This assignment is designed to reinforce the idea of how free markets organize economic activity, and also to introduce you to opposing views on the effectiveness of free markets in this organization.

This assignment is designed to reinforce the idea of how free markets organize economic activity, and also to introduce you to opposing views on the effectiveness of free markets in this organization.

Relevant Podcast: “How Can This Possibly Be True” – Freakonomics with Stephen Dubner              Relevant Reading: “Why Prices Are Good” – Chapter 8 of The Armchair Economist by Steven Landsburg

Assumptions and Agreements:

  1. This assignment must be completed individually.
  2. Your submission is due on Moodle on Sunday, Sept. 16th by 11:55pm
  3. Late submissions will receive a maximum of half credit.
  4. Your submission will graded according to the following rubric:
0 Points 5 Points 8 Points  

10 Points
You did not submit an assignment. Any of the following are true:

– Your response does not show a significant understanding of concepts discussed in the podcast.

– Your descriptions of the market you chose in #1 are not factually accurate. – Your analysis related to the handout fails to display comprehension of the main economic arguments.

 Any of the following are true:

– Your response fails to display a nuanced understanding of concepts discussed in the podcast.

– Your descriptions of the market you chose in #1 are factually accurate, but do not coincide with the concepts discussed in the podcast.

– Your analysis related to the handout fails to display a nuanced understanding of the main economic arguments.

 Your response displays a nuanced understanding of concepts discussed in the podcast. Your descriptions of the market you chose in #1 are factually accurate, and are well aligned with the concepts discussed in the podcast. Your analysis related to the handout displays a nuanced understanding of the main economic arguments.

 

Listen to the podcast with Stephen Dubner on the “How Can This Possibly Be True” (available through freakonomics.com) from the 6:00 mark through the 21:20 mark,1 read Chapter 8 of the Armchair Economist: “Why Prices are Good,” and respond to the following prompts. As you are listening to the podcast or reading the handout, don’t focus on looking for a specific answer to each prompt. Instead try to follow the big picture ideas. The prompts are not designed to ask you to find and repeat arguments made in the podcast or handout.

  1. Milton Friedman (1912-2006), a Nobel Prize winning economist, is quoted in the podcast as follows: “The miracle of this pencil isn’t that nobody knows how to make it. The miracle of the pencil is: how did it get made?” In 4 to 6 sentences, describe the difference between these statements. Why is the second statement deeper than the first?
  2. Choose a consumer good other than a pencil. List eight to ten separate parties involved in the production and distribution of this good to the final consumers.
  3. At the end of the podcast (roughly the 21:10 mark), Tim Harford describes the process of creative destruction: that a free market makes innovations through a very large number of experiments (most of which are unsuccessful).2 For each of the following sub-questions (#3a. – #3c.), use the consumer good you chose in #2.
    1. In 4 to 6 sentences, describe two ways in which creative destruction has impacted this market. What parties benefited from the process? What parties were negatively impacted?
    2. In 3 to 5 sentences, describe two ways in which government intervention has helped facilitate the process of creative destruction in this market.
    3. In 3 to 5 sentences, describe two ways in which government intervention has impeded the process of creative destruction in this market.
  4. In the handout, Landsburg argues that if the last bushel of wheat produced by Farmer A costs $15 and the last bushel of wheat produced by Farmer B costs $5, this is an inefficient outcome. In 4 to 6 sentences, describe why this is inefficient. Are there any conditions under which this is the efficient outcome?

Landsburg argues that the problems associated with air pollution could be mitigated not by reducing markets, but rather by increasing market activity. In 4 to 6 sentences, provide an example of a problem typically associated with markets that could be or has been solved by increasing market activity (e.g., creating new or more markets). Your example should not be one described in the handout.