A few days after I sent the following letter to The Washington Post, the topics of published letters included how hot it is in Iraq compared to Washington, 1950s rock and roll, and how bad of a movie critic Stephen Hunter is. Ouch. Here's what I sent in:
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Dear Editor,
"High School Seniors Test Well in Economics" (8/9/07, Page D01) cites Bruce Damasio, who trains secondary teachers at Towson University, as writing "most students understood that if the going rate for babysitting increased, people would spend more time babysitting." A pretty basic concept in economics is that price (or wage) changes have both a "substitution effect" and an "income effect." If the wage for babysitting increases, it becomes relatively expensive to not babysit so people want to babysit more. This is the substitution effect that Damasio has in mind. At the same time, those who are already babysitting are all of a sudden made richer by their increased wage which makes them want to enjoy more leisure time and less babysitting. This is the income effect. The total effect on babysitting is actually ambiguous since we don't know which effect dominates. Much worse than Damasio missing this point is that such a flawed question may have made its way onto the national test past so many people who should know better.
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Dear Editor,
"High School Seniors Test Well in Economics" (8/9/07, Page D01) cites Bruce Damasio, who trains secondary teachers at Towson University, as writing "most students understood that if the going rate for babysitting increased, people would spend more time babysitting." A pretty basic concept in economics is that price (or wage) changes have both a "substitution effect" and an "income effect." If the wage for babysitting increases, it becomes relatively expensive to not babysit so people want to babysit more. This is the substitution effect that Damasio has in mind. At the same time, those who are already babysitting are all of a sudden made richer by their increased wage which makes them want to enjoy more leisure time and less babysitting. This is the income effect. The total effect on babysitting is actually ambiguous since we don't know which effect dominates. Much worse than Damasio missing this point is that such a flawed question may have made its way onto the national test past so many people who should know better.
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I actually had my students read the newspaper article in class last week. Sure enough, they spotted the mistake.
Also, I should note that it's not clear that such a question did make it's way onto the test--Damasio might just have been using a (bad) illustrative example. It's also probable that the income effect is beyond the scope of high school economics which raises the obvious question "what's up with that?" And I mean that completely seriously--empirical estimates show that hours worked are not very sensitive to wage changes, suggesting that the income effect is indeed important.
Greg Mankiw, Craig Newmark, and Arnold Kling each have some things to point out about these test results.
I actually had my students read the newspaper article in class last week. Sure enough, they spotted the mistake.
Also, I should note that it's not clear that such a question did make it's way onto the test--Damasio might just have been using a (bad) illustrative example. It's also probable that the income effect is beyond the scope of high school economics which raises the obvious question "what's up with that?" And I mean that completely seriously--empirical estimates show that hours worked are not very sensitive to wage changes, suggesting that the income effect is indeed important.
Greg Mankiw, Craig Newmark, and Arnold Kling each have some things to point out about these test results.
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