Engaging Students in Economic Courses

Introduction

Many students find economics courses difficult because the courses are technical, abstract, and theoretical. Unfortunately, the students fail to grasp concepts, ideas, and theories in economics, and they never learn to apply economics to relevant events in their lives [1].

Many economics instructors contribute to the learning problems of economics because the graduate programs do not prepare students to teach economics [2]. Instead, the graduate programs teach and train students in economics analysis. If these students enter the academe and begin teaching, they lack modern teaching techniques. Furthermore, college and university administrators only require the instructor to complete a graduate degree in economics in order to teach economics [3]. These new professors resort to the chalk and talk as they were taught in graduate school.

For students to learn economics, the professors must use engaging examples, cases, and puzzles to encourage students to learn [3, 4]. Unfortunately, most students never discover the connections and links between theory, mathematics, and application to real-world problems [5]. Then economics courses gain a bad reputation that frightens the students away [1]. Subsequently, the students usually rate the economics instructors the lowest on campus as compared to professors teaching other subjects [6].

Professors have few incentives to improve their teaching, and according to Elzinga [7], the economics profession produces few great teachers. Even if instructors become aware of pedagogies to improve their teaching, they rarely implement them [7]. Professors and instructors have no incentive to improve their teaching. Besides, this additional effort detracts time away from critical research. University administrators usually reward professors and instructors on their research and the amount and value of grants the professors bring into the universities. Unfortunately, the instructors cannot share their current research with the undergraduate students. Researchers write highly technical, theoretical articles filled with mathematics. Most students would not understand them [2] because the content of the scholarly articles vastly exceeds their comprehension.

The undergraduate economics courses are not improving. In many cases, professors teach material that they never use in their profession themselves [3]. They continue adding topics and raising the course’s complexity while the textbooks become thicker and more ominous [1, 8]. The students never master the basic ideas because the instructors keep forcing and exposing the students to learn more topics [1]. After completing the course, the students quickly forget their economic knowledge [1].

For instructors to change their teaching habits, colleges and universities must experience stress to force people within the institution to change. For example, many economics departments witnessed a 30% drop in economics majors during 1991 [2]. Several scholars showed interests to improve teaching economics to reverse this trend [2]. Furthermore, the economics profession spurred research in improving the effectiveness in teaching, helping professors to meet their research obligations [8]. Unfortunately, this trend has reversed itself, and students started majoring in economics in large numbers again removing the stress from the colleges and universities.

Two factors, however, may put economics departments under stress again. First, the population in the United States is aging, and fewer young people graduate from high schools. Thus, fewer students will enroll at colleges and universities. Second, college graduates are experiencing difficulties in finding employment in their specialties in the difficult U.S. job market. Young people started questioning whether to attend college especially if they must finance their education with student loans, which have surpassed $1.1 trillion in 2014 in the United States. Consequently, universities and colleges will shift their focus on retaining students, forcing professors and instructors to put more effort into their teaching.

This reflection helps me move beyond the convention in economics and improve my teaching. I want the students to remember the ideas, theories, and concepts they had learned in economics after the course ends. Then students will retain economic knowledge for the rest of their lives, contributing to their future insights, decisions, and thinking.

Teaching Feedback and Teaching Quality

During my first semester at Curtin University – Sarawak, attendance continued dropping at the tutorials, and students were silent during class discussions. I resorted to old habits and would cram as much material as I could within that one hour because I had more tutorial questions than I could cover during the time. I kept forgetting the golden teaching rule – a learning constraint depends on how quickly students can learn and master the material, and not the speed the instructor can cover it [1, 3].

I used a five-minute evaluation to rate my teaching style half way into the course. The five-minute survey contains 19 questions, and the questions are organized into five groups: Content and Coverage, Knowledge, Communication, Engagement, and Organization. For each question, students rated my teaching style on a scale: 5 (excellent), 4 (good), 3 (satisfactory), 2 (low), and 1 (very low).

Only 90 out of 140 students had completed the questionnaires. I could have a sample bias if the absent students were not engaged and skipped class because they found the class useless. I displayed the data as a histogram.

Students answered four questions for the Content and Coverage. The question and its corresponding histogram are displayed in Table 1. From the results, I need to improve my teaching. Even though the most common response was a 4, the second most common equaled 3, or satisfactory. Consequently, I must change the content of my courses and implement more active learning because students are not receiving enough content and coverage from my course.

Table 1. Content and Coverage
1. The material was covered in enough depth for my needs.	2. Then material covered helped me to tackle the assessment tasks effectively.
3. The material was covered at the right depth with regard to my previous learning.	4. The teacher showed how topics and theories in the unit were related to each other.

The students rated my knowledge of economics highly in Table 2. For Question 5, most responses recorded a 5 with the second being a 4. For the other two questions, students rated me as a 4 for most responses and 5 for the second most common response. Thus, students believe I possess a high-level of knowledge in economics.

Table 2. Knowledge
5. My lecturer had current knowledge of the subject.	6. My lecturer seemed well informed on the material presented.
7. My lecturer was well informed in related subject areas.

Communication skills comprise another strong trait. I decompose complicated ideas down into small parts and pieces, transforming the complicated ideas into simpler ones. Then I show how the parts and pieces work, and how they relate to the bigger picture. This aspect of my teaching shows on the Communication part of the questionnaire in Table 3. Most students rated my communication as 4 with 5 being the second most common response. Boex [9] determined the lecturers’ ability to present the material becomes the second most important characteristic for effective teaching and learning.

Table 3. Communication
8. My lecturer explained concepts clearly.	9. My lecturer had a style of presentation that allowed me to take adequate notes.
10. My lecturer used examples, applications, analogies, or illustrations that increased my understanding.	11. My lecturer communicated his/her enthusiasm for the subject.

According to Table 4, one area I need to improve is help students engage in their learning. Although the most common response was 4, the second most common response was a 3 for three questions. Unfortunately, I resorted to the chalk and talk, trying to cram as much material as I could within the hour. I overwhelmed some of my students and lost their engagement and interests during the lessons.

Instructors should engage students in economics courses because undergraduate economics courses build upon knowledge over time. In order to succeed, students must completely understand the material taught in the first week of class in order to comprehend the material in the second week [2]. Then the courses continue building upon the knowledge learned in earlier times throughout the course. If the students are not engaged in their learning at the beginning of the course, they will likely experience problems throughout the course. For instance, Boex [9] discovered motivating students was the third most important characteristic of effective economics instructors, and engaging students could help motivate the students.

Table 4. Engagement.
12. My lecturer used a style of presentation that held my interest.	13. My lecturer encouraged students to participate in the class.
14. My lecturer was made to feel that I was a valuable member of the class.	15. My lecturer was motivated to work hard in this unit.

Boex [9] determined the most important attribute for teaching effectiveness is the lecturers explain concepts and theories with clarity and organization. As shown in Table 5, organization is one of my strong traits in teaching. I strive to write notes on the whiteboard clearly and succinctly with plenty of bullets and numbering as I break down complicated ideas into simpler ones. On two questions, the most common response was 5 with 4 being the second. However, on the other two questions, most responses were 4 with 3 being the second. Unfortunately, I did not coordinate different learning activities into the course and did not clearly outline the objectives. Hence, I will change my teaching methodology and experiment with techniques to engage students better.

Table 5. Organization
16. My lecturer was well prepared for each class.	17. Different learning activities were well coordinated.
18. My lecturer set out clear objectives for each teaching session.	19.  My lecturer used class time effectively.

Engaging Students

I developed three strategies to improve students’ engagement for economics courses. First, I will develop and use more team activities for the economics tutorials. Second, I plan to implement more current events into the classroom, showing students how economists analyze the real world. Finally, I will experiment with Gapminder, when I lecture on economic ideas and concepts involving several countries.

Team Activities

I changed my teaching tactics half way through the semester for my tutorials and implemented more group activities. The desks in the tutorial classrooms are clustered into four seats along a row. Thus, the students formed groups comprising between two and four members. Then the groups worked on an activity during the tutorial. Wilson [10] had shown when students work in teams, they usually produce superior work than students working individually. Teams with four or five members can process information efficiently and arrive at the best solutions [10].

The first team activity illustrated the similarities and differences between private goods, public goods, quasi-public goods, and common resources. I wrote two definitions on the whiteboard:

1. Rival – one person consuming a good prevents another person from consuming that same good.
2. Excludable – provider of a good or service can restrict sales to paying consumers.

Conversely, students would know non-rival and non-excludable as opposites of the definitions. Furthermore, I defined quasi as almost or similarly. I usually define unfamiliar terms to the students because mastering the vocabulary comprises a large portion of learning economics.

Students worked as teams to classify the following goods using the two definitions. Every team had a handout that is presented in Appendix A. I gave further information in the parenthesis below for some goods to make the examples clearer.

• public health
• national park
• police force
• national defense (army and navy to protect the nation)
• suburban roads (e.g. roads around Curtin University)
• Community Business District (CBD) roads (e.g. roads in downtown Miri)
• Internet
• Tigers (the animals and not the beer)
• broadcast TV (over the airwaves)
• Foxtel (Similar to a channel on Astro)
• pizza

After ten minutes, we went through the activity to classify the goods.

Another activity illustrates how the little pieces relate to the whole economy. I showed how a central bank uses contractionary monetary policy to influence the economy. I drew a flow chart of the economy, similar to the flow chart in Appendix B. I extensively wrote why each piece behaves the way it does with each piece having the following information.

• Central bank: Sells assets that removes funds and money from the banking system

↓

• Bank reserves: Banks have less funds to lend and borrow

↓

• Cash rate: The interest rate rises

↓

• Other interest rates: interest rates usually move together. If the cash rate increases, then other interest rates tend to rise.

↓

• Interest rates affect the economy.
  • Consumers reduce their consumption (C) and increase their savings because they can earn greater interest rates from their bank accounts.
  • Businesses reduce their investments (I) because their borrowing costs rise.
  • Central bank removes money from the economy, making money more scarce.
    • Thus, money becomes more valuable.
    • Currency would appreciate.
    • Exports (X) fall while imports (M) rises.

↓

• Equation relates changes in Aggregate Demand, AD = C + I + G + X – M
  • Since C, I, and X fall while M increases, the aggregate demand shifts leftward.
  • Both real GDP and the price level fall, which causes deflation and rising unemployment.
• Note – The Reserve Bank of Australia directly controls the cash rate and would increase it for contractionary monetary policy.

After explaining contractionary monetary policy to the students, they worked as teams to complete the impact of expansionary monetary policy on the economy. Appendix B shows the correct, brief answers for expansionary monetary policy.

Students responded to the group activities well as I diminished the monotony of chalk-and-talk lecturing.

Applying Ideas and Concepts of Economics to Current Events

Another teaching technique is the instructors restrict the number of topics covered in economics courses and focus their resources to help students deepen their understanding of essential ideas and concepts. Then students apply and use the core ideas and concepts repeatedly to solve problems, puzzles, and questions the students will experience throughout their lives [1]. For example, the instructor applies ideas and concepts to a current event during class by illustrating topics found in student newspapers, country’s newspapers, or The Economist. Furthermore, the students could bring a magazine or newspaper article to class [4]. Then students use the concepts and ideas they had learned to analyze the article [4]. For higher-level economics courses, students can further their analysis by applying more analytical and critical thinking skills to analyze their news articles [4].

Applying economics to current events helps align the instructor’s activities to achieve the outcome goals of Economics 100. For example, students analyze and evaluate economic issues using the theory they had learned in class. Students use thinking skills because they analytically solve problems and analyze real world events. Subsequently, students use information skills to investigate new ideas. Finally, students gain an international perspective if they analyze articles from other countries [11].

Students will benefit because not only do they gain insights to understand economics [4], but they may enjoy the economics courses more. If a student performs poorly on the exam, then instructors can utilize the analyzing articles as a supplementary tool to assess students' learning [4]. Finally, instructors do not need as much time to conduct classroom experiments after they started using it [4]. The teaching technique becomes a habit.

Gapminder

Instructors could add software to bring complex economic ideas to life during a lecture. For example, lecturers can use Gapminder – a trend-analyzing software tool that utilizes colorful graphics to display how variables move over time. Hence, the software converts sterile statistical data into colorful, animated graphs that livens boring numbers [12]. A screenshot is displayed in Figure 1. Gapminder has several applications in macroeconomics when instructors discuss key macroeconomic variables such as Gross Domestic Product, inflation, and economic growth. Gapminder was founded in 2005 by Ola Rosling, Anna Rosling Rönnlund and Hans Rosling as a non-profit venture [12].

Figure 1. Screenshot of Gapminder

Conclusion

One of the valuable lessons I derived from my teaching reflection is to keep my course material fresh and current. For example, Elzinga [7] referred to IBM using tying contracts during the 1970s by forcing its customers to buy both computers and punch cards together. He would bring a punch card to lecture to show the students since companies were using punch cards when the student’s parents attended elementary school. Furthermore, I should keep experimenting with teaching techniques to discover novel methods to raise my students’ learning. Then students can utilize the knowledge they gained from my courses throughout their lives.

References

[1] Hansen, W. L., Salemi, M. K., & Siegfried, J. J. 2002. "Use it or lose it: Teaching literacy in the economics principles course." American Economic Review, 92: 463-472.

[2] Gullason, E. T. 2009. "A compilation and synthesis of effective teaching strategies in the economics discipline." Journal of Business & Economic Studies, 15: 83-96.

[3] Bartlett, R. 1993. Empty buses: Thoughts on teaching economics. Eastern Economic Journal, 19, 441-446.

[4] Zhang, Xu and Richard Vogel. 2010. “Making Economics Relevant: Introducing Social and Global Issues into the Classroom.” Faculty Resource Network. Available from http://www.nyu.edu/frn/publications/engaging.students/Zhang.Vogel.html (Accessed 6/9/2014).

[5] Peart, S. J. 1994. The education of economists: Teaching what economists do. Journal of Economic Education, 25, 81-87.

[6] Cashin, W. E. 1990. Students do rate academic fields differently. In M. Theale & J. Franklin (Eds.), Student ratings of instruction: Issues for improving practice; new direction for teaching and learning. San Francisco: Jossey-Bass; pp. 113-121.

[7] Elzinga, K. G. 2001. Fifteen theses on classroom teaching. Southern Economic Journal. 68: 249-257

[8] Johnston, C., McDonald, I., & Williams, R. 2001. The scholarship of teaching economics. Journal of Economic Education, 32, 195-201.

[9] Boex, L. F. J. 2000. Attributes of effective economics instructors: An analysis of student evaluations. Journal of Economic Education, 31: 211-227.

[10] Wilson, P. N. 2005. Mutual gains from team learning: A guided design classroom exercise. Review of Agricultural Economics, 27: 288-296.

[11] School of Economics and Finance. 28 Feb 2014. 1234 Economics 100. Curtin Business School, Miri Sarawak Campus.

 [12] Gapminder. na. About Gapminder. Available at http://www.gapminder.org/about-gapminder/our-mission/#.U6E7gqCgZws (access date 6/18/2014)

Appendix A

Appendix B

Paul Krugman and the New Keynesians

I just had read Paul Krugman’s book – End the Depression Now - for the second time. Everyone regardless of political philosophy should read this book. Even though Paul Krugman has become the top spokesman for Keynesian economics, he writes clearly, succinctly, and intelligently for an economist. Perhaps, Paul Krugman should rewrite Keynes’s book. Unfortunately, the world’s two most famous economists, Maynard Keynes and Karl Marx, are incredibly long-winded writers as every sentence overflows with superfluous words, and sentences stretch across pages.

Paul Krugman is correct in many ways but errs in other ways. The world continues to struggle from the Great Recession that struck the world in 2007. Something seriously happened to the U.S. economy, and many people do not get it. Paul and I get it, and I understand why most people do not get it. Everyone grew up during the prosperous times when the U.S. economy plowed ahead and created millions of jobs while the U.S. military and U.S. businesses dominated the world. If someone wanted to work, the person would simply fill out several job applications and wait for the phone call. Then this person had a job. Then this person could apply for other jobs while working, and gradually transition themselves into better positions.

Nevertheless, something had changed. After the 2007 Great Recession, the U.S. economy has become stuck like a truck spinning its tires in the mud. Jobs had become scarce while the unemployment rate gradually falls towards the 5% rate, which we consider normal. However, many smart people know something had broken in the U.S. economy.

Many politicians and leaders view the falling unemployment rate as a barometer on the economy’s health. However, a falling unemployment rate masks two problems. First, the U.S. government does not count discouraged workers as unemployed. Discouraged workers want to work, but they stopped searching for employment because they believe they can’t find a job in the economy. Second, some people found part-time jobs after being laid off during the 2007 Great Recession. However, some of these people want to work full time and not part time.

What had happened? Something struck the economy like the Ebola virus coursing through a healthy person’s body. Of course, I argue the transition from a manufacturing economy to a service-oriented one had replaced many good-paying, full-time jobs with low-paying, part-time jobs. Then we add an overbearing, all-controlling government that further damaged our economy. Now, we arrive at the first rule - just like the socialists and communists, Keynesians accurately describe the poor’s plight and misfortune.

Rule 1: The Keynesians, Socialists, and Communists can accurately describe the plight of the poor and misfortune in our society.

Paul Krugman correctly assessed Europe’s plight. European leaders have fallen into the austerity trap - governments must increase taxes and reduce government programs. If people picked up an elementary economics textbook, they would discover austerity would be a disastrous policy. During recessions, government should increase government spending and/or reduce taxes because the government injects money into the economy, raising consumers' incomes and spending. Similarly, the government could reduce taxes, allowing taxpayers to keep more income, so they can increase their spending and help expand the economy.

Paul Krugman, however, has missed the point. The European countries never used Keynesian economics correctly, which becomes Rule 2. Governments should use austerity during economic expansions that would slow the economy. Austerity helps create budget surpluses to reduce the government’s debt and strengthens a government’s finances. Then during a crisis or recession, government can boost its spending and lower taxes to expand the economy. Unfortunately, European governments reduced taxes and boosted government spending during the economic expansion, weakening their financial resources. As European governments tried to increase government spending during the 2008 Financial Crisis, investors became leery, pessimistic, and fearful. They stopped investing in Greek, Spanish, and Irish bonds. Investors believed these governments had issued too much debt, and the governments would experience troubles repaying the bonds with interest. We know this became true. Remember the Greek haircut? Euphemism for forcing the bondholders to take a 50% loss on their Greek bonds.

Rule 2: For pure Keynesian economics, government reduces spending or raises taxes during economic booms and boost spending or reduces taxes during recessions. Thus, government strengthens its finances to handle downturns in the economy.

Keynesians are biased towards government spending, which becomes Rule 3. Don’t get me wrong. I understand the concept well. Every economy has four broadly defined sectors: Consumers, businesses, governments, and exports-imports. During a recession, consumers and businesses become fearful and pessimistic about the future. Consumers reduce their spending, buy fewer imports, and boost their savings. As businesses sell fewer products or services, companies lay off some of their labor and reduce their investments. Meanwhile, if the recession had spread to a foreign country, then foreigners buy fewer exports from us. Consequently, our economy takes a huge hit from lack of spending. Consequently, government becomes the only entity that can defy the recession and can boost its spending to overcome society's lower spending.

Rule 3: Keynesians have a bias towards government spending. Nevertheless, government can reduce taxes to expand the economy and raise taxes to slow the economy down.

Many Keynesians discourage businesses, government, and consumers from saving, leading to Rule 4. They must spend all their incomes in the economy to buy goods and services, and keep the economic machine turning. Since everyone becomes fearful and saves more during recessions, people remove money from the economy. Thus, Keynesians are correct if people hide their savings under their mattresses while business and government store their money in vaults. On the other hand, if companies and people deposit their funds into banks, then banks can lend out their funds. Consumers borrow to buy houses, cars, and appliances while companies borrow to invest in buildings, machines, computers, and equipment. This explains why the Asian tigers - Hong Kong, Singapore, Taiwan, and South Korea - grew phenomenally. Asians are phenomenal savers who deposit their savings into banks. Then banks could grant loans to businesses that invest in their economies that fuel their extraordinary economic growth rates.

Rule 4: Keynesians are against businesses, government, and consumers from saving. They must continually spend to prop up the economy.

Here is where Paul and I begin to diverge. Keynesians pick certain periods to show Keynesian economics works, which becomes Rule 5. They always point to a particular time such as the U.S. government preparing the U.S. economy for World War II. The U.S. federal government ramped up spending to build ships, trucks, weapons, and supplies for soldiers. U.S. manufacturing went into overdrive and stomp on the economy’s accelerator. Many young men joined the armed forces while many factories hired women to work in the factories. No question, Keynesian economics had worked.

Rule 5: Keynesians choose their times well to show Keynesian economics works. Then they neglect other times when Keynesian economics had failed.

Everyone forgets Franklin Roosevelt, who started his presidency in 1932. The president boosted government spending during the 1930s by creating numerous alphabet soup agencies and sponsored massive public works projects. Did the U.S. economy recover? No - the U.S. economy had entered a recession in 1937. Of course, the U.S. government also raised taxes, which the government should never do during a recession, and the U.S. government encouraged companies to keep paying high wages to the workers. The high wages ensured the workers retained their purchasing power. Unfortunately, people increase their savings during uncertain times and reduce their spending.

Let’s say the Great Depression was an anomaly. I can find another significant failure of Keynesian economics. Japan entered its two-decade malaise starting in the early 1990s. Japan also used Keynesian economics since the 1990s as the Japanese government amassed a public debt to GDP ratio of 200%. Consequently, the Japanese economic engine continues sputtering and struggling along since the 1990s. What makes Japan unique is the Japanese government bonds are held within Japan, and thus, Japan has little risk of foreigners triggering a financial crisis, which I explain later in this blog.

Returning to our side of the world, the U.S. federal government has dumped trillions of dollars into the economy since the start of the 2008 Financial Crisis, and we have witnessed the weakest recovery ever. Of course, Paul Krugman said, if Keynesian economics does not work, then government must scale up its spending, which becomes Rule 6. Using Paul’s analogy from his book, the broken economy represents a car with a defective battery. The government must only replace the battery to get the car running again. Well, the government has spent $700 billion to bail out the financial institutions and another $831 billion for the American Recovery and Reinvestment Act of 2009. Then the Federal Reserve, our central bank, lent about $2 trillion to bail out the banks. Replacing the battery has become expensive while that damn car still won’t start. The U.S. economy measures about $16 trillion, so if government continues boosting its spending, it will dominate and control our society, similarly to the Soviet Union, where the bureaucrats controlled the entire economy.

Rule 6: Communists and Keynesians only differ in their scale of the government's planning.

I do agree with Paul Krugman – government should never decrease government spending or boost taxes during a recession. Nevertheless, I must add one caveat - government must have strong finances to weather the downturn. In his book, Krugman cites Minsky, an unknown economist. Minsky expounded a simple idea. A company with low debt can expand quickly by taking out bank loans, which we call leveraging. The company continues doing well and keeps expanding while banks keep granting the company more loans. Then a crisis happens, and banks start examining their loans. If banks believe the company has too many loans, the bank cuts the company off, which imposes hardship onto the company. The company begins deleveraging by cutting back on spending and repaying its loans. If a financial crisis strikes the company, then the company may nosedive while the bankers, stockholders, and bondholders panic. Subsequently, the company accelerates towards bankruptcy.

For example, Lehman Brothers bankrupted in October 2008. It began with a leverage ratio of 26 to 1 in 2003 that surged to 39 to 1 in 2006. Consequently, Lehman Brothers borrowed $39 for every $1 it had in equity. Equity measures a company’s financial strength by taking its assets and subtracting its liabilities. Investors want a low leverage ratio because they want to recoup their investments if the company bankrupts. Unfortunately, Lehman Brothers borrowed to buy expensive real estate at the height of the housing bubble.

Did you catch the irony? The U.S. federal government has a leverage ratio too. We know the U.S. government has accumulated $17 trillion dollar debt, but we do not know the government’s equity. Although the U.S. government spends about $3.5 trillion per year, this does not represent equity. We must add all the government’s assets, such as military bases, equipment, government buildings, and other assets and subtract its liabilities. I bet the government's current leverage ratio tilts towards the high side. If a government debt becomes too high, investors will stop buying the government bonds, triggering a financial crisis. Then government must deleverage by paying down its debt and selling off its assets. Unfortunately, the U.S. government holds many assets that it cannot sell, such as military bases, weapons, and so on.

Paul Krugman argues the U.S. government could ramp up its spending that would push the U.S. debt to new records. Although a high debt could trigger a financial crisis, a government does not have to deleverage if it experiences financial trouble. A government could force its central bank to buy government bonds. Thus, the central bank prints money to cover a government budget shortfall. However, printing money leads to inflation and weakens a currency. (The Greek, Irish, Italian, and Spanish governments have no control over the central bank. They only have the power to tax, spend, and borrow. Since investors do not want to buy these government bonds, these governments cannot expand government spending or reduce taxes during a recession.)

Here is where Paul Krugman stumbles in his book, which becomes Rule 7. The U.S. federal government cannot weaken the U.S. dollar by forcing the Federal Reserve to buy U.S. bonds because people around the world hold U.S. dollars to save their purchasing power. If the U.S. government weakens and depreciates the U.S. dollar, people will stop holding U.S. dollars. Then many countries will stop investing in U.S. government securities. For example, China holds roughly $1 trillion in U.S. securities. If the Chinese believes the U.S. government will depreciate the U.S. dollars, then those U.S. government bonds and U.S. dollars plummet in value. Thus, China will dump those dollars and bonds that would trigger a financial crisis. Then the world rushes to unload the U.S. dollars and U.S. government securities, and we Americans will truly experience hard times.

Rule 7: Government cannot debase its currency if the world uses the country’s currency as the world’s transaction currency. Thus, the Eurozone and United States cannot devalue their currencies to jump start exports.

I am not anti-Keynesian, and I do not object if a government builds and expands roads, hospitals, schools, and infrastructure during a recession to create jobs. Nevertheless, the government must possess good finances, which becomes the most important rule – Rule 8.

Rule 8: The politicians have butchered Keynesian economics. Most governments did not raises taxes or reduce government spending during good times, so they could reduce their debts and strengthen their finances. Then governments would have the resources to combat the downturns in the economy.

Analysis Essay for Economics - The Essay

Grammarly score: 88 (Business)
Plagiarism: 3%
Total words: 1,729

This is my economic analysis essay. To help you understand writing, the transition words are in red. Transition words help the text read smoothly. Please note, if you organize your essay well, you only need a transition word here and there. You can find the transition words at:

Transition Words

I also highlighted the passive voice verbs in blue. I learned to reduce passive voice in my writing. I needed passive voice in my essay to eliminate the first person - I. Please note - passive voice arises in many situations. Refer to the Grammar Girl for more information at:

Passive Voice

The article is available at:

Borneo Post

I am using the Chicago Citation style from:

Chicago Citation

Make sure you click on the tab for Author-Date. It is hard to see but it is there. Curtin University has a link to a pdf file for the Chicago Reference.

Chicago Reference Guide

Curtin University has some workshops on writing

Teaching and Learning

1.0 Article Summary

The newspaper article, “Sugar Importers keeping prices low for consumers” (Bernama 2010), from the Borneo Post is analyzed. The Malaysian government will reduce sugar subsidies and increase sugar prices (Bernama 2010). Furthermore, manufacturers have entered into long-term contracts for imported raw sugar to keep prices low (Bernama 2010). Thus, consumers will pay low prices for sugar even though the government will increase sugar prices (Bernama 2010).

2.0 Introduction

Producers make raw sugar from sugar beets and sugar cane. Although Malaysia does not produce raw sugar, it imports it from Brazil. Then Malaysian companies refine the raw sugar into white sugar. Subsequently, consumers, food companies, and restaurants add sugar to drinks such as coffee, teas, juices, and sodas or blend the sugar into desserts for pies, cakes, candies, puddings, etc.

In this essay, supply and demand are used to analyze which factors cause raw sugar prices to rise. Then the elasticity for white sugar is examined, and whether firms would earn greater profits by increasing white sugar prices. Finally, the economic impact is studied when a government reduces the sugar subsidies.

3.0 Analysis

The analysis is divided into three sections. First, the demand and supply of white sugar is analyzed using derived demand. Second, the focus switches to price elasticity of demand for white sugar, and whether companies can boost their profits by raising white sugar prices. Finally, the social welfare effects of the government reducing the sugar subsidies are studied.

3.1 Demand and Supply

In the article, “global raw sugar prices continually on the uptrend” (Bernama 2010). Unfortunately, the article was ambiguous because Bernama does not identify the factors that are raising raw sugar prices. The market price for raw sugar is increasing, but Bernama does not report the changes in market quantity.

The analysis begins with derived demand where two markets are side by side - a consumer market and a resource market. Manufacturers supply consumers with the product but demand a critical resource to make the product. Hence, the Malaysian sugar manufacturers supply the consumer market and become the consumers in the resource market.

The white sugar market represents the consumer market in Figure 1. The demand function represents the consumers, restaurants, and food companies because they add white sugar to a variety of products. The demand function has a negative slope that reflects the Law of Demand. As the market price increases, consumers, restaurants, and food companies reduce their quantity demanded, ceteris paribus. On the other hand, the supply function reflects the raw sugar manufacturers. They refine raw sugar into white sugar and obey the Law of Supply - as the market price rises, manufacturers boost their quantity supplied, ceteris paribus. The intersection of the demand and supply functions determine the market price, P* and market quantity, Q*.

Figure 1. Greater demand for white sugar

In Scenario 1, many things could cause a higher demand for raw sugar. For instance, consumers boost their demand for sugar and sugar products because their incomes increase. Then the demand function would increase and shift right in Figure 1 if sugar were a normal good. According to Abler (2010, 20), sugar is a normal and necessity good in Russia, India, and China with an income elasticity of demand ranging between 0.64 and 0.8. Thus, both the white sugar price and quantity rise while sugar manufacturers increase their quantity supplied.

For the sugar manufacturers to raise their quantity supplied, they must process and demand more raw sugar in Figure 2, shifting the demand function rightward for raw sugar. The demand reflects the sugar manufacturers while the supply reflects the sugar mills in Brazil that make the raw sugar. This market also obeys the Law of Supply and the Law of Demand. Consequently, both market price and quantity rise.

Figure 2. Malaysian manufacturers demand more raw sugar

For Scenario 2, many factors could cause the supply function to decrease for raw sugar. For example, Brazil could have experienced a severe drought that wiped out its sugar cane. Subsequently, the supply of raw sugar decreases in Figure 3. The market price rises while market quantity falls.

Figure 3. A drought reduces the supply of raw sugar

Malaysia sugar manufacturers pay higher prices for raw sugar and reduce their purchases because they pay greater prices for a resource input. Malaysian sugar manufacturers would reduce their supply of white sugar in Figure 4. Thus, the market price rises while market quantity falls for white sugar. Then consumers, restaurants, and food companies pay greater prices for white sugar and reduce their quantity demanded.

Figure 4. Malaysian manufacturers reduce their sugar supply because a price of a resource has risen

3.2 Elasticity and Changes in Total Revenue

Article does not provide enough information to calculate the Malaysians' price elasticity of demand for sugar. From the Commodities and Trade Division (2002), the price elasticity of demand for Americans, Japanese, and Europeans are -0.11, -0.81, and -0.12 respectively. Consequently, sugar is an inelastic product.

Elasticity depends on the number of substitutes and income effects. Sugar has few substitutes except artificial sugar. Some consumers refuse to use artificial sugars, such as aspartame, sucralose, and so on. because they may induce health problems in consumers. Moreover, sugar comprises a small fraction of consumers' income, so they may not be sensitive to price changes.

If sugar manufacturers raise the price for white sugar, then they will collect more revenue (Hubbard et al. 2010, 105). However, changes in profits are ambiguous because the article was not clear how the firm's revenues and costs change (Bernama 2010). First, government will reduce the subsidy, which lowers the firms' revenue. Second, the government raised fossil fuel prices. Thus, manufacturers use energy in production, and they will pay higher energy costs. Third, article stated manufacturers "have to account for capital expenditures" (Bernama 2010). This means the companies are upgrading machinery. Then Bernama added increased labor costs, which are not capital expenditures. Labor costs are included into production costs. Finally, manufacturers entered into contracts to lock in low prices for raw sugar (Bernama 2010). However, if raw sugar prices remain high, Malaysian firms will pay greater raw sugar prices when issuers of contracts for raw sugar rise in the future. This only provides a temporary solution.

3.3 Sugar Subsidies

Malaysian government subsidizes sugar prices (Bernama 2010). It does not impose price ceilings or price floors because a price ceiling could lead to shortages while a price floor could create a surplus. The economics of a subsidy is analyzed.

The Malaysian sugar manufacturers supply the sugar while consumers, restaurants, and food companies demand sugar. The intersection between the supply and demand functions determines the market price and quantity with no government subsidy in Figure 5.

Figure 5. Government pays a subsidy to the sugar manufacturers

The Malaysian government pays a subsidy so Malaysians will pay PS for sugar price. A subsidy is the opposite of a tax and shifts the supply curve rightward (Szulczyk 2012, 57-8). At PS, consumers want to purchase QS units of sugar. For manufacturers to supply that level, they must receive the PS + Subsidy (Szulczyk 2012, 57-8). Consequently, the subsidy creates a price wedge between the consumers and producers. Consumers pay PS while producers receive PS + subsidies (Szulczyk 2012, 57-8).

For social welfare, government must pay producers the total shaded areas in Figure 5 (Szulczyk 2012, 57-8). Thus, consumers receive the medium shaded trapezoid as a benefit of the subsidy while producers receive all the shaded areas (Szulczyk 2012, 57-8). Since the government had interfered with the economy, the black triangle represents the deadweight loss to society (Szulczyk 2012, 57-8).

Malaysia is unique because the government locks the sugar price at PS. Supply and demand functions continually shift that changes the market prices. However, government will adjust the subsidy so the subsidized price always equals PS.

According to the newspaper article, Malaysian government will lower the subsidies to sugar manufacturers as shown in Figure 6. The original lines for the original subsidy were left in the graph for comparison. Consequently, consumers pay a greater price at PN and consume a smaller quantity at QN. They would lose some consumer surplus because the medium shaded trapezoid becomes smaller. Although the small subsidy reduces the deadweight loss, the black triangle, consumers may not be happy about the higher sugar prices. Moreover, sugar manufacturers receive a small subsidy from the Malaysian government. In addition, the producers collect less of all shaded areas as a subsidy.

Figure 6. Government reduces the subsidy to the sugar manufacturers

4.0 Conclusion

The article was confusing because the author did not explain which factors were raising the raw sugar prices. A higher demand or smaller supply would always raise market prices, and many factors can boost the raw sugar demand or reduce the raw sugar supply.

The Malaysian government benefits because it reduces its subsidy payments to sugar manufacturers. Although the deadweight loss shrinks for a smaller subsidy, consumers lose surplus and may not be happy paying higher sugar prices. Thus, the consumers do not benefit from the higher sugar prices.

The analysis was not clear whether the manufacturers would benefit from the sugar price hikes. They benefit because they receive greater prices for white sugar and they reduced their raw sugar cost by using contracts to lock into low prices. However, the sugar manufacturers receive a lower government subsidy and pay greater costs for capital, labor, and operating costs.

5.0 References

1. Abler, David. 2010. "Demand Growth in Developing Countries." OECD Food, Agriculture and Fisheries Papers, No. 29. OECD Publishing. Accessed April 22, 2014. http://dx.doi.org/10.1787/5km91p2xcsd4-en


2. Bernama. 2010. "Sugar importers keeping prices low for consumers." Borneo Post Online, August 9. Accessed April 16, 2014. http://www.theborneopost.com/2010/08/09/sugar-importers-keeping-prices-low-for-consumers/


3. Commodities and Trade Division. 2002. "4. Sugar and beverages." In Agricultural Commodities: Profiles and Relevant WTO Negotiating Issues. Rome: Food and Agriculture Organization of the United Nations. Accessed April 22, 2014. http://www.fao.org/docrep/006/y4343e/y4343e05.htm


4. Hubbard, Glen, Anne M. Garnett, Philip Lewis, and Anthony Patrick O'Brien. 2010. Essential of Economics. Frenchs Forest: Pearson Australia.


5. Szulczyk, Kenneth. 2012. The Economics of Government. San Francisco: Scribd. Accessed April 22, 2014. http://www.ken-szulczyk.com/economics_of_government.php

Analysis Essay for Economics - The Outline

Outline - important to organize your ideas before writing the essay.

Good technique to demonstrate analysis is to find problems with the article.

The article is available at:

Borneo Post

I am using the Chicago Citation style from:

Chicago Citation Style

Make sure you click on the tab for Author-Date. It is hard to see, but it is there.

For students who want the instructor's multiple-choice and essay exams, then please click on the Dropbox link for Economics 100. I also converted the Dropbox into a Shared link. If you download and install their software, they will automatically create a folder on your computer that automatically updates when you connect to the internet.

1.0 Article Summary

• Borneo Post, "Sugar Importers keeping prices low for consumers" (Bernama 2010)
• Government is reducing subsidies (Bernama 2010)
• Manufacturers have entered into long-term contracts for imported raw sugar to keep price low (Bernama 2010)
• Consumers will pay low prices for sugar even though the Malaysian government is raising sugar prices (Bernama 2010)

2.0 Introduction

• Producers make raw sugar from sugar beets and sugar cane
• Malaysia does not produce sugar but imports raw sugar from Brazil
• Malaysian companies process the raw sugar into white, refined sugar
• Consumers, food companies, and restaurant cooks add sugar to drinks such as coffee, teas, juices, and sodas and add sugar to desserts for pies, cakes, candies, puddings, etc.

• Thesis statement: (I will switch to passive voice to eliminate first person)
• I use supply and demand to analyze which factors cause raw sugar prices to rise
• I examine the elasticity for white sugar, and whether firms would earn greater profits by increasing white sugar prices
• I study the economic impact when a government reduces the sugar subsidies

3.0 Analysis

Note - I do not add any new information here. This connects everything together. Normally, we always write at least one sentence under each heading.

• In this paper, I analyze the demand and supply of white sugar using derived demand.
• Then I analyze the price elasticity of demand for white sugar and whether companies can raise their profits by raising white sugar prices.
• Subsequently, I analyze when a government reduces the sugar subsidies

Note – I wrote these statements in first person, which is not permitted for formal writing. I will switch this to passive voice. (I trained myself to avoid writing in passive voice).

3.1 Demand and Supply

• In the article, "global raw sugar prices continually on the uptrend" (Bernama 2010)
• Does not identify what is raising raw sugar prices
• Article was ambiguous
• I do not know what happened to market quantity
• I only know the market price rises
• I have two markets side by side, called derived demand
• A consumer market and a resource market
• Manufacturers are the suppliers in the consumer market and the consumers in the resource market
• Manufacturers supply consumers with the product but demands a critical resource to make the product
• Consumer market - white sugar market
• Demand function represents the consumers, restaurants, and food companies
• They add white sugar to a variety of products
• Law of Demand – as the market price increases, consumers, restaurant cooks, and food companies reduce their quantity demanded, ceteris paribus.
• Supply function reflects the raw sugar manufacturers
• They refine raw sugar into white sugar
• Law of Supply - as the market price rises, manufacturers boost their quantity supplied, ceteris paribus.
• Scenario 1 - Many things can cause a greater demand for raw sugar
• For example, if consumers raise their demand for sugar and sugar products because their incomes rise
• Many other things could cause a greater demand
• We assume sugar is a normal good
• According to Abler (2010, 20), sugar is a normal and necessity good in Russia, India, and China with income elasticity of demand ranging between 0.64 and 0.8.
• Demand function increases and shifts right in Figure 1
• Both white sugar price and quantity rise
• Sugar manufacturers increase their quantity supplied

Figure 1. Greater demand for white sugar

• For the sugar manufacturers to raise their quantity supplied
• They must demand more raw sugar in Figure 2
• Demand reflects the sugar manufacturers
• Supply reflects the sugar mills that make the raw sugar
• This market also obeys the Law of Supply and the Law of Demand
• Demand for raw sugar would rise
• Both market price and quantity rise

Figure 2. Malaysian manufacturers demand more raw sugar

• Scenario 2 - Many factors can decrease the supply function for raw sugar
• For example, Brazil could have experienced a severe drought that wiped out its sugar cane
• The supply of raw sugar decreases in Figure 3
• Market price would rise while market quantity falls

Figure 3. A drought reduces the supply of raw sugar

• Malaysia sugar manufacturers pay greater prices for raw sugar and reduce their purchases
• The resource price has increased
• Malaysian sugar manufacturers would reduce their supply of white sugar in Figure 4
• Market price rises while market quantity falls for white sugar
• Consumers, restaurant cooks, and food companies pay greater prices for white sugar and reduce their quantity demanded.

Figure 4. Malaysian manufacturers reduce their sugar supply because a price of a resource has risen

Note: If you have a derived demand, demand or supply usually shift in the same direction in both markets

3.2 Elasticity and Changes in Total Revenue

• Article does not provide enough information to calculate the Malaysians' price elasticity of demand for sugar
• From the Commodities and Trade Division (2002)
• Price elasticity of demand
• Americans -0.11
• Japan -0.81
• Europeans -0.12
• Sugar is inelastic
• Few substitutes for sugar except artificial sugar
• Some consumers refuse to use artificial sugars, such as aspartame, sucralose, etc. because they may induce health problems in consumers
• Sugar comprises a small fraction of income
• Sugar manufacturers raise the price for white sugar, then their total revenue will increase (Hubbard et al. 2010, 105)
• Changes in profits are ambiguous because we do not know how a firm's costs change
• We do not know how the manufacturing costs will change.
• Article was not clear about how the firm's cost change (Bernama 2010)
• Government reduces subsidy, which reduces the firms' revenue.
• We know the government raised fossil fuel prices, so if manufacturers use energy, they will pay greater energy costs.
• It stated manufacturers "have to account for capital expenditures" (Bernama 2010)
• Upgrading machinery
• Then they added the following which are not capital expenditures
• Labor costs
• Production costs (which includes labor)
• Manufacturers entered into contracts to lock in low prices for raw sugar (Bernama 2010)
• The problem – if raw sugar prices stay high, when Malaysian firms buy new contracts for raw sugar, the issuers of the contracts will raise the raw sugar price
• Only a temporary solution

3.3 Sugar Subsidies

• Malaysian government subsidizes sugar prices (Bernama 2010)
• Malaysian government does not use price ceilings or price floors because a price ceiling could lead to shortages while a price floor could create a surplus.
• I analyze the subsidy
• The Malaysian sugar manufacturers supply the sugar while consumers, restaurants and food companies demand sugar.
• The intersection between the supply and demand functions determines the market price and quantity with no government subsidy.
• Malaysian government pays a subsidy so Malaysians will pay P_S for sugar price.
• Subsidy is the opposite of a tax and shifts the supply curve to the right (Szulczyk 2012, 57-8)
• At P_S, consumers want to purchase Q_S units of sugar (Szulczyk 2012, 57-8)
• For manufacturers to supply that amount, they must receive the P_S + Subsidy (Szulczyk 2012, 57-8)
• Subsidy creates a price wedge between the consumers and producers (Szulczyk 2012, 57-8)
• Consumers pay P_S while producers receive P_S + subsidies (Szulczyk 2012, 57-8)
• Social welfare
• Government must pay producers the total shaded areas in Figure 5 (Szulczyk 2012, 57-8).
• Consumers receive the medium shaded trapezoid as a benefit of the subsidy (Szulczyk 2012, 57-8)
• Producers receive all the shaded areas (Szulczyk 2012, 57-8)
• Since government interfered with the economy, the black triangle represents the deadweight loss to society (Szulczyk 2012, 57-8)

Figure 5. Government pays a subsidy to the sugar manufacturers

• What makes Malaysia unique is the government locks the sugar price at P_S.
• Supply and demand functions continually shift, changing the market prices
• However, government will adjust the subsidy so the subsidized price always equals PS.
• Malaysian government reduces the subsidies to sugar manufacturers, shown in Figure 6
• I left the original lines for the original subsidy for comparison
• Consumers pay a greater price at PN and consume a smaller quantity at Q_N
• Consumers would lose some consumer surplus because the medium shaded trapezoid is smaller
• Although the small subsidy reduces the deadweight loss, black triangle, consumers may not be happy about the rising sugar prices.
• Sugar manufacturers receive a small subsidy from the Malaysian government
• The collect less of all shaded areas

Figure 6. Government reduces the subsidy to the sugar manufacturers

4.0 Conclusion

• What makes the article confusing?
• We do not know what is causing the raise in raw sugar prices – greater demand or smaller supply.
• Then many factors can boost the raw sugar demand or reduce the raw sugar supply
• The Malaysian government benefits
• It reduces its subsidy payments to sugar manufacturers.
• The deadweight loss shrinks for a smaller subsidy
• Consumers lose surplus and may not be happy paying higher sugar prices.
• Consumers do not benefit from the higher sugar prices.
• The analysis was not clear whether the manufacturers would benefit from the sugar price hikes.
• They benefit
• They receive greater prices for white sugar
• They reduced their raw sugar cost by using contracts to lock into low prices.
• They do not benefit
• Sugar manufacturers receive a lower government subsidy
• Pay greater costs for capital, labor, and operating costs.

5.0 References

1. Abler, David. 2010. "Demand Growth in Developing Countries." OECD Food, Agriculture and Fisheries Papers, No. 29. OECD Publishing. Accessed April 22, 2014. http://dx.doi.org/10.1787/5km91p2xcsd4-en


2. Bernama. 2010. "Sugar importers keeping prices low for consumers." Borneo Post Online, August 9. Accessed April 16, 2014. http://www.theborneopost.com/2010/08/09/sugar-importers-keeping-prices-low-for-consumers/


3. Commodities and Trade Division. 2002. "4. Sugar and beverages." In Agricultural Commodities: Profiles and Relevant WTO Negotiating Issues. Rome: Food and Agriculture Organization of the United Nations. Accessed April 22, 2014. http://www.fao.org/docrep/006/y4343e/y4343e05.htm


4. Hubbard, Glen, Anne M. Garnett, Philip Lewis, and Anthony Patrick O'Brien. 2010. Essential of Economics. Frenchs Forest: Pearson Australia.


5. Szulczyk, Kenneth. 2012. The Economics of Government. San Francisco: Scribd. Accessed April 22, 2014. http://www.ken-szulczyk.com/economics_of_government.php