were the only shop on the street, and pretty much in the neighborhood. Therefore, the pressure on the price induced by the competition wasn't as strong as in an airport where you have several booths side by side.

On a side note, we can contrast bike rental with self-service bikes in city like NY, Montreal or Paris. They usually cost much less, but you make the adjustments yourself and they are heavy, but solid so they don't need as much maintenance!

Kevin writes:

I think that the car rental example also is missing an important explanation on the demand side. While the costs are indeed lower at scale, the cited example of Duluth, Minnesota being more expensive misses an important aspect of the demand of the customer.

Think about who is more likely to rent in Honolulu or Miami. It would be most likely people spending personal money on a vacation as opposed to be much more likely to be business travelers spending money for their company with much less incentive to try and get the best deal rather than go with whatever frequent user program they have (guilty of this myself).

Both the cost and the demand side, especially with respect to business travelers, are very prevalent in the travel industry. It's why an average hotel far from lots of activity but near an industrial park can charge $150/night but an equivalent hotel near a city with much higher land costs (and probably more demand to fill those rooms and less cost of empty rooms) can charge half that.

The same goes for the often outrageous prices to fly to small regional airports that is often much cheaper to just rent a car at the nearest large airport and drive.

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