UE: ECO 110HA: Economics for Life: YouTube Videos

Probably my favorite economic video.  Great for supply and demand.

If you watch the Hudscucker clip you will see a scene that begins with a surplus of hula hoops (quantity supplied is greater than quantity demanded) so the price is lowered (think invisible hand theory) and then in the second half tastes and preferences change so there is a shift in demand to the right (increase in demand) which is what leads to an increase in equilibrium price and equilibrium quantity.

In this scene, an American caller becomes irate when he learns that the product that he is ordering was produced abroad and he gives the voice on the other end an earful about the loss of jobs in America. However, the call center supervisor devises a clever tactic to convince the disgruntled customer to buy the product despite his objections. She points out that there is a manufacturer in the United States that also makes the same product and she asks if the caller would be interested in purchasing the product. He says yes and she gives him a new – much higher – price. He pauses and after some thought indicates that he wants to the buy the foreign-made product. (dirkmateer.com)

In this scene Dr. Evil is planning to hold the world hostage with a stolen nuclear weapon, but being frozen for thirty years causes Dr. Evil to underestimate how much ransom money he should ask for.  International Man of Mystery takes place in 1997.  Dr. Evil was frozen in 1967, which begs the question, how much did the price level rise over those thirty years? The CPI was 33.4 in 1967 and 160.5 in 1997. Dividing 160.5 by 33.4 yields a factor of 4.8 so if Dr. evil thought that one million dollars a lot of money in 1967 an equivalent amount in 1997 would be $4.8 million. Dr. Evil does not let that stop him from asking for more!

Imagine if you were cryogenically frozen in the 1960’s and revived 30 years later. Advances in technology, culture, and higher prices would all come as a shock. (dirkmateer.com)

This episode finds Ricky Ricardo disillusioned with show business.  After some conversation, Ricky and Fred Mertz decide to go into business together and start a diner. Fred and Ethel Mertz have the experience to run the diner and Ricky plans to use his name and star power to help get the word out about the restaurant, which they name A Little Bit of Cuba.  If you have seen any of the I Love Lucy series, you already know that the business venture is destined to fail. Sure enough, the Mertz’s get tired of doing all of the hard work—cooking and serving the customers—while Ricky and Lucy Ricardo meet and greet the guests. Things quickly deteriorate and the two couples decide to part ways. The only problem is that they are both part owners, and neither can afford to buy out the other. So they decide to split the diner in half right down the middle!  The result is absurd and hilarious. On one side, guests go to A Little Bit of Cuba. On the other side, the Mertz’s set up Big Hunk of America. Since both restaurants use the same facilities and sell the same food, the only way they can differentiate themselves is by lowering the price that they charge. This leads to a hamburger price war to attract customers.

How do the falling prices described here affect the ability of the firms in the market to make a profit?

The exchange is a useful way of visualizing how perfectly competitive markets work. Competition forces the price down but the process of entry and exit takes time and it is messy. The Ricardos and Mertzs can’t make a living selling one cent hamburgers – one cent is below their marginal cost – so one of the couples will end up exiting. At that point the remaining couple would be able to charge more. If they end up making a profit, that profit will encourage entrepreneurs to enter the business. As the supply of hamburgers expands, the price that can be charged is driven back down. Since we live in a dynamic world, prices are always moving toward the long-run equilibrium so we rarely see the kind of straightforward analysis you observe in a textbook.  (dirkmateer.com)