Assignment:

1. One of the skills of the economist, as defined in Chapter 1 of the book, is to observe facts, weed out relevant ones from irrelevant ones, and theorize about the cause. Yet top economists wildly and readily disagree on most, if not all, aspects of the economy. It ‘s often even joked about that economists are like weathermen in that they can be wrong all of the time and still have a job where people listen to what they say. Explain why this is so, and what you think contributes to the wide variance in theories put forth by economists, especially during election years.

2. A newspaper item reported that two-thirds of all mothers who work outside the home “do it for the money, not by choice. Are those really the only alternatives? Could it be that the real culprit is that most American families want to climb the social ladder and have more possessions; therefore one income is often not enough to make that happen? Or maybe is it that divorce is so prevalent that women must work to cover her living expenses? Or that many mothers have never married? Or is it that most mothers want a life outside of just being a “mommy? Or is it a bit of everything. Explain your view on working mothers and the economics reasons behind them.

3. Airlines are willing to overbook flights because they know that people who make reservations do not always show up. Sometimes, however, this results in more people holding reservations at the gate than there are seats on the flight.

A. Is overbooking efficient from the airlines ‘ standpoint? Why or why not?

B. Is overbooking efficient from the standpoint of passengers? Why or why not?

C. As a consequence of a 1976 court case that Ralph Nader won against an airline that had “bumped him, the federal government adopted a rule requiring airlines to compensate people who were denied boarding despite holding a confirmed reservation. As a result, the airlines started to ask for volunteers who were willing to take a later flight whenever a flight turned out to be overbooked. Who benefited from this new regulation, and how?

D. If passengers can, in effect, sell their confirmed reservations when a seat shortage arises, why can ‘t passengers sell their right to land at a crowded airport when a shortage of landing slots arises? How do you think this would change air travel as we know it?

E. Before 1976, the airlines often denied boarding to passengers who were flying on urgent business in favor of passengers who were not in any particular hurry to reach their destinations. This would seem to be a cooperative failure. What was the crucial step that lowered transaction costs sufficiently to transform the frustrating situation before 1976, when the last persons to show up at the gate were denied boarding, into the current system, where only volunteers are denied boarding?

4. Suppose a gasoline station offers the following promotion on the 4th of July: “TODAY ONLY: FREE GASOLINE FROM NOON UNTIL 3:00 P.M.! HAPPY BIRTHDAY, AMERICA! Is that gasoline a free good to the owner of the station? Is it a free good for all the drivers who wait in long lines to fill up? Countless others might decide to avoid the “free gas and fill up at other stations that charge $4.00 per gallon. In your opinion, are they foolish to pass up the opportunity? In the economic way of thinking, would they be failing to economize?