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1.8 Cases and Problems

Learning on the Web (AACSB)

The “Business/Economy” section of the CNNMoney Web site provides current information on a number of economic indicators. Go to http://money.cnn.com/news/economy/index.html to link to this site and find answers to parts 1 and 2 of this cases and problems exercise.

  1. You read in the chapter that an important goal of all economies is to make jobs available to everyone who wants one. Review the CNNMoney discussion on job growth and then answer the following questions:

    1. Is the current level of unemployment rising or falling?
    2. What do economists expect will happen to unemployment rates in the near future?
    3. Is the current level of unemployment a burden or an asset to the economy? In what ways?
  2. A number of leading economic indicators are used to forecast future economic trends. Answer the following questions after reviewing the CNNMoney discussions of leading economic indicators and consumer confidence:

    1. Which leading economic indicators were mentioned in the article you read? What did they tell you about the short-term future direction of the economy? Will it get stronger, grow weaker, or stay the same?
    2. Is consumer confidence up or down? What does the answer to this question tell you about the future direction of the economy?
  3. Do you remember the first dollar you earned? Maybe you earned it delivering newspapers, shoveling snow, mowing lawns, or babysitting. How much do you think that dollar is worth today? Go to the WestEgg site at http://www.westegg.com/inflation and find the answer to this question. After determining the current value of your first dollar, explain how the calculator was created. (Hint: Apply what you know about CPI.)

Career Opportunities

Is a Career in Economics for You?

Are you wondering what a career in economics would be like? Go to the U.S. Department of Labor Web site (http://www.bls.gov/oco/ocos055.htm) and review the occupational outlook for economists. Look for answers to the following questions:

  1. What issues interest economists?
  2. What kinds of jobs do government economists perform? What about those who work in private industry? In education?
  3. What educational background and training is needed for these jobs?
  4. What is the current job outlook for economists?
  5. What is the entry-level salary for an economist with a bachelor’s degree? With a master’s degree?

Ethics Angle (AACSB)

How Much Is That CD in the Window?

The early 1990s were a good time to buy CDs, mainly because discounters like Wal-Mart and Best Buy were accumulating customers by dropping prices from $15 to $10. They were losing money, but they figured that the policy still made good business sense. Why? They reasoned that while customers were in the store to shop for CDs, they’d find other, more profitable products.

The policy was a windfall for CD buyers, but a real problem for traditional music retailers like Musicland Stores and Tower Records. With discounters slashing prices, CD buyers were no longer willing to pay the prices asked by traditional music retailers. Sales plummeted and companies went out of business.

Ultimately, the discounters’ strategy worked: stores like Wal-Mart and Best Buy gained customers who once bought CDs at stores like Musicland Stores and Tower Records.

Let’s pause at this point to answer the following questions:

  1. Does selling a product at below cost make business sense?
  2. Whom does it hurt? Whom does it help?
  3. Is it ethical?

Let’s continue and find out how traditional music retailers responded to this situation.

They weren’t happy, and neither were the record companies. Both parties worried that traditional retailers would put pressure on them to reduce the price that they charged for CDs so that retailers could lower their prices and compete with discounters. The record companies didn’t want to lower prices. They just wanted things to return to “normal”—to the world in which CDs sold for $15 each.

Most of the big record companies and several traditional music retailers got together and made a deal affecting every store that sold CDs. The record companies agreed with retail chains and other CD outlets to charge a minimum advertised price for CDs. Any retailer who broke ranks by advertising below-price CDs would incur substantial financial penalties. Naturally, CD prices went up.

Now, think about the following:

  1. Does the deal made between the record companies and traditional retailers make business sense?
  2. Whom does it hurt? Whom does it help?
  3. Is it ethical?
  4. Is it legal?

Team-Building Skills (AACSB)

Get together in groups of four selected by your instructor and pick any three items from the following list:

  • Pint of milk
  • Gallon of gas
  • Roundtrip airline ticket between Boston and San Francisco
  • Large pizza
  • Monthly cost of a DSL line
  • CD by a particular musician
  • Two-day DVD rental
  • Particular brand of DVD player
  • Quarter-pound burger

Outside of class, each member of the team should check the prices of the three items, using his or her own sources. At the next class meeting, get together and compare the prices found by team members. Based on your findings, answer the following questions as a group:

  1. Are the prices of given products similar, or do they vary?
  2. Why do the prices of some products vary while those of others are similar?
  3. Can any price differences be explained by applying the concepts of supply and demand or types of competition?

The Global View (AACSB)

Life Is Good in France (if You Have Le Job)

A strong economy requires that people have money to spend on goods and services. Because most people earn their money by working, an important goal of all economies is making jobs available to everyone who wants one. A country has “full employment” when 95 percent of those wanting work are employed. Unfortunately, not all countries achieve this goal of full employment. France, for example, has a 10 percent unemployment rate overall and a 20 percent unemployment rate among young people.

Does this mean that France isn’t trying as hard as the United States to achieve full employment? A lot of people in France would say yes.

Let’s take a quick trip to France to see what’s going on economically. The day is March 19, 2006, and more than a million people are marching through the streets to protest a proposed new employment law that would make it easier for companies to lay off workers under the age of twenty-six during their first two years of employment. Granted, the plan doesn’t sound terribly youth-friendly, but, as usual, economic issues are never as clear-cut as they seem (or as we’d like them to be).

To gain some further insight into what’s going on in France, go to a BusinessWeek Web site (http://www.businessweek.com/globalbiz/content/mar2006/gb20060321_896473.htm) and read the article “Job Security Ignites Debate in France.” Then, answer the following questions:

  1. Why does the French government support the new law—the so-called First Employment Contract? Who’s supposed to be helped by the law?
  2. Which two groups are most vocal in protesting the law? Why?
  3. If you were a long-time worker at a French company, would you support the new law? Why, or why not?
  4. If you were a young French person who had just graduated from college and were looking for your first job, would you support the law? Why, or why not?
  5. What do you think of France’s focus on job security? Does the current system help or hurt French workers? Does it help or hurt recent college graduates?
  6. Does the French government’s focus on job security help or hinder its economy? Should the government be so heavily involved in employment matters?