What is price stickiness, and what does this have to do with Chanel bags?

In this post I am going to talk about price rigidities/stickiness.  What do economists mean about price rigidities and how do we test them?  

On the face of it this sounds pretty simple – if prices change often then there doesn’t seem to be much scope for them to be sticky.  But when we think about it a bit more this isn’t true – and thinking about why it isn’t true can give us useful insights into the macroeconomy.

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ECON130 Week 9: Finance

This week was a topic that a lot of students take the course for – finance.

Finance seems like an exciting topic, with a lot of the economic metrics we see flashed around day to day related to financial markets rather than the abstract markets we’ve been talking about so far.

However, what do we mean when we talk about finance here, and how does it fit into what we’ve talked about so far? For the murky details of how we “do” finance I will leave you to work through the lectures (and slides here and here) – this post is just about motivating why we do those calculations.

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Negative interest rates and commodity markets

Negative interest rates are in the news. In response to imploding economies and very low inflation rates, some commentators have argued that central banks should cut nominal interest rates below zero to try and stimulate economic activity. Others including Federal Reserve Chairman Jerome Powell are less enthusiastic, noting that that there is little evidence that negative interest rates have a substantial stimulatory effect. Either way, the whole proposition raises several interesting economic issues that concern the way that monetary policy affects the distribution of income and consumption.

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ECON 130: Week 8(b) Game theory

One week, two big topics! Today we’re discussing Game Theory.

This topic is awesome, and really wish we could give it more space – in future economics you will.

So what are we thinking about here.

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ECON130 Week 8: Macroeconomics

Hi all,

As you know this is a course on microeconomics … so it is a bit random to teach macroeconomics. However, as this is the only economics course many students do we think it is a good idea to introduce some of the jargon you will see a lot in your work life!

Usually this is a week of lectures, but given the semester is a week shorter we teach this in a single lecture – and it will be assessed as such.

So what is macroeconomic, why do we care, and what are we measuring?

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ECON 130 Week 7: International Trade and Comparative Advantage

This weeks discussion is something a bit different. For the first six weeks we were building up models of producer and consumer choice, and finished with our market model of “perfect competition”. Given this we were able to discuss gains from trade where all producers were the same – but consumers were a bit different.

What we have done this week is actually quite similar – we have asked about gains from trade when the production possibilities were actually a bit different. Given that we have noted that, with different productive opportunities specialisation can generate gains from trade!

The example we use for this is international trade – and that is what we have done in the lectures here and here.

As a practice exercise, can you describe the current shock associated with COVID in terms of a Production Possibility Frontier diagram based on the Australia and NZ trade example in lectures. Graphically what does the shock look like? Could the shock increase New Zealand’s comparative advantage in making Wool? What does this mean?

I’ll put up an answer to this after you test on Monday – as this content is not in this test.