Friday, May 11, 2012

Are we raising a generation of supply-siders at AU?

A very anecdotal point... I don't think we are. But this is strange. I'm grading the intro micro finals and there was one very open ended question about wheat prices, which increase from 2006 to 2008 and then decrease in 2009. It asks them to elaborate on what could be causing it, what information they'd want to know, etc.

I'm maybe a third through the finals and almost everyone so far has been referencing supply factors like droughts. Others that don't specifically mention supply side stuff are very good discussing substitute goods and ethanol taxes leading to the run up in prices from 2006 to 2008. These are bright kids (it's the honors class) and they've done well responding to the open-endedness of the question, but I think only one of them has mentioned aggregate demand issues.

What gives??? When I read the question about a price drop from 2008 to 2009 I figured there would be all kinds of discussion of changes in demand. Is it that they were just starting high school when the bottom fell out and this is just part of life? Very strange. I was thinking that this wouldn't have happened in the Depression - economist students would be responding to a question like this with all kinds of demand-side answers then. But then I remembered the dustbowl... and maybe that was the more galvanizing "event" to them too because it was more tangible and stark.

Anyway... grading is mostly drudgery, but occasionally it's an interesting exercise.


  1. I think that supply-side explanations just sound smarter. If the issue is aggregate demand, you can't go very far or you're running around in macro-land completely forgetting about the micro final. On the other hand, on the micro side, there are plenty of cool things to be said about taxes, supply chains etc...

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  3. Daniel, you're surprised that they thought on a micro final, they were supposed to give a micro answer? Particularly when it asked about wheat prices in particular?

  4. Why are wheat prices up/down in a given year?

    And you think a good answer has to involve aggregate demand for all goods and services? Is this what passes for intelligent test answers these days?

    1. No Mattheus - read the post. There were lots of good supply side answers. I'm not sure I took any points from anyone's answer for that. All I said was that if they are given three data points and two of those data points show a price drop from 2008 to 2009, I was just surprised that only one of them mentioned what was going on with demand.

    2. Demand, certainly. But not necessarily aggregate demand.

      One obvious explanation could be a change of diet or taste preference where people demand less wheat over the few years in order to spend it on soy or other cereals. An answer involving aggregate demand isn't necessarily obvious or likely.


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