Giffen goods, illustrated

The first real-world evidence, according to the authors (pdf).

This paper provides the first real-world evidence of Giffen behavior, i.e., upward sloping demand. Subsidizing the prices of dietary staples for extremely poor households in two provinces of China, we find strong evidence of Giffen behavior for rice in Hunan, and weaker evidence for wheat in Gansu. The data provide new insight into the consumption behavior of the poor, who act as though maximizing utility subject to subsistence concerns. We find that their elasticity of demand depends significantly, and nonlinearly, on the severity of their poverty. Understanding this heterogeneity is important for the effective design of welfare programs for the poor.

Gains from trade and specialization, illustrated

Returns to education, illustrated

More here.

Opportunity cost, illustrated

General equilibrium, illustrated

From the Worthwhile Canadian Initiative:

Q1. What happens if they built robots that could do my job as well as I could, and those robots got cheaper and cheaper over time? My wages would have to fall so I could compete with the robots, and I would be worse off.
Q2. What happens if they built robots that could do everyone's job as well as they could, and those robots got cheaper and cheaper over time? Everyone's wages would have to fall so they could compete with the robots, and everyone would be worse off. 

Q1 is a partial equilibrium question and answer.
Q2 is a general equilibrium question and answer...

It is very easy to understand that if I stand up I can see the stage better. It is less easy, but still easy to understand, that if I stand up I will make some other people see the stage worse. It is much harder to figure out whether the losses to some other people's vision are bigger or smaller than the gains to my vision. It depends. On a lot of things. And adding up those gains and losses when each individual stands up in turn is extremely hard. Instead we have to jump to the general equilibrium experiment, where everyone stands up at once. And even then we need to make some assumptions about the distributions of people's heights, and the locations of seats in the theatre, to figure out who can see better or worse when everyone stands up. 

Trying to add up all the partial equilibrium effects in the case of robots is almost impossibly hard. Let's see. If a robot could replace me, and my wages fell, what would that do to the cost of a university education? And how would that affect prices and other people's wages? And how would the Bank of Canada react if it pushed down prices across the economy? And what about investment in robots, and the jobs created there? What would I do instead? And what would happen to profits of robot manufacturers? And the owners of robots?

Econ link list of the day

1. US debt problems? Sell Alaska.

2. The worldwide decline of manufacturing. (It just means we've been more productive in producing manufactured goods, as manifested in lower prices; note that value = pxq.)

3. Why aren't there more retractions in econ journals?

4. Links from blogs to other blogs as micro-transactions of trust.

Where to be born in 2013

In my mind this can potentially be an alternative measure of standard of living, superior to GDP. From The Economist:

Its quality-of-life index links the results of subjective life-satisfaction surveys—how happy people say they are—to objective determinants of the quality of life across countries. Being rich helps more than anything else, but it is not all that counts; things like crime, trust in public institutions and the health of family life matter too. In all, the index takes 11 statistically significant indicators into account. They are a mixed bunch: some are fixed factors, such as geography; others change only very slowly over time (demography, many social and cultural characteristics); and some factors depend on policies and the state of the world economy.

Christmas macro tunes!