November 25, 2009
Questions on The Price of Everything

My econ 101 students have to write a review of Russ Roberts's The Price of Everything this semester. Some questions corresponding to each chapter are below the fold. Comments are open for a few days if you have any suggestions; if you like any of these questions, please feel free to use them.

Chapter 1
1. Home Depot promises not to raise prices after natural disasters. Why might this be a wise business decision?

2. After the earthquake, Big Box doubled its prices. Use a supply and demand diagram to explain why the prices of diapers, flashlights, plywood, and other goods would increase after a disaster.

Chapter 2
1. Ruth Lieber claims that “no one can make a pencil.” Is this true or false? Explain your answer using some of the Key Elements of Economics.

2. At the end of the chapter, Ruth Lieber asks her students to find something that exhibits order without design. Provide and explain an example of your own.

Chapters 3 and 4
1. What happened to Celia Fernandez after Jose died? Why? How did Castro respond when she left Cuba?

2. Ruth Lieber argues that “prices are key” to coherent changes in the graphite industry. How are prices “key?”

3. On an average day, most people who go to the grocery store do not worry about whether the store will be out of milk, bread, or coffee. Why not?

Chapters 5 and 6
1. Suppose you have three children and two cookies. How do you divide them? What information do you need in order to make a decision?

2. Suppose you own a store and there are a hundred people lined up to buy fifty flashlights. Who should get them, and why?

3. Suppose you live in an earthquake-prone region like the San Francisco Bay area. Would you be more or less willing to hold a large inventory of flashlights if you knew that you could charge high prices for them in the event of a disaster?

4. What are the key differences between the scenarios in 1 and 2? How do these differences change your answer?

5. Ramon Fernandez wants “a world where flashlights are both cheap and available! Why can’t we have both?” How would you answer him?

Chapter 7
1. What wasn’t Cuba able to develop a massive and successful coffee industry? What problems did they confront in trying to centrally plan their productive activities?

2. How much wealthier are we today than in 1900? Why?

Chapters 8 and 9
1. What did Ruth’s husband do for a living? What motivated his clients?

2. Ruth Lieber tells Ramon Fernandez never to “confuse a person’s identity or value with her job title. They have nothing to do with each other.” Does this contradict what we have learned this semester? Explain.

3. This is a quote from Ruth Lieber on page 123: “I’m not pro-business. I’m not even pro-profits. There is nothing inherently good about high profits.” Explain.

Chapters 10 through 13
1. Which is a wiser use of resources: saving a million barrels of oil, or saving a single pound of aluminum? How do you know?

2. Ruth Lieber claims that the market “deserves some romance.” Do you agree or disagree? Why or why not?

3. Ruth Lieber and Ramon Fernandez discuss the ways in which the labor market is and is not like a game of musical chairs. How is musical chairs an inappropriate description of the labor market?

4. According to Ruth Lieber, why can’t companies like Walmart choose to pay their employees more or less? Explain your answer using the tools we have developed in class.

5. How wouldn’t Ruth help the poor? Explain how some of the “solutions” she discusses might actually make them worse off.

6. Who is “the weaver of dreams?”

7. Consider the expression “people before profit.” Evaluate it in light of the lessons of The Price of Everything and the Key Elements of Economics.

Posted by Art Carden at 04:48 PM in Economics

Comments

Art,

Here's the 11 questions I gave mine:

1. At the end of chapter 2, Ruth insists that despite the fact that companies have bosses, “no one is in charge” and that no one sets the price of goods and services. Explain what she might mean by that and how it relates to our discussions in class.

2. In chapter 4, Ruth claims that the flock of birds as a whole is smarter than the smartest bird in the flock. What’s the equivalent claim about how markets work? Give an example.

3. At the end of chapter 4, Ruth engages the class in a discussion about “price gouging” and price controls. Use supply and demand curves to illustrate her point about gas prices after Hurricane Katrina.

4. In chapter 6 (p. 73) Ramon says “But I want a world where flashlights are both cheap and available! Why can’t we have both?...You’re the economist. Tell me why we can’t do better.” How would you answer Ramon?

5. Explain the distinction between “pro-business” and “pro-market” that Ruth invokes in chapter 9 (p. 123). Why do you think people confuse those two ideas? What do you think of Ruth’s answer to Ramon?

6. On p. 135 in chapter 10, Ruth analogizes economic evolution to biological evolution, but she’s careful to note that unlike genetic mutation, “economic evolution isn’t random.” Why isn’t it? What makes it possible for individual humans, firms, and households to engage in economic behavior that isn’t random? How is it that even as they are all very “purposeful,” the outcome of their actions reflects none of their intentions?

7. Later in chapter 10, Ruth says “As we destroy jobs, we get wealthier.” What does that mean? Give an example other than the ones Ruth provides.

8. Who or what is the “weaver of dreams?” Explain your answer.

9. What did you think of the book overall? Did you like it or not? Did it help you understand the course material? What worked and what didn’t?

10. Do you think the book was valuable enough to be required reading the next time I teach the course? Why or why not?

11. BONUS QUESTION: on p. 156, Ruth struggles with a crossword puzzle clue. What’s the right answer that she can’t get? Why is this absolutely the funniest moment in the book?

Posted by: Steve Horwitz at November 25, 2009 05:15 PM

This is very helpful; I am writing a syllabus for "Economics and Democratic Citizenship" for spring that will use Price of Everything. Any other book suggestions or readings? I am giving them Miller and North to do some current events already. What would you add to this?

Posted by: King Banaian at November 25, 2009 08:45 PM

I have used, to great effect, DiLorenzo's HOW CAPITALISM SAVED AMERICA and Russ's INVISIBLE HEART in principles classes. If anyone is interested in seeing my test questions for these books, please email me.

Posted by: Chris Westley at November 25, 2009 09:43 PM

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith

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