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Unformatted text preview: THEMARGlN-SEPJOCF; l988-PAGE 42 ’ Dick. lane and Spot and lake Communications
instead. But the problem isn‘t with the material. . 11mm isn't anything terriblycomplex about how
Dick. lane. and the dog play together. unless
you‘re a Freudian. It would only seem hard
because of the language. The same is true of
graphsflhe ideas they present are simple. It's the
language that can get tricky. Happily. the language of graphs is a
simple one to learn. ﬁtere are no irregularities.
no tricky oonjugatiorts. no weird future post i perfect subjunctives. But there are rules. and you‘ll have to learn them. Your text will have a section on graphs. Take tlte time now to work
throughit. Whenever you spot a graph in the text.
or anywhere else, take out some paper and draw
it yourself. Economics isn't a specular sport. You
won't lean't it lay-watching someone else do it. There. You've got two in a now.
Now. suppose that neither of the tint two
things cverhappened. and that an invasion of the
Giant Tomato Worm begins. Huge herds of
tomato worms begin ravaging the land. gobbling
up tomatoes. They eat half the nation‘s crop. ECONOMICS
ISURVIVAL GUIDE The Margin 'S
(almost) S ure-
Fire Guide .to
Demand ; . >A'Glant Tomato Worm Eating a Tomato Rate No_ 3; Know how to m You should be able to draw the initial
supply and demand curves widtout even think—
- ing. Some students just sit back and watch other
people draw supply and demand curves. Then
they get to the exam and they realize (they're
never drawn one themselves. They experience a . . . on known as Marshallian Panic and
r r, $1;er still thtnkmg abouttomatoes'! Of 5 up. The “sun ism“ mm} ' UK. One more tomato qut'stio'n. Suppose \d,
tomato farmers discover that setting up huge
speechesofGeorgeBushoninternatiorultnone— ' 'taryrefonncausesthegianttontatowormstofall P
result! They die of sunstroke! Their rapidly
miracle tomato worm mulch! Tomatoes grow
like crazyl‘Out'pttt soars! This isgoingtobecake—or.as wesay in
the tomato biz. ketchup. Willi zillions of tomb
righL There. You haven't even started and you
already know cvaything you need to know
doing one'ofdtue problems with all the fancy
already know deep down inside. Are you still drinking about tomatoes?
You can stop now. Supply and demand. Grappling with these ﬁlmy
little curves seems almost tobea rite ofpassage '
in the introductory econ course: 7 ' ‘
And well it should be._Supply and demand
analysis isattheheartof virtually allofeeonoru-
ics. Ifyou're going to survive Econ Lot; 101. or
whatever. you‘ll have to master supply and
demancL And you‘ll-have to do it now. ‘ 7 "_
So. in the spirit of helping you make 'it
through your coon course and continuing td buy
The Margin. we offer the following virtually
sure-ﬁre guide to supply and demand analysis. “What would happen to quantity? Of
course it would falL With hardly any tot-names
available tobuy. what would happen to price? Of
course it would rise. You knew that. didn‘t you?
of worse you did. - 6 Rule No. 1: Trust your Instincts - The truth is. you probably already know
everything you need to know about supply and
demand. Here's proof. - "Think about tomatoes. Nice. rod. juicy
tomatoes.— Are you thinking about tomatoes?
Fine. Now. we‘re going to ask some questions
about tomatoes. We‘ll want to know what hap—
pens to the quantity consumed and to the price as
a result of each ctran Are you'ready? Are you
still thinking about tomatoes? Of course you are. - Suppose scientists discover that eating a
tomato 1 day prevents baldness and unsightly
cellulite bulges. What would happen? Do you
think people would end up consuming more
tomatoes? Of course they would. What do you
think would happen to the price of tomatoes as all
those people rushed to the store to buy tomatoes?
You think it would rise. don't you? of course
you do. There You've already nailed the first
question. and you didn't have to know a thing
about supply and demand to do it. Your annoy-
ing little nephew could have answered that. Now suppose scientists discover that
tomatoes not only do not prevent baldness or
cellulite. but that they're what's been causing
zits all along. What do you think would happen? Would more or fewer consumers be buy-
ing tomatoes? You know the answer to that——
fewer. Consumption would fall. What would
happen to the price as people stopped buying and ggté%t3mvrgu _'.’ It would fall. wouldn‘t it? Of You should be able to draw this much in your
sleep. But belore doing so be sure to talk it over
with your roommate. or your mother. or yoUr
friend. ﬁrst. So. practice drawing the little devils. In
addition to practicing drawing them correctly.
practice drawing them wrong. Try to see Why
they're wrong. in particular. get to the point that
the very sight of a picture like the following
sickens you. You shouldn’t even be able to
imagine drawing apicture like this on the exam.
it violates everything economists hold dear. lt Rule Nm 2: the Lingo was probably drawn by a Democrat. Supply and demand analysis um graphs.
Andgraphsareakind of language. You‘ve got to
learn the language if you‘re going to understand
anything in youreoon oonrse. If you haven't fooled with graphs in
awhile. or ever. they're going to look like a
foreign language to you. And they're going to
look hard. Suppose yo'u 'picked up a ﬁrst grade
primer on how Dick and Jane play together with
Spot. But suppose it's written in Greek. It would
look hard. right? You might look at it and say.
"That's Greek to me" and drop your course in A picture like this should literally turn your storm
ach. In any event. it will get you a bad grade. PAGE 43-SEPJOCI‘. l988-THE MARGIN The best way to avoid disasters like the
previous picture is to take a minute and check
why they're wrong. Take a minute and mark a
couple of points on each curve. Travel between
them. As you travel. pretend that you're a rock in
chess. Or a castle. Chess people use both names
for the same thing. which is why you wouldn't
want your sister to marry one. Anyway. a rock
(aka. castle) can travel in only two directions.
up and dawn and sideways. Travel like thaL What happens when you travel between
two points on the upward sloping demand curve?
Price rises. so people want to buy more. Does
that make sense? Of course it doesn't. Now
travel back the other way. Price falls and people
respond by wanting to buy less. Does that make
sense? If you heard that the store was running a
special on tomatoes would that make you want to
buy fewer tomatoes? Of course it wouldn’t. Sony. You weren‘t supposed to have to
think about tomatoes anymore. Anyway. take the same trip on the down- ward sloping supply curve and conﬁrm that it
doesn't make sense. Rule No. 4: Shin the right curve! Now we get to the hardest part. You'll get
some problem. usually about something of In
agricultural nature. lt'llbesomething likeoneof
our tomato questions (by the way. never order
herring at a restaurant that spells tomato with‘an
e). For starters. when you're just getting
started it's almost neverthe case that both curves
will shift. It's more likely to be just one. But
which one? The answer can be uicky. Suppose we go
back to the presumption that it has been discov-
ered that eating tomatoes prevents baldness and
unsightly cellulite bulges. I know we told you
that you wouldn‘t have to think about tomatoes
again. but that was a lie. 50 sue us. Of course. you already know what hap—
pens as a result of following Rule No. l. Remem-
ber Rule No. [1’ Of course you do. But now
you've gottodrawiLOneofthecurves willshift.
ls it the supply curve or the demmd curve? You might respond to this event by saying
something perfectly reasonable like “well.
people will want more tomatoes and so produc-
ers will produce moretomatoesandsothesupply
will go up." Then. you might do something really bad
like shifting the supply curve up. and drawing a
picture like this one. Q WWI “Well. people will want meg omatoes a so
producers will produce more tomatoes and so the
supply will go up.‘ ﬁrst. notice that your result violates your
intuition. And what are you supposed to do with
your intuition? Trust it. Your picture says that
the quantity of tomatoes goes down. And that
doesn't make sense if people want to buy more.
does it? Of course not. The mistake you made is pretty easy to
make. You shifted the supply curve to the left.
which is a reduction in supply. To show supply
going up. you shift it down. And to show supply
going down. you shift it up. Got it? Are you still
thinking about tomatoes? Actually. it's better not to think of the
supply curve going up or down. Think of supply
as increasing or decreasing. and travel with re~
spect to the quantity axis. Then. traveling in the
direction of increasing quantity meanstravelling
to the right. As our cousin Elmer used to say.
“You cain'thardly every go wrong when you go
to the right." Notice cousin Elmer said “hardly ever."
Suppose you get the part about not shifting the
supply curve the wrong way and then say the
following: “WelL people will want more toma-
toes and so producers will produce more toma-
toes and so the supply will go up.“ You‘ll draw this picture. It‘s not bad—it
shows after all. that quantity will increase. But
what did your intuition tell you would happen to
price if everyone raced to the store to buy toma-
toes? it told you price would rise. didn't it? Of
course it did. But your picture shows prioefal'l-
ing. As Richard Nixon used to say. “we could do
it. but it would be wrong.” Fri I
supptywilt inta'ease.‘ Producers will produce more tomatoes all
right. but they‘ll do it as a response to a higher
price —a higher price produced when the de-
mand curve shift: to the right. The supply curve
doesn't shift at all! The best way to decide which curve to
shift is to imagine the initial price—the equilib—
rium price. when the original supply and de-
mand curves intersect—as given. Unchanging.
immutable. Poured in concrete. Never mind that
the point of the problem is that it changes.
imagine for the moment that it's constant. Then
ask yourself whether. at that price. the event in
the question would change the quantity people
would want to buy. if the answer is yes. shift the
demand curve. Now ask if. at that price. the event would
change the quantity producers want to produce.
it the price of tomatoes were 491! apound and it e‘
P was always going to be 49¢ a pound forever and
ever. would the announcement that eating toma— toes prevented baldness cause producers to run
out and grow more tomatoes? No. in general. an
event will change supply only if it changes the
proﬁtability at any given price of producing the
good. When people go to the store to buy more
tomatoes. they'll bid up the price and that will
induce more production. Butat the initial price it
wouldn't—and so supply doesn‘t move. Here’s the tight prtswer. The demand
increases. forcing pnoe up. The higher price
Induces an Increase in the quantity supplied. The same idea works for something that
will shift the supply curve. Suppose the wages of tomato~pickers rise. It will cost more to produce
tomatoes. Fust. you attacktheproblem intuitively. if
it costs more to produce tomatoes. their price
will rise. right? Ofoourse. Do you think that will
result in their being more tomatoes or fewer?
You said fewer. right? Of course you did. To do the graph. draw the initial ﬁgure.
The one you can do in your sleep. Now. ask
whether. at the initial price. a change in the wage
of tomato-pickers would change the number of
tomatoes people want tobuy. It wouldn't. would
it? Of course not. Do youknow what the wage of
tomato-pickers is now? Do you care? Of course
you don‘t. if the number of tomatoes people would
buy at the initial price doesn't change. the de-
mand curve doesn't change. Would the number
produced at the price change? Of course
it would. It would fall. That means less will be
supplied at that price. and that means the supply
curve will shift to the left. Price will be higher.
and quantity will be lower. Just as you thought. There. That wasn't so bad. was it? It was?
Oh. well. 'l'hemain thing is tofollow the rules. And
to practice. And practice sortie more. And don't ever stop thinking about torna-
toes. LABOR-MANAGEMENT RELATIONS
DEPT. EMPLOYEES TO BE ALTERED IF BAD
WEATHER NEARS —Headline in Boeing Plane Talk ...
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- Spring '07