Lessons from an Ad Man - Superb microeconomics!
The wonderful Rory Sutherland wows the audience at the TED conference in Oxford with a superb sixteen minute talk on advertising and aspects of behavioural economics. It is an immensely watchable video that will allow you to discuss with your students concepts such as perceived value, symbolic value,intangible value, hedonic opportunity cost and some ideas for nudging personal behaviour in socially beneficial ways. We learn of the extraordinary value of placebos, the rebranding of the potato in Prussian Germany. That all value is subjective and that persuasion is better than compulsion. Some super examples too of Veblen Goods, price discrimination and how the framing of the Italian penalty points system for drivers in Italy has a different impact than for motorists in the UK.
Rated: 
(5/5), based on 10 reviews
Too much choice is bad for you
At last I have found someone else who only wants to use his mobile phone to call other mobile phones. Adam Shaw, who presents Business news on Radio 4’s Today programme, is writing about choice on his business round-up and suggesting that too much of it is a bad thing.
The one option he seeks in a phone – that it should simply allow him to communicate with other people’s phones – is the only choice that is unavailable to him.
He also bemoans the fact that, amongst a range of hundreds of different shirt styles available, he can’t find one that is just what he is looking for, and he suggests that the problem is that too much choice makes it hard to feel confident that the selection we make is the best option available, so that the opportunity cost of getting that choice wrong is higher.
Look at the example from behavioural economics of the supermarket which finds that it sells ten times as much jam when it only gives consumers six varieties to choose from, compared with very low sales when twenty four different pots are on offer, making a great display that attracts lots of attention but few sales, as buyers are confused by the risk of getting the choice wrong. He ponders whether we would be happier if we returned to a simpler economic model, with fewer choices and lower expectations of the utility we would gain from each decision that we make.
Perhaps Stelios has a point when he told Adam Shaw that his objective was to lower customer expectations so that they would be content with lower customer service levels!
The Price of Life
What is a year of your life worth? The Appraisals Board at the National Institute for Health and Clinical Excellence (NICE) is charged with evaluating the benefits of a variety of drugs and treatments before they are provided on the NHS. This BBC documentary investigates the issues involved in the provision of a treatment for Myeloma, Revlimid.
read more...»The Opportunity Cost of Debt
A phrase that often comes appears in essays on government borrowing is that ‘higher interest repayments on borrowing has an opportunity cost, the money could have been spent on other areas of government spending.’ Of course much of the borrowing itself is being used to fund public sector spending in areas such as education, health care, transport infrastructure or to finance a tax cut! But the phrase does have a resonance at the moment given just how much the UK government is scheduled to borrow this year and for the foreseeable future.
Attention turns to the handling of the many billions of pounds worth of new debt issue that will be released onto the bond markets in the weeks and months to come. For the moment, bond yields on longer-dated government debt remain low mainly due to the financial market’s appetite for relatively low-risk Treasury Bonds of different duration. Whether this can last is open to considerable doubt - is there the pent-up demand for £148bn worth of gilts that the UK Debt Management Office will issue this year. With further bail-outs likely, the debt issue might scale up to £220bn or higher.
Back to the idea of opportunity cost! I was struck by a comment made in the Lex column this morning which highlighted the financial cost of minute changes in bond yields.
100 basis points equates to 1 per cent. With that in mind, Lex reports that every 5 basis points (0.05%) saved on £220bn of new debt pays one year’s salary for 46,000 teachers.
The UK economy is fortunate in that we retain - for the moment - sufficient credibility in global financial markets that our budget deficit can be financed without a sharp spike in bond yields. Other European Union countries are not so fortunate - just ask the Hungarians (in receipt of one of the biggest IMF support packages) and also the Irish whose troubles I blogged about yesterday.
Snow ploughs and The Economic Problem
It was no surprise to get the text telling me that school is closed today, as I am in the area of Surrey that has 12 inches of snow so far, and it hasn’t stopped falling yet. Watching the news on TV, I can’t believe the number of people claiming that local councils should have the facilities to deal with ‘a bit of snow’ and drawing comparisons with Sweden and central Germany. But those countries have this sort of weather routinely and expect to deal with it several times each winter – the opportunity cost of using local taxes to provide the number of snow ploughs, gritters and road clearing equipment that might be needed to cover such rare events would be immense. This must be a classic example of resource scarcity and choice – the basic Economic Problem!
Darling’s Tough Love
Alister Darling’s interview in the Times today was revealing on several different levels. First for confirming that the Treasury is actively looking at altering the government’s own fiscal rules in time for the Pre-Budget statement in November. Second that Darling did not appreciate the extent of the negative fall-out on the real economy from the credit crunch - a crunch which has now reached Crunch 2.0 as it moves from the financial sector to manufacturing and services. And third that, given the parlous state of the government’s own finances - this year will be a particularly difficult one and tough choices will have to be made on spending priorities
“"So every chancellor has to be conscious of the fact that there’s a balance to be struck between how much you can spend, and how much people will say, ‘OK, if you’ve another pound to spend, remember me as well.”
A classic example of opportunity cost to use when the new term starts in September.
The dreadful public borrowing figures are reported here: public borrowing surges
Most Popular Topic Tags on the Economics Blog
recession, demand, economics, price, unemployment, prices, inflation, investment, costs, profit, downturn, supply, trade, debt, employment, confidence, euro, gdp, competition, capacity, risk, production, china, oil, incentives, exports, expectations, housing, pay, manufacturing, sterling, food, profits, property, mortgage, tutor2u, globalisation, banks, revision, slowdown, borrowing, usa, retailers, emissions, deflation, airlines, innovation, dollar, supermarkets, entrepreneur, efficiency, monopsony, elasticity, aqa, welfare, consumption, economist, productivity, keynes, saving, google, opec, wealth, depression, moodle, depreciation, jobs, credit crunch, competitiveness, economic cycle, cars, tim harford, externalities, stocks, infrastructure, environmental, strategy, carbon, vle, monopoly, subsidy, evaluation, management, eu, losses, protectionism, spare capacity, inequality, environment, poverty, bank of england, budget deficit, construction, behavioural, wages, macroeconomics, carbon trading, steel, commodities, output gap, skills, japan, oligopoly, currencies, imports, bbc, stagflation, contestable, cpi, agflation, farming, newsnight, choices, regulation, survey, taxes, government failure, itunes, minimum wage, lse, climate change, paul mason, population, intervention, keynes society, aviation, amazon, fiscal stimulus, single market, pricing, dan ariely, nationalisation, cartel, pollution, eton college, interest rates, shareholder, london, rationality, redundancies, market failure, rpi, mpc, shipping, behavioural economics, germany, robert peston, india, rsa, reputation, currency, quantitative easing, facebook, income elasticity, stakeholders, current account, brazil, coffee, savings, microsoft, monetary policy, crowding out, collapse, barriers to entry, multiplier effect, economies of scale, suppliers, price discrimination, uk economy, development, quiz, apple, surplus, taxation, tesco, free, scrappage, labour market, behaviour, tragedy of the commons, opportunity cost, open source, vat, smoking, cost of living, poverty trap, merger, growth, speculation, edinburgh, ownership, discrimination, northern rock, global, cost benefit analysis, ireland, oecd, supply chain, shareholders, scarcity, balance of payments, petrol, liquidity, duopoly, etonomics, iphone, starbucks, trade deficit, happiness, budget, human capital, capital, subsidies, immigration, eurozone, takeover, exploitation, ecb, paradox of thrift, wiki, advertising, public sector, labour force survey, peter day, utility, wants, brand, tax, poland, iceland, blog, recovery, foreign exchange, european union, indirect tax, robert frank, roger bootle, ocr economics, heathrow, hbos, hotels, freight, creative destruction, federal reserve, kaletsky, price war, information failure, crude oil, spain, gini coefficient, transport, government borrowing, leverage, sony, migrants, us economy, animal spirits, stephanie flanders, waste, information, fishing, milk, eu enlargement, anchoring, obama, entrepreneurship society, aggregate demand, needs, internet, forecast, discounting, real income, copper, deficit, contestability, nissan, evan davis, companies, fairness, geoff riley, blogging, standard of living, aqa economics, consumer welfare, martin wolf, renewable, labour mobility, collusion, imf, fair trade, pubs, income tax, obesity, res, disposable income, david smith, national debt, devaluation, consumer surplus, corus, vacancies, global economy, sub-prime, tariff, twitter, price capping, joint venture, accelerator effect, guardian, startups, youth unemployment, yuan, immobility, edexcel economics, edmund conway, redundancy, tata, walmart, relative poverty, sentiment, tickets, coal, vehicles, cash, base rate, russia, diesel, marginal cost, external shocks, movies, liquidity trap, contestable market, income elasticity of demand, libor, broadband, fixed costs, comparative advantage, accelerator, allocative efficiency, pensions, training, economic efficiency, trend growth, king of shaves, satisficing, undercover economist, hot money, price mechanism, deleveraging, positional goods, congestion, jobless, social entrepreneur, apprenticeships, hyperinflation, migration, financial times, age structure, cyclical, chris coleridge, monopoly power, pay cuts, reserve currency, ryanair, wheat, mervyn king, ucas, law of unintended consequences, carbon tax, aldi, gillette, deindustrialisation, barclays, price volatility, yahoo, organic growth, liberalisation, house prices, richard thaler, derived demand, veblen goods, paul krugman, schumpeter, royal mail, markets, diseconomies of scale, logging, green revolution, tax burden, savings ratio, pension, demography, structural, nhs, job losses, ocr, the economist, scotland, cross elasticity, brics, redistribution, biofuel, drugs, gold, nelson thornes, research, producer welfare, ebea, footfall, british airways, income distribution, social costs, ft, enterprise, natural monopoly, tariffs, general motors, o2, deforestation, economic welfare, bonds, asda, will king, automatic stabilisers, landfill, long tail, jim o'neill, disincentives, economax, energy, podcast, share prices, external shock, slump, resources, profit margin, fiscal drag, hysteresis, ftse, philip allan, hedge fund, students, buy to let, logic of life, contraction, equity, elasticity of supply, oil prices, market power, health, ben bernanke, market structure, global business, enlargement, retailing, supply-side, hedging, declan curry, nokia, chris anderson, bric economies, diane coyle, dynamic efficiency, price fixing, fiscal policy, winners curse, zimbabwe, stimulus, hamish mcrae, toyota, john kay, claimant count, green shoots, compound interest, contestable markets, frictional, rory cellan-jones, status races, healthcare, repossession, eastern europe, public good, credit, royal economic society, sustainability, invention, accession countries, probability, sustainable growth, gnp, superfreakonomics, vertical integration, inflationary pressure, business model, default behaviour, rentokil, retirement age, business cycle,All tags
ECONOMICS TEACHER RESOURCE NEWSLETTER
Join over 4,000 other Economics Teachers in the UK and around the world who receive the tutor2u Economics Resource Email newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops.
Recent Threads on the Economics Teacher Discussion Forums:
Posts in: General Economics Teaching
Video Case-study - lunchtime prices slashed
Long Exam Example to Use for Revision Please?
Good hotel in London for school trip
Competitive Markets
Diminishing Returns
Complementary goods - HELP Please!
URgent Help Needed
Equilibrium concept
The price of life
Extended Project Qualification
