Tutorial 1 - Thinking like an Economist and Supply _ Demand

Tutorial 1 - Thinking like an Economist and Supply _ Demand

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Tutorial 1 - "Thinking like an Economist" and Supply & Demand The present financial crisis is expected to have a profound effect on the world economy for years to come, and the reason for the provision of the articles below is to provide a brief introduction to the cause of the financial crisis, with the primary intention of encouraging a tutorial debate about the supply of and demand for financial executives and how their compensation (is) should be determined. Questions to bear in mind while reading: What determines the demand for financial executives? What determines the supply of financial executives? How does the interaction between supply and demand determine executive compensation? Why do we see large differences between the compensation of individuals in the financial sector and the compensation of individuals with similar levels of human capital in other industries? Why do we see large differences between the compensation of American financial executives and financial executives in other parts of the world, e.g. Japan & Western Europe? This tutorial does not follow the standard format of the remaining ECO2003 F tutorials. Dear Economist: Is the credit crunch suitable for children? Dear Economist, My young son came home from school and asked me: “Mummy, what’s a credit crunch?” How can I explain this to a five-year-old? Ms LG, London Dear Ms LG, Once upon a time, there was a blameless girl called Consumerella, who didn‘t have enough money to buy all the lovely things she wanted. She went to her Fairy Godmother, who called a man called Rumpelstiltskin who lived on Wall Street and claimed to be able to spin straw into gold. Rumpelstiltskin sent the Fairy Godmother the recipe for this magic spell. It was written in tiny, tiny writing, so she did not read it but hoped the Sorcerers‘ Exchange Commission had checked it. The Fairy Godmother carried away armfuls of glistening straw-derivative at a bargain price. Emboldened by the deal, she lent Consumerella who had a big party to go to 125 per cent of the money she needed. Consumerella bought a bling-bedizened gown, a palace and a Mercedes and spent the rest on champagne. The first payment was due at midnight. At midnight, Consumerella missed the first payment on her loan. (The result of overindulgence, although some blamed the pronouncements of the Toastmaster, a man called Peston.) Consumerella‘s credit rating turned into a pumpkin and Rumpelstiltskin‘s spell was broken. He and the Fairy Godmother discovered that their vaults were not full of gold, but ordinary straw. All seemed lost until Santa Claus and his helpers, men with implausible fairy-tale names such as Darling and Bernanke, began handing out presents. It was only in January that Consumerella‘s credit card statement arrived and she discovered that Santa Claus had paid for the gifts by taking out a loan in her name. They all lived miserably ever after. The End. Pasted from <
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This note was uploaded on 05/23/2011 for the course ECON 203 taught by Professor Jules during the Spring '11 term at University of Cape Town.

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Tutorial 1 - Thinking like an Economist and Supply _ Demand

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