Sunday, September 21, 2008

My Grade Support Yields a Surplus

Every year I create an effective grade floor [minimum wage] in my AP Economics classes. Basically, I view homework as a way to support low grade producing students.

For example, while grading a detailed supply and demand homework assignment, the average grade given was a 7 out of 10 possible points. In some cases, students that received a 7 out of 10 actually got less than 70% of the questions correct. The equilibrium average grade probably would have been a 5.5 or so without my sympathy.

Every grading period yields a surplus of points due to my grading policies. I have effectively stripped the grading market of its rationing function.

Friday, September 19, 2008

My Favorite Quote On The Financial Mess

From Steven D. Levitt:
As an economist, I am supposed to have something intelligent to say about the current financial crisis. To be honest, however, I haven’t got the foggiest idea what this all means.

Saturday, September 13, 2008

Economics vs. Finance

One of the first points I like to make to my AP Economics classes is the difference between Economics and Finance [Business]. On the very first day of class each year, I explain to my students that they will not learn how to make their first million in this class. From there, I define Economics for them. This week, I had the opportunity to show them using Lehman Brothers as an example.

The government and Fed are, or should be, concerned about the moral hazard principle. However, the financial institutions seem to view the current crisis as a bluff game; that if it came down to it, the government would provide tax dollars to bail them all out. The bluff game is a finance [business] strategy while the moral hazard concern is an economics concept. In most cases these days, it seems like the Wall Street wizards have this game perfected.