Applications of Economic Principles in the News
The newspapers and news magazines are full of stories about economics. This page
includes stories involving real-world applications of the principles of
economics that we studied with experiments. Seeing the way that economic ideas
appear in the news brings the theories to life. Learning even a little bit of
economic theory helps to make the news more comprehensible and interesting.
You might also be interested in reading about Nobel prize winners
Part I: Competitive Markets
- Experiment 1: Supply and Demand
Looking Genes? - Selling Fashion Models' Eggs Online Raises Ethics
Issues (NYTimes, 23 October, 1999).
- To the horror and disgust of mainstream infertility groups, a longtime
fashion photographer has begun offering up models as egg donors to the
highest bidders, auctioning their ova via the Internet to would-be parents
willing to pay up to $150,000 in hopes of having a beautiful child.
Madness? - Profit-making companies are invading areas once thought
the exclusive preserve of government. (WSJ, 5/14/98).
- Roughly one in 20 federal inmates is now in a for-profit prison, and
more than one in eight community-hospital beds is in an investor-owned
hospital. Deregulation is shaking up once-drowsy industries like electric
utilities, prompting a frantic scramble for dominance. Skilled people in
endeavors from singing to software find that, like baseball's free agents,
they can command once-unimaginable salaries if they exploit the market.
Water, Everywhere - America's New Drink? Water---Just Water
- This is water, just water---no sparkle, no fizz, no flavoring, and no
guarantee that it's greatly different from what comes out of your tap.
- How much for
that Beanie in the window? - More Proof That Grownups Are Nuttier
Than Their Kids (WSJ, 12/27/96).
- The price run-up on these babies would make a commodities trader blanch.
But the 50% surge isn't for soybeans or cocoa beans. It's the latest crop of
Beanie Babies, little toy animals stuffed with plastic beans that kids --
and some adults -- crave.
- Supply and demand in a market with few substitutes.
- Experiment 2: Shifting Supply and Demand
- Running on
Empty - Fuming over Gas Prices (Time, 5/13/96).
- What caused the rapid rise in gas prices in early 1996?
Prices One and Two
-Grain Futures Fall After Harvest Estimates (WSJ and
NYTimes, September and October, 1996 summary).
- Two articles, published one month apart, discuss the effects on the
prices of farm commodities of updated government crop forecasts.
Fishy - Fishermen in Alaska, Awash in Salmon, Strive to Stay
Afloat (WSJ, 9/4/96 summary).
- When is the fishing too good?
- A Big Thaw
in the Orange Supply - Orange and Grapefruit Crop Should Set Record
in Florida (New York Times, 12/25/1996 summary).
- Seven years after a two-day freeze over the Christmas weekend devastated
the Florida citrus crop, growers in the state are expecting their biggest
Part II: Market Intervention and Public Policy
- Experiment 3: Sales Taxes
Smoke Gets in Your Eyes - FTC Sharply Criticizes Proposed Tobacco
Deal--- Agency Says Profits Would Exceed Penalties Included in Settlement
- A tobacco-industry spokesman, Scott Williams, rejected the FTC's report,
saying it is "highly speculative and misses the point, which is that the
price increases in the settlement are designed to maximize the reduction in
underage tobacco use." He said the report "is based on assumptions that are
at best inaccurate," such as the FTC's calculation that cigarette makers
routinely pass on more than 100% of the cost of tax increases.
Breaks May Raise Tuition - What are the real impacts of proposed
programs to subsidize college tuition? (Ann Arbor News, 12/11/96
- "President Clinton's proposed tax breaks to help the middle class pay
college tuition may result in little savings to families but a windfall to
schools. Critics fear that universities will simply use this as an excuse to
- Experiment 4: Prohibition
Corruption in the Mexican Drug War - Good Guys Gone Bad? A Mexican
Anti-narcotics Agent Claims Senior Government Officials are Involved in a
Corrupt Sham (Time, 8/12/96).
- And you thought that the lab went too far?
in Endangered Species - Animal Genocide, Mob Style (Time,
- This article focuses on the involvement of organized crime in the black
market for prohibited trade in wildlife and wildlife products.
- Interesting Car
Loans - Can markets make ``the mob look good'' (UPI,
- Typically states prohibit lenders from charging ``excessive'' interest
on loans. Here is an attempt to remove this restriction.
- Experiment 5: Minimum Wages
Milked? - Byzantine Method of Pricing Milk Won't Be Simplified
Anytime Soon (WSJ, 11/25/97).
- Milk drinkers got some good news earlier this month, when a federal
judge threw out one of the strangest federal regulations on the books. Known
as the Eau Claire rule, it allowed dairy farmers to collect a bonus for
their milk based on how far their cows were from the Wisconsin city. But
consumers haven't won yet...
Wage Proposal Debate - The Political Interest: Minimum Wage, Minimum
Sense (Time, 2/6/95).
- In the 1995 State of the Union address, President Clinton proposed a
hike in the minimum wage. This article discusses some of the issues
surrounding this idea.
Part III: Imperfect Markets
- Experiment 6: Externalities
- >Only in
LA? - Actress Julie Newmar and Others Struggle With Noisy Leaf
Blowers (Wall Street Journal, 12/3/97).
- Gas-powered blowers long ago replaced rakes and brooms in the
well-groomed communities of Los Angeles. Over the past year, however, leaf
blowers have become more than just instruments to tend lawns and tidy flower
beds: They have become a call to arms, the latest symbol of the city's
- Don't Blow
It - What's that quiet? L.A.'s leaf blowers fall suddenly silent
(Seattle Times, 7/2/97).
- The law prohibits use of the blowers within 500 feet of a residence, and
imposes fines of up to $1,000 and jail terms of up to six months for both
gardeners and homeowners who violate it. "Many people have the nerve to say
gardeners are lazy," Alvarez added. "I dare any City Council member, for one
day, to perform the job of a gardener and see if they have time left for
Pollution - Certificate Trading Program Reduces Acid Rain Emissions
- Proposed by the Bush administration in 1990 as a novel, market-oriented
solution to the problem of acid rain, the trading of what amounts to
sulfur-dioxide-pollution permits has led to results that have exceeded
expectations. Since its 1994 inception, the trading program, administered by
the EPA, has contributed to a 30% drop in sulfur-dioxide emissions from
major polluters, the agency says.
- Like a
Rock - Deadly Crashes Increase Between Cars, Light Trucks (NY
- The number of collisions between a car and a light truck has been rising
steadily. While they still make up a minority of two-vehicle crashes, these
accidents now account for the majority of deaths in such crashes, and 80
percent of these deaths are in the cars.
Fishing? - Rivalries Grow for Global Fishers, As Fleets Expand and
Hauls Wane (WSJ, 11/25/97).
- The United Nations Food and Agriculture Organization says 11 of the
world's 15 main fishing grounds are seriously depleted. Still, a big
expansion of the global fishing fleet continues, with the Southeast Asian
nations and China among the most aggressive...Fishing conflicts are among
the most visible of a new set of international security and diplomatic
concerns caused by environmental degradation and resource depletion.
- Too Few
Fish in the Sea - After reaping the oceans' bounty with careless
abandon, the world struggles to save an irreplaceable food source
- After providing nearly five centuries of uninterrupted bounty, the Grand
Banks have suddenly run low on fish.
Growth of the Internet - Explosive Growth Clogs The Internet's
Backbone (NYTimes, 6/29/96 electronic).
- Is the electronic commons being over grazed?
Some Tollbooths Along the Information Highway - On the Internet, one
person's traffic can take up a lot more space than another's
(Providence Journal-Bulletin, 8/21/95 summary).
- Can the Internet bear the strain of this high-intensity traffic?
Information travels the Internet first-come, first served, so congestion
from the new high-intensity uses already delays and interrupts other people.
- Peak Load
Pricing to Alleviate Highway Congestion - Message in a bottleneck:
It's time to start charging rush-hour commuters (US News and World
- [S]ince 1986, car travel has increased almost 40 percent, while highway
capacity has barely grown. The author suggests that a possible remedy is
"peak-period pricing," which means charging drivers for access to highways
during peak times.
- Experiment 7: Monopolies and Cartels
- Enjoy the
Discriminating Taste of Coke - Coke Tests Vending Unit That Can Hike
Prices in Hot Weather (NYTimes, 28 October, 1999.
- While the concept might seem unfair to a thirsty person, it essentially
extends to another industry what has become the practice for airlines and
other companies that sell products and services to consumers. The falling
price of computer chips and the increasing ease of connecting to the
Internet has made it practical for companies to pair daily and hourly
fluctuations in demand with fluctuations in price -- even if the product is
a can of soda that sells for just 75 cents.
Profits - U.S. Outlines How Makers of Vitamins Fixed Global Prices
(NYTimes, 21 May, 1999.
- Every year around August or September, the senior executives from the
world's largest producers of vitamins would gather clandestinely for a few
- Oil Producers Try to Control Industry Supply (WSJ, March,
- A series of stories and tables relating to recent events in the world
oil market, as reported by the Wall Street Journal. Will the cartel go bust?
Cartel? - There's Tumult in Toon Town (Time, 11/17/97.
- For 60 years, the animated feature was a Disney monopoly. Now rival
studios are muscling in, led by Fox with a winsome Anastasia.
Browsing - Why the Justice Dept. Is Wrong By WILLIAM H. GATES
- If you asked customers whom they would rather have deciding what
innovations go into their computer--the government or software
companies--the answer would be clear.
- Packing the
Planes - Airlines Rely on Technology To Manipulate Fare Structure
- Computers allow airlines to constantly tell each other about fare
changes, tamping down the chances that any one will gain even a momentary
price advantage. And an obscure mathematical science known as "yield
management" empowers airlines to project almost precisely how many
last-minute business travelers will show up willing to pay whatever it takes
to get on a given flight.
Monopoly with Real Money - Toys 'R' Us Loses FTC Ruling With
Marketing Implications (WSJ, 10/1/97.
- An administrative judge at the Federal Trade Commission upheld charges
that Toys "R" Us Inc. illegally pressured manufacturers to deny popular toys
to warehouse-club discounters.
Cartels Are Forever? - De Beers' Luster Threatened: De Beers Faces
New Threats to its 60-Year Control of Diamond Production (Reuter,
- Though De Beers has been able to maintain a diamond cartel for the past
60 years, serious threats are now emerging.
Up and Fly Right - Branson Starts Aerial War by Embarrassing
Crandall (WSJ, 6/27/96 summary).
- "Raise your g----- fares 20%. I'll raise mine the next morning. You'll
make more money and I will too."
Mark-Up to the World - The Fix Was in at ADM: A Record $100 Million
Fine for Rigging Prices May Add Up to the End of the Andreas Family
Dynasty (Time, 10/28/96).
- The agribusiness giant pleads guilty to conspiring to fix prices for the
livestock feed-supplement lysine and for citric acid, an additive found in
products from cosmetics to soft drinks.
Financial Aid - Colleges Manipulate Financial-Aid Offers,
Short-changing Many (WSJ, 5/1/96 summary).
- How do financial aid packages resemble airline pricing?
- More on
Price Discrimination and Financial Aid - The New Economics of Higher
Education ( New York Times, 4/22/97).
- "You need to charge what your market will bear, while keeping a vigilant
eye on affordability," said Williams, whose company is one of a burgeoning
group advising colleges on how to get more bang from a scholarship buck.
Part IV: Firms and Technology
- Experiment 8: Entry and Exit
- There's No
Business Like Show Business - Why These 'Angels' Invest Thousands on
Broadway (WSJ, 10/17/97).
- Two commandments of smart investing are to never let emotion interfere
with your decisions, and never bet on a business you know nothing about. But
if those rules were always followed, there would probably be no such thing
as "angels," the old-fashioned slang term for well-heeled backers of New
York musicals and plays.
Brewpub Binge, Sobering Tales - Eager entrepreneurs are pouring into
the booming brewpub business--and some have wound up with hangovers
(WSJ, 2/6/96 summary).
- 190 new brewpubs opened in the U.S. in 1995. This was nearly as many as
the total number that had opened in the previous 3 years. But, dozens of
others are closing and many others are struggling.
- Experiment 9: Measuring Productivity
- Experiment 10: Comparative Advantage
Wars - Looks Good, but What's Under the Hood? (Time,
- The auto-and-parts agreement concluded by U.S. and Japanese negotiators
in Geneva last week, just barely in time to head off a possible transpacific
trade war, looks beneficial to both sides.
Part IV: Information, Auctions, and Bargaining
- Experiment 11: Adverse Selection
- Like an
Adversely Selected Rock - Some Insurers to Increase Rates for Large
Vehicles. (NYTimes, 10/17/97).
- Alarmed by research showing that sport utility vehicles and pickup
trucks are inflicting unusually costly harm to cars and their occupants in
collisions, some big insurers are raising liability rates on the oversize
vehicles in what could amount to the largest overhaul of liability coverage
since the rise of no-fault laws a quarter-century ago.
Annuities in the Late 1700's - Not Dying to Have One.
- In the late 1700's, the English government wanted to raise some money by
selling life time annuities. What was wrong with their plan?
Need to Kick the Tires - Say Goodbye to Haggling: Fixed-Price
Superstores are Taking Over the Used-Car Business (Time,
- Nine of the nation's biggest and most powerful automobile dealership
owners announced plans to create a chain of Driver's Mart superstores,
manned not by commission agents but by salaried "sales consultants" offering
"pre-owned," "nearly new" and "off-lease" autos at nonnegotiable, uniform
prices. Driver's Mart plans to sell the reconditioned cars complete with
warranties and 30-day return policies.
- Edmund's Selection of Used
Vehicles - How much is that used car worth?
- Dive into some real world data and see if you can spot adverse selection
in action. A prediction of the theory is that cars that are sold recently
after being purchased have a higher chance of being lemons, and thus should
command relatively lower prices. If you are interested in buying a used car,
see the bargaining section below for some helpful links.
- Experiment 12: Auctions
Rush - The FCC Auctions (San Diego Daily Transcript).
- Billions of dollars and the future direction of telecommunications will
be at stake when the Federal Communications Commission auctions off
broadband licenses in two weeks.
- Is Air
Free? - Battling for a Slice of Thin Air (Time, 12/7/94).
- For the past few weeks, the giants of the telecommunications industry
have engaged in a high-stakes game of corporate musical beds that left some
of the most eligible partners sleeping alone and created some awfully
strange bedfellows. The immediate cause of all this was an obscure bit of
rulemaking from the Federal Communications Commission. The FCC for the past
four months has been selling off slices of the broadcast spectrum.
Price Air? - The FCC Readies an Airwave Auction by Boning up on Game
Theory (Business Week, 3/14/94).
- In the past, the agency awarded licenses free of charge, either through
lotteries or hearings. This time around, it intends to hold its first-ever
auction. To make sure the sale goes smoothly, the FCC has enlisted the help
of experts in game theory.
- Bidding for Entrance to University
- Can the web enhance the efficiency of the assignment of students to colleges and universities?
Price Camelot? - An Auction of Jackie Kennedy's Personal Belongings
Draws Throngs Eager to Pay a Premium for History (Time, 5/6/96).
- The setting was the U.S. showroom of the auctioneer Sotheby's; the
occasion, the public sale of 5,914 personal items belonging to the estate of
Jacqueline Bouvier Kennedy Onassis. And the outcome was not only a
bewildering binge of conspicuous consumption but a perverse tribute...
- Experiment 13: Bargaining
in a Legal Battle - How a $909 Dispute Generated $100,000 in Legal
Fees (WSJ, 3/23/94 summary).
- You may have thought that the escalation auction in class, where your
instructor auctioned a $1 bill to the highest bidder, but made the top two
bidders pay for it was amusing, but contrived. Could anything like this ever
happen in the real world? Listen up! (It's just this kind of incident where
the actions of 95% of the lawyers give the other 5% such a bad reputation!)
of '94 - As Owners and Athletes Argue About Money, a Bitter Strike
Interrupts What Looked to be a Season of Shattered Records (Time,
- Never before has the naked power struggle between players and owners
seemed so heedless and self-destructive. And there is an unquantifiable
loss. The pastoral joys of baseball, joys that no other sport can match,
- How to Buy
a New or Used Car - A Real-World Guide to Bargaining Over a New or
- This guide teaches you all the skills you need to be a great car buyer.
The name of the game is money, and you can save a lot of it by buying a car
- Used Car
Purchasing Scenarios - Part of an interactive course on how to
effectively shop and negotiate for a used vehicle.
- Two helpful secenarios that will be a great help when you go into the
"Lion's Den" to negotiate for that "new" used vehicle.
- Experiment 14: Network Externalities
Phones - The Internet: Access Avenue for Videoconferencing.
- The affordability of multimedia personal computers, the expanding use of
local- and wide-area networks, and the emergence of digital audio and video
technologies that make possible transmission of voice and images over
existing computer networks are key developments that now allow
videoconferencing (VC) systems to become mainstream.
Technology Today - Video phones finding niche after 40 years in
- The video phone concept is actually more than four decades old, but new
low-cost technologies are providing the Air Force a rare opportunity to
permit families and deployed airmen to be able to see, as well as talk, to
the Best Isn't Good Enough - What Ever Happened to... WordStar? .
- One of the most interesting stories in the history of computing
surrounds the dominant word processor of the late 1970s and early '80s:
Thanks to John H. Miller,