Econ of Ed 9/25/03 (I was1/2 hour late)

Fianl grade: 40% problem sets, 40% reading summaries, 20% class participation.

Economics is very complex so economists create models.

Frustrating things about models: Leave things out, important things, like assuming that the market for higher ed is perfectly competitive (unlimited number of institutions, can set whatever price point) – but even though the models are imperfect, they can give useful information. The point is not to cover every single factor/capture the world perfectly, only to get useful information, give us insights. To know - if there are things missing - what would happen if we plugged them in.

Economists are very straightforward/upfront about their assumptions. It is easy to know where to adjust when you can identify the assumptions are that are going in.

Example: Class size reduction seems very good in a simple model – more teacher-student individual interaction, students do better, etc. BUT then all those new openings and need new (inexperienced) teachers AND then experienced teachers can “trade up”out of “tough” schools, concentrating new teachers in certain schools…

What Econ doesn’t do well: Take the next step into what we should do. Does not have a good idea of social welfare. What we know à What we should do – not what this class will cover, much. Even economists who really agree on what the issues are and where the situation stands can very much differ on what should be done.

Positive analysis: What you think might happen and the size of the effect

Normative: Judgments that indicate what might be done abt the positive analysis.

Separate these two out. This course is about positive analysis.

Scracityà

Tradeoffs

Choices

What is the set of possible choices?

What resources do you have? Time, money, personnel,

Example: 8 hours, could be used for econ or history. $10 to buy coffee and/or bagels

*8 time on econ

! \

! \ use all resources=budget constraint

! \

4 \ ßchoice set

! \

! \

!________4______\__8 time on history

What do you produce with the resources?

learning econ

| \

| \ ßproduction possibility frontier = the point where you produce the most

| \

| \ ßproduction set

| \

| \

|______________\__ learning history

What if you introduce a high-stakes test in history (or econ) and scores in subject X rise?

Are students stopping learning subject Y to focus on subject X (tradeoff)? Policy is predicated on assumption that the learning gained in X was previously UNALLOCATED – inefficient use of resources. Is the improvement in subject X a tradeoff, or an increase in overall efficiency?

learning econ

| \

| \

| | \

| | \

| | \ are you giving up the history learning? Or

| _____|_______\ using resources better (EFFICIENCY)

| \

|______________\__ learning history

WHY? Maybe:

• History learning goes down to compensate
• Resources are being used more efficiency
• Production possibilities change
• Teachers or technological changes (improved textbook, etc.)
• More hours or resources (Texas testing?)

Simple models give clear ways of thinking about how policies may affect things based on assumption. Then I can run tests and choose which factors I want to control so I can see how each variable affects the model.