Benjamin Franklin famously observed, “Tell me and I forget; Teach me and I remember; Involve me and I learn.” As instructors, we know that he was right: The best way for students to learn is to involve them with the content, and we’ve worked hard to demonstrate that students’ lives already involve—and will always involve—real economic decisions.
▲ Everyday Economics No widgets, no lemonade stands. We invite students to apply their economic toolkit to the sorts of situations they face—from salary negotiations to the division of labor in their home. By asking themselves “what would I do?” students naturally come to a deeper understanding of the economic principles involved.
The text reads, A few years back a friend of mine was negotiating a raise with his boss and reached out to me for advice. He was earning 100,000 dollars per year and his boss offered him a contract that would see his wage rise by 5 percent over the five-year term of the contract. My friends wanted more, but he understood his boss had limited funds, and he was pleased to see his hard word rewarded with a pay increase.
New paragraph. But he wasn’t getting a real pay raise. Inflation was running at about 2 percent per year, so over five years, the average price level would rise by about 10 percent while his wages would only grow at half that rate. If your nominal wage rises by 5 percent over a period when prices rise by 10 percent, then your boss is actually cutting your real wage by about 5 percent.
New paragraph. My friend’s mistake was to think about his current nominal wage as the baseline in his wage negotiations. Relative to that reference point, any boost to his nominal wage was framed as good news. Instead, you want to make your current real wage the starting point.
New paragraph. So when you next negotiate over your pay, begin the conversation with your boss by pointing out that inflation has reduced the value of your wage. Lay out the latest numbers and suggest that you expect an inflation-based adjustment to offset the rising cost of living. There’s not really a good counterargument, so it’s likely they’ll agree. Now that you’ve set your real wage as the baseline, turn the conversation to what sort of real wage boost you deserve for your hard word over the past year. If you’ve performed well, this conver-
A photo on the right side of the text shows Steve Carell from the show The Office holding a mug with ‘Worlds Best Boss’ printed on the front of it.
▲ Interpreting the Data When data were scarce, the role of economic theory was to fill in the missing pieces when the relevant facts were unavailable. But today, facts are cheap and data are abundant—perhaps even overwhelming. As a result, today’s students will use economic theory instead as a framework for interpreting these data. These brief features show students how to interpret real-world observations through an economic lens. The goal is to help students build confidence in using economic theory to transform data into insight.
The text at the top reads, Interpreting the Data. Which retailers do well in a recession?
The text to the left of the graph reads,
The distinction between normal and inferior goods can be pretty useful in practice. For instance, economists studying retail stores have found that rising income led to more purchases at Target and fewer at Walmart. Somewhat cheekily (but entirely accurately) they concluded that “shopping at Target is perfectly normal, but shopping at Walmart is not.”
The fact that Walmart sells inferior goods (in the economist’s sense) is not necessarily bad news for Walmart: During the 2008 to 2009 recession, average income fell. This boosted demand for goods from Walmart because Walmart sells a lot of inferior goods. Meanwhile, Target, which sells mainly normal goods, experienced a decrease in demand. Figure 9 shows that the recession, which increased the demand for Walmart’s goods, led its stock price to rise, while the decrease in demand for Target’s goods led the value of its stock to fall by about 40 percent.
The text on the right, above the graph reads, Figure 9, Normal and inferior Goods.
The introductory text reads as follows:
A. In 2007, Target’s stock price was much higher than Walmart’s.
B. The U S economy entered a recession in December 2007, and average incomes fell.
C. Walmart sells inferior goods, so a decline in average income raised its sales, and so its stock price rose.
D. Target sells normal goods, so falling average income led to a decrease in demand, and so its stock price fell.
The graph plots two curves labeled Target’s stock price and Walmart’s stock price respectively. In January 2007, Target’s stock price was slightly over 55 dollars. The price dips slightly and again increases to about 63 dollars only to drop down to around 57 dollars in December 2007. The target price continues to decline drastically barring a few crests in mid-2008 and shows a stock price of about 30 dollars in December 2008. In January 2007, Walmart’s stock price was at around 45 dollars, runs almost flat until around mid-2007, takes a short dip to 40 dollars and again reaches around 45 dollars in December 2007. The price continues to increase from thereon, reaches around 55 dollars, and again slightly dips to around 50 dollars in December 2008. All data in the graph are approximated.
▲ Do the Economics For economics to be useful, students must practice using it. Embedded directly into the text narrative, these brief exercises confront students with real-life scenarios and challenge them to “do economics,” by analyzing the underlying logic of each situation and helping them work through the solutions. Through this process, students will come to see economics as a verb—an active process of applying economics to understand the world and inform their choices.
The text reads,
It is easy to fall for the sunk-cost fallacy. Think about the following scenarios:
a. Yesterday you bought a Halloween costume for 35 dollars to wear to a friend’s Halloween party. But today you’re feeling sick, and as you’re getting dressed to go to the party, you realize that you won’t enjoy it. Do you head to the party?
b. You paid 13 dollars for movie tickets. But 30 minutes into the film, you’ve seen enough: The acting is terrible, the plot is predictable, and the jokes are cringe-worthy. Do you stay for the last hour?
c. You found a great deal for spring break: a 700 dollars package deal to Puerto Rico. You immediately buy the package and tell your friends about it. Unfortunately, by the time they call, tickets are sold out. Instead, your friends decide to drive to Miami, where you can all stay for free with your best friend’s uncle. You would prefer to be with your friends, but the 700 dollars ticket is nonrefundable. Do you go to Puerto Rico?
The text on the left portion reads:
Answers: a. Don’t let yesterday’s 35 dollars sunk cost lead you to go to a party you won’t enjoy. B. Walk out. You’ve already paid for the ticket and can’t get the money back, so the 13 dollars is a sunk cost you should ignore. C. The problem says that you would prefer to be with your friends, so go to Miami already! The 700 dollars ticket is a sunk cost.
