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Sunday, November 17, 2013

Current Events Lesson - American Airlines Merger

One of the biggest economic stories of the past few months has been the proposed merger between American Airlines and U.S. Airways.  Up until a few days ago, this merger was being challenged by the Department of Justice for violating antitrust laws.  Such a vivid example of oligopoly/monopoly (and of monopoly pricing and price discrimination) being played out in the news seems like an obvious choice for this week's free lesson plan.

The United States' antitrust laws are designed to keep businesses in the same industry competitive by ensuring there are plenty of firms competing for consumer business.  When one company gains a disproportionately large share of an industry's business, it becomes difficult for other firms to compete.  Thus, smaller firms go out of business, which further reduces competition.  Whenever competition is reduced, firms are able to increase price above the equilibrium level.  Firms cannot charge whatever they want--since consumers will simply choose not to purchase the item if prices are too high--but they can increase prices to the point of monopoly pricing.

The U.S. government initially chose to file an antitrust lawsuit in this proposed merger because of these fears of price increases.  General economic theory tells us that less competition means higher prices for consumers.  But the airline industry is an incredibly complex industry with various algorithms for determining the price of a particular ticket at a particular time.  For example, there may be hundreds of people flying on a certain flight, but it is likely that many of the passengers paid radically different prices than the others.  Such ambiguity makes the economics of this situation rather difficult to ascertain.

As a result, the Department of Justice was willing to allow the merger to continue as planned as long as American Airlines and U.S. Airways agreed to a few concessions.  Most notably, they must give up gates and routes at some of the nation's busiest airports.  Government officials feel that this will help smaller airlines compete with American Airlines once the merger is complete.  When that merger is complete, there will be three major airlines dominating the industry in the United States, with American Airlines being the largest (along with Delta and United).

The videos I use for this lesson are included both here and as hyperlinks in the free download.  The first video (aired on ABCNews on 13 August) provides background information to the government's attempt to block the merger.  The second video (created by the Associated Press on 12 November) provides information about how and why the merger was allowed to take place.

  • The history of antitrust laws in the United States, especially the lawsuits against Standard Oil and AT&T
  • The characteristics of an oligopolistic market (A few sellers that dominate most of the market in a particular industry, game theory, etc.)
  • The difference between an oligopoly and a monopoly (the airline industry is technically an oligopoly, but certain routes between two cities are usually dominated by one airline, meaning the market for that route is controlled by a monopolist.)
  • Monopolistic pricing (a monopolist still prices where MC=MR, but his MR curve is downward sloping.  This allows him to charge a price higher than the perfectly competitive equilibrium price.)
  • Price discrimination (a monopolist charges different prices to different customers based on elasticity of demand
    in order to capture as much of the consumer surplus as possible.)

I hope you and your class find this lesson engaging and invigorating.  Please leave me any questions or comments.  Enjoy!

Thursday, October 31, 2013

Current Events Lesson - NSA Surveillance Scandal

This week's free lesson discusses the NSA surveillance scandal in Europe.  The leaked documents by Edward Snowden have already revealed how much the U.S. government spies on its own citizens, now he has informed world leaders and their citizens of how much the U.S. spies on them, too.

This should really come as no surprise to most people: the United States conducts massive anti-terrorist operations all over the globe.  But there is something unsettling about spying on your friends and sworn allies.  Despite this, it has also become apparent that all countries spy on their enemies and friends.  The United States just appears to do it more, and in this instance they got caught.

Such revelations have caused tension with dozens of countries throughout the world, particularly in Europe.  This could prove problematic for the United States because of impending trade negotiations.  Analysts, however, predict that although this is embarrassing for the United States, it will likely have no policy, diplomatic, or economic repercussions.

The videos I use for this lesson are included both here and as hyperlinks in the free download.  The first video (aired on ABCNews on 28 October) provides background information to the scandal.  The second video (aired on ABC7 WJLA on 29 October) provides information that will help fuel debate in your class.

  • The rights of privacy and protection guaranteed in the Fourth Amendment
  • Functions and organizations of the executive branch, especially the Department of Homeland Security and the National Security Agency
  • Some people have called Edward Snowden a patriot, while others have called him a traitor.  How similar or dissimilar is Edward Snowden when compared to our founding fathers, who also advocated for liberty and freedom from the tyranny of government?  (One founding father you might want to highlight is Patrick Henry, who said "Give me liberty, or give me death")

I hope you and your class find this lesson engaging and invigorating.  Please leave me any questions or comments.  Enjoy!

Monday, October 14, 2013

Current Events Lesson - Debt Ceiling Crisis

The debt ceiling crisis seems to hang over the American (and world) economy about once a year.  This year, however, the struggle appears much more apocalyptic.

With the Republican-controlled House of Representatives demanding negotiations on deficit spending--particularly spending related to the Affordable Care Act--and the Democratic-controlled Senate demanding a hike in the debt ceiling with no strings attached, this debate is especially bitter.  Both sides blame the other in a contest that portends to punish the first one who blinks.

Both sides do agree that a government default would be catastrophic for both the American and world economies.  With this understanding it does seem probable that a deal will be brokered, albeit with likely only a few seconds left on the clock before the October 17 deadline.

On that date the government is expected to lack the necessary funds to pay its bills.  This is not uncommon.  Normally, the government will allow itself to create more money with the click of the mouse and pay its debts.  If the government is unable to go further into debt, however, this will not be possible.

Obviously, the government will still be able to pay most of its bills (and many theorists argue that the government could pay all of its bills even until around November 1 using creative accounting), but without an increase in the debt ceiling, the government will certainly be unable to pay some of its debts.  People have theorized which bills will get prioritized in such a default scenario, but most politicians believe any unpaid bills is an unacceptable proposition.  How will this problem get solved?

In the short term, the government clearly needs to increase its debt ceiling, and in the long term, it will likely have to make many difficult choices.  Presumably, these long-term debt solutions will need to have a combination of reductions in spending and increases in taxes.  Such a long-term solution, which has been coined the "Grand Bargain" is at this point an afterthought.

In my opinion, however, the whole concept of the debt ceiling should be up for debate.  The United States is one of the only countries in the world (Denmark is another) to hold itself to a debt ceiling.  Other countries simply borrow as much as they need in order to cover the already-approved spending.  This idea is the concept I use for this free current events lesson.  Students will get to debate whether a debt ceiling should or should not be in place.

The first video gives general background on the debt ceiling and its characteristics.  The second video, which aired on October 13 on ABC News, explains the current political situation.  Both videos are included here and in the free download.

  • Taxing and Spending clause of the constitution (gives Congress, not the president, the power to tax and pay debts)
  • The political power and role of special interest groups (particularly the Tea Party)
  • The concept of gerrymandering (some theorists argue that several House Republicans are only able to hold out on the debt ceiling because they are in such stable districts that they could never get voted out)
  • Credit Ratings (people may be less likely to loan money to the U.S. if it defaults on its loans)
  • Interest rates in financial markets (interest rates for borrowing money will certainly rise if the U.S. defaults because loaning money will become riskier)

I hope you and your class find this lesson engaging and invigorating.  Please leave me any questions or comments.  Enjoy!

Monday, October 7, 2013

Current Events Lesson - Government Shutdown

After watching TV and listening to the radio over the past week, I think it is safe to say that everyone's mind is focused on the government shutdown and what it means for them and America as a whole.  So, this week's free downloadable lesson discusses this newest government crisis.

The problem stems from the fact that Congress is responsible (once a year) for deciding how it will fund the government programs and agencies it operates.  This includes such diverse things as the military to the food stamp program.  As of October 1st, the old continuing resolution that funded the government expired, but Congress still has not decided how to fund the government in the future.  The result?  Shutdown.

Republicans are bearing a large share of the responsibility for the government shutdown due to their dislike of Obamacare.  The reason House Republicans will not pass a bill to fund the government is because they want to add provisions that will partially limit aspects of Obamacare.  Democrats, however, are bearing some blame, too.  They are unwilling to negotiate on Obamacare until the government is funded.

Thus, the Republican-controlled House and the Democratic-controlled Senate are in typical Congressional gridlock.  The problem this time is that millions of average Americans are suffering on a daily basis.  My hope for this lesson is that it can connect to your students in a very human way.  The government shutdown, although somewhat ambiguous for most teenagers, is likely having immediate effects on their life and well-being.

The video I use for this lesson is included both here and in the free download.  It's a five minute video that aired on October 2nd on ABC News.  It explains both how the shutdown affects Americans and what the political situation in Washington, D.C. currently looks like.

  • The titles of the different Congressional leaders (i.e. Majority Leader in the Senate, Speaker of the House, Majority Whip, etc.)
  • Services provided by different governmental departments (National Parks and Museums operated by Dept. of the Interior, E-Verify is run by Dept. of Homeland Security, etc.)
  • Fundamental beliefs of the Republican party (desire fiscally responsible governments, do not want government taking over traditionally capitalistic businesses such as health insurance, etc.)
  • Fundamental beliefs of the Democratic party (government was created to ensure the social welfare of all people, government should get involved in capitalist markets if they are functioning poorly, etc.)

I hope you and your class find this lesson engaging and invigorating.  Please leave me any questions or comments.  Enjoy!

Monday, September 30, 2013

Current Events Lesson - Obamacare (The Affordable Care Act)

This week's free downloadable lesson discusses the debate over Obamacare.

Seeing as how the new health care exchanges open tomorrow, discussing Obamacare today seemed like a good idea.  People can begin signing up for the exchanges on October 1, but coverage does not actually begin until January 1, 2014.  Several aspects of the bill have already taken effect.  Some of the most important include
  • Health insurance companies cannot deny coverage based on pre-existing conditions
  • There are no more caps on lifetime health insurance payouts
  • Children can stay on their parent's health insurance until age 26

Because the health exchanges are the main emphasis of the law--and the part of it that Republicans hate the most--there is a heated debate going on in the Senate and the House of Representatives.  Complicating the issue is the insistence by House Republicans to tie the bill to repeal Obamacare onto the bill to continue funding the U.S. government.  If no bill gets passed by tomorrow to fund the government, several services will shut down, and government employees who do work will not get paid until a deal is reached.

Both Democrats and Republicans in the Senate have agreed that the bill to fund the government should not be tied to Obamacare.  Even though Senate Republicans dislike Obamacare, they want to ensure that the government does not shut down.  Then, they can focus their attention on Obamacare.  Democrats have asserted that Obamacare is already the law of the land, so it is non-negotiable.  It will certainly need to be tweaked once the exchanges open, but there is no knowing what is needed until the bill is given a try.

Because Obamacare will likely have a direct impact on many of your students, introducing students to the topic in an objective manner will provide them with the necessary information to decide how they feel about it.  Perhaps, if Obamacare stays intact, many of your students could benefit from its health care coverage.

There are two videos for this lesson.  Links to both videos are included on the slideshow in the download.  The first video introduces students to some details about Obamacare.

The second one illustrates the current debate being waged in Congress.

  • How a bill becomes a law (the legislative process)
  • The composition of Congress (i.e. there are 100 Senators, 435 Representatives, etc.)
  • The different Congressional committees (standing, special, and joint)
  • Supreme Court cases that have upheld Obamacare so far ( U.S. Dept. of Health and Human Services v. Florida)

I hope you and your class find this lesson engaging and invigorating.  Please leave me any questions or comments.  Enjoy!