November 30, 2004 國際事務菁英班

1. November 30, 2004國際事務菁英班 Seminar on Global Finance and Investment 國際經貿情勢分析 Some Path-breaking thoughts on Modern Economy

2. 高雄市政府公教人力發展局 93341國際事務菁英班 講座：衛忠欣 (Jong-Shin Wei) 語言：English (中文出現係特殊情況) 對象：在座諸位市府菁英 背景：No prior knowledge in economics, finance, or business required. No calculus needed. 要求：No need to preview materials. A good sleep on Monday night will suffice.

3. Information about the speaker • Jong-Shin Wei衛忠欣 Associate Professor • Chairperson, Dept. of International Business • Wenzao Ursuline College of Languages • Ph.D. (in Economics), Purdue University 1988 • B.S. (in Marine Mgmt), National Chiao Tung Univ. 1980 • http://www.wtuc.edu.tw/ib師資介紹 click on name • (07) 342-6031 ext.6201 0912-604-341 • 93001@mail.wtuc.edu.tw

4. Information about the speaker (continued) • Full-time teaching experience: Purdue Univ., Florida International Univ., Feng Chia Univ., SHU-TE Univ. • Part-time teaching experience: Tunghai Univ., SHU-TE Univ. • Co-Editor, International J. of Business and Economics (ISSN 1607-0704) IJBE_web1.htm

5. Lecture Plan (for nine hours) • Motivation (see … no Chinese!) interesting examples (English auctions, sealed-bid auctions, simplest game-playing) • Placement test? Mmmm … not really! Just for fun! Question for you: Do I think like an economist? • Simplest illustration of comparative advantage and gains from trade • Strategic thinking, decision-making under uncertainty, role of information in modern society • How economics helps with public/political issues?

6. Lecture Plan (for nine hours) (continued) • Some steaming debates and controversial issues in macroeconomics (if schedule permits) • Useful decision criteria in a world of uncertainty (if schedule permits) • More examples on game theory? (if schedule permits)

7. Outline for Tuesday, Nov.30, 2004 • Motivation interesting examples (English auctions, sealed-bid auctions, simplest game-playing) • Placement test– What most economists might agree upon (hand out sheets) Question for you: Do I think like an economist? • Simplest illustration of comparative advantage and gains from trade

8. Motivation interesting examples (English auctions, sealed-bid auctions, simplest game-playing) • English auction open-cry, ascending bids, motion pictures • Sealed-bid auction sealed-bid, simultaneously played (as a static game) 標會、工程招標 • Are they equivalent?

9. Motivation (continued) • Vickrey auction (second-price sealed-bid auction) 1961, the cost to the winner is the second highest bid. b1 = 500, b2 = 400, b3 = 300. #1 wins! • Reservation price of bidders • Truthful revelation of preferences • Dollar auction Object to be sold: NTD1,000 (bill) Rule: Open-cry; ascending bids; second highest bidder also pays (but gets nothing!)

10. Motivation (continued) • Two ice-cream vendors on a beach; potential customers evenly spread; at most one unit consumed; same price due to identical quality; minimizing purchasing effort. Will they be next to each other or be far apart? • Three ice-cream vendors ? • Anything to do with the saying, “As time goes by, all political parties are alike”?

11. Motivation (continued) • Simplest two-person symmetric static game Aumann (1987) Two kids met an angel who asked them to make a wish simultaneously and independently. Options: Being selfish: give me $1 (or 一英磅?一百萬? ) Being altruistic: give me nothing but my friend $3 Assumption: ordinal utility maximization

12. Motivation (continued) Assumption: no reputation problem (one-shot game) Useful tool: payoff matrix (row player = kid 1) selfish altruistic selfish1, 1 1+3, 0 altruistic0, 1+3 0+3, 0+3

13. Motivation (continued) selfish altruistic selfish1, 1 1+3, 0 altruistic0, 1+3 0+3, 0+3 And your prediction? What would you choose? What should they choose? How would John Nash predict?

14. Motivation (continued) selfish altruistic selfish1, 1 4, 0 altruistic0, 4 3, 3 implicate not confess implicate20, 20 0, 40 (yrs) not confess40, 0 1, 1 • Tucker’s prisoners’ dilemma game

15. Is There Consensus among Us?測驗聽眾的經濟常識與專業英文閱讀 Simply answer True or False. No need to justify your answer. • 1. A ceiling on rents (設定房屋租金之上限) increases both the quantity and quality of housing available. Ans: . • 2. A minimum wage increases unemployment among young and unskilled workers. Ans: . • 3. Effluent taxes and marketable pollution permits (對污染者課稅與開放污染許可證交易) represent a better approach to pollution control than imposition of pollution ceilings (設定污染量之上限). Ans: . • 4. Cash payments (現金救濟) decrease the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value (與現金等值之實物救濟). Ans: . • 5. Tariffs and import quotas (關稅與進口配額) usually increase general economic welfare. Ans: .

16. Is There Consensus among Us? (continued) • 6. The government should restructure the welfare system along the lines of a “negative income tax.” Ans: . • 7. Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. Ans: . • 8. If the federal budget (聯邦政府之預算) is to be balanced, it should be done over the calendar year rather than the business cycle (景氣循環). Ans: . • 9. A large federal budget deficit (聯邦政府之預算赤字) has an adverse effect on the economy. Ans: . • 10. Flexible and floating exchange rates offer an ineffective international monetary arrangement. Ans: .

17. Outline for Tuesday, Nov.30, 2004 (revisit) • Motivation interesting examples (English auctions, sealed-bid auctions, simplest game-playing) • Placement test – What most economists might agree upon (hand out sheets) Question for you: Do I think like an economist? • Simplest illustration of comparative advantage and gains from trade

18. comparative advantage & gains from trade • Two economic agents • Frank as a farmer; Robert as a rancher • Productivity (fixed rate assumed) measured by time • No externality; no technical progress nor learning-by-doing Frank: (need) 60 min to produce 1 ounce (of) meat Frank: 15 min to produce 1 ounce potatoes Robert: 20 min to produce 1 ounce meat Robert: 10 min to produce 1 ounce potatoes Common sense at a glance: Who has the edge?

19. comparative advantage & gains from trade (continued) • Question: What should Frank do? Nothing? • conversion Frank: 60 min to produce 1 ounce (of) meat Frank: 15 min to produce 1 ounce potatoes Robert: 20 min to produce 1 ounce meat Robert: 10 min to produce 1 ounce potatoes Frank: 4 hours for 4 oz meat Frank: 4 hours for 16 oz potatoes notice 1:4 Robert: 4 hours for 12 oz meat Robert: 4 hours for 24 oz potatoes notice 1:2 Moral (啟示)?

20. comparative advantage & gains from trade (continued) comparative advantage: Frank on potato; Robert on meat Derive production possibilities frontier (PPF) Assume each is endowed with 8 hours Frank: 60 min to produce 1 ounce (of) meat Frank: 15 min to produce 1 ounce potatoes (1)(x) + (1/4)(y) = 8 here 1hr per oz of meat x + (1/4)(y) = 8 as Frank’s PPF

21. comparative advantage & gains from trade (continued) x + (1/4)(y) = 8 as Frank’s PPF slope -4 (1/3)x + (1/6)(y) = 8 as Robert’s PPF slope -2 At autarky: Frank (0, 32) Robert (24, 0) 3 ounces of potatoes in exchange of 1 ounce of meat? After trade: Frank (0 + 2, 32 - 6) Robert (24 - 2, 0 + 6) Relative price of meat = 3 = Qy/Qx term of trade (end)