| Line 140: |
Line 140: |
| | == Example 1: Economic Insights into Politics == | | == Example 1: Economic Insights into Politics == |
| | | | |
| − | Next Tuesday is Election Day, and this is a good time to see if we can apply insights from this course to understanding and predicting election outcomes. | + | Next Tuesday is Election Day, and this is a good time to see if we can apply insights from this course to understand and predict election outcomes. |
| | | | |
| | Economics affects election outcomes in two ways. First, many people vote based on how they are personally doing economically. Voters who recently lost their job are more inclined to be angry about the incumbents (the politicians currently in power). Those voters may choose not to vote for the incumbent, either by not voting at all or by voting for the opponent. Some economists feel that the outcome of every presidential election can be predicted by looking at key economic indicators (such as unemployment) on Election Day. | | Economics affects election outcomes in two ways. First, many people vote based on how they are personally doing economically. Voters who recently lost their job are more inclined to be angry about the incumbents (the politicians currently in power). Those voters may choose not to vote for the incumbent, either by not voting at all or by voting for the opponent. Some economists feel that the outcome of every presidential election can be predicted by looking at key economic indicators (such as unemployment) on Election Day. |
| | | | |
| − | Second, the side that spends the most money in a political campaign usually wins. In 2008, we can compare the campaign spending by Barack Obama and John McCain to the votes they actually received. Obama spent $7.39 per vote that received, while McCain spent only $5.78 per vote that he received. That's a large difference of nearly 25%. | + | Second, the side that spends the most money in a political campaign usually wins. In 2008, we can compare the campaign spending by Barack Obama and John McCain to the votes they actually received. Obama spent $7.39 per vote that he received, while McCain spent only $5.78 per vote that he received. That's a large difference of nearly 25%. |
| | | | |
| − | One reason Obama spent more was because he received far more in campaign contributions than McCain did. But McCain also made a strategic choice to take federal campaign funds, which prohibited him from raising money from the public after around September 1st. Between September 1st and Election Day in early November, McCain was stuck with the roughly $75 million provided by law to candidates who choose to take federal financing rather than funds from public donors. Obama raised over $300 million from internet donations during that same period, which is 4 times as much as McCain. | + | One reason Obama spent more was because he received far more in campaign contributions than McCain did. But that was partly due to a strategic decision made by McCain in the summer of 2009: he decided to take federal campaign funds, which prohibited him from raising money from the public after around September 1st. Between September 1st and Election Day (in early November), McCain was stuck with the roughly $75 million provided by law to candidates who choose to take federal financing rather than funds from public donors. Obama made the opposite choice, and elected to receive contributions from the public and not take any federal financing. Obama then raised over $300 million from internet donations during that same period, which is 4 times as much as McCain received. |
| | | | |
| | From this simple observation about the differences in funding, several conclusions can be drawn: | | From this simple observation about the differences in funding, several conclusions can be drawn: |
| Line 152: |
Line 152: |
| | #McCain would have done better if he declined the federal funding and raised more money on the internet. It's impossible to know how much better his results could have been. | | #McCain would have done better if he declined the federal funding and raised more money on the internet. It's impossible to know how much better his results could have been. |
| | #Freedom is not free. People who want their side to win have to support their side financially. | | #Freedom is not free. People who want their side to win have to support their side financially. |
| − | #It may be more effective to send a $50 donation to a candidate's campaign than to volunteer to work for him for a day. For McCain, $50 translated into about 10 votes. Can someone volunteering for a day obtain 10 votes? Perhaps, but only if the time is used efficiently, as in going door to door or making many effective phone calls. | + | #It may be more effective to send a $50 donation to a candidate's campaign than to volunteer to work for him for a day. For McCain, $50 translated into about 10 votes. Can someone volunteering for a day obtain 10 votes? Perhaps, but only if the time is used efficiently, as in going door-to-door or making many effective phone calls. |
| | | | |
| | The political process in the United States is based on competition, just like the free market. Typically the political winner, as in the free market, is the candidate who runs the most ''efficient'' campaign and who raises the most money for that campaign from supporters. Efficiency and capital are the keys to both economic and political success. | | The political process in the United States is based on competition, just like the free market. Typically the political winner, as in the free market, is the candidate who runs the most ''efficient'' campaign and who raises the most money for that campaign from supporters. Efficiency and capital are the keys to both economic and political success. |
| Line 158: |
Line 158: |
| | Suppose you are a campaign manager for a candidate for mayor, and you have $10,000 left to spend in the final week on advertisements, mailings, signs, phone calls, etc. You also have 5 volunteers who are willing make calls, stuff envelopes for a final mailing, put up signs, and/or go door-to-door to campaign for your candidate. | | Suppose you are a campaign manager for a candidate for mayor, and you have $10,000 left to spend in the final week on advertisements, mailings, signs, phone calls, etc. You also have 5 volunteers who are willing make calls, stuff envelopes for a final mailing, put up signs, and/or go door-to-door to campaign for your candidate. |
| | | | |
| − | It's your decision how to use your "inputs" of capital (money: the $10,000) and labor (the volunteers). How would you use concepts you've learned in this course to maximize the vote for your candidate? (Note: it's unethical and illegal to pay money directly for votes, or "buy" votes). | + | It's your decision how to use your "inputs" of capital (money: the $10,000) and labor (the volunteers). How would you use concepts you've learned in this course to maximize the vote for your candidate? (Note: it's unethical and illegal to pay cash directly to voters, or "buy" votes). |
| | | | |
| − | The concept of "marginal product" is useful here. You need to allocate your inputs in order to maximize your output. If you put all your volunteers and money into mailings, then you won't influence people as much as if you could speak with them. But mailings reaches more people more cheaply. Perhaps you'd allocate your capital and labor on a little of each: some on the phone, some door-to-door, some mailings, and some putting up signs. That's what most campaigns do. It's hard to know if your allocation of inputs to tasks is optimal to maximize output. | + | The concept of "marginal product" is useful here. You need to allocate your inputs (capital and labor) in order to maximize your output (votes for your candidate). If you put all your money and volunteers into mailings, then you won't influence people as much as if you could speak directly with them. But mailings reaches more people more cheaply. Perhaps you'd allocate your capital and labor on a little of each: some on the phone, some door-to-door, some mailings, and some putting up signs. That's what most campaigns do. It's hard to know if your allocation of inputs to tasks is optimal to maximize output. |
| | | | |
| | Now recall Question No. 12 from Homework Assignment Week 6 in this course: Your firm seeks to produce a certain level of output in the most efficient way (the lowest cost). It should use its resources in which of the following ways: | | Now recall Question No. 12 from Homework Assignment Week 6 in this course: Your firm seeks to produce a certain level of output in the most efficient way (the lowest cost). It should use its resources in which of the following ways: |
| Line 171: |
Line 171: |
| | That's the same problem you would face as a campaign manager for a candidate for mayor. Answer choice (a) is wrong because it doesn't factor in the cost of the materials (or inputs). Perhaps buying ads on television generates the highest marginal product (the most votes), but it may be too expensive for your campaign. Answer choice (b) is incorrect for the same reason: it ignores the cost of the materials, which is what you need to focus on. Answer choice (c) also overlooks cost. | | That's the same problem you would face as a campaign manager for a candidate for mayor. Answer choice (a) is wrong because it doesn't factor in the cost of the materials (or inputs). Perhaps buying ads on television generates the highest marginal product (the most votes), but it may be too expensive for your campaign. Answer choice (b) is incorrect for the same reason: it ignores the cost of the materials, which is what you need to focus on. Answer choice (c) also overlooks cost. |
| | | | |
| − | The correct answer choice is (d): use the various inputs such that their marginal products per unit cost are equal (and maximized). If one input has a lower marginal product per cost, then that the money or labor should be shifted to a more productive input. The optimal level is when all inputs are producing, ''per cost'', at same optimal level of output. | + | The correct answer choice is (d): use the various inputs such that their marginal products per unit cost are equal (and maximized). If one input has a lower marginal product per cost, then that money or labor should be shifted to a more productive input. The optimal level is when all inputs are producing, ''per cost'', at same optimal level of output. |
| | + | |
| | + | Think of a rowing boat with 8 oarsmen: the crew is most efficient (and has the best opportunity to win) when all are rowing at the same high level. If one oarsmen is not producing as much as the others (his marginal product is lower per the "cost" of that spot on the team), then he needs to find a way to improve to the higher level of the others, or be replaced. |
| | | | |
| | ==Example 2: Homeschool Dinner Event== | | ==Example 2: Homeschool Dinner Event== |