Wednesday, September 24, 2008

Cleveland or Boston?

Suppose you have two job offers upon graduating from Marietta College. One offer is from a company in Cleveland for $45,000 per year. The other offer is from a company in Boston for $60,000. Assuming that all other aspects of the two jobs are identical and that you are motivated solely by monetary rewards, which job offer will you select and why? (Show any necessary calculations as a part of your answer.)

Congratulations to Alissa Bamberger for being the first to recognize that the lower nominal job offer in Cleveland is the more lucrative of the two when adjusted for inflation (see her answer in the comments section).

Tuesday, September 16, 2008

More Seatbelts = More Deaths?

Suppose for a particular location, we have the following two facts:

Fact 1: Over the past 20 years, automobile companies have introduced a number of safety devices such as seatbelts and air bags.

Fact 2: Over the past 20 years, the number of highway fatalities per mile driven has increased.

How can you reconcile Fact 1 with Fact 2?

Congratulations to Jeff Staudt for being the first to submit a satisfying answer to the above conundrum. Take a hard look at the picture above and then read his answer in the comments section. Essentially, Jeff is describing what is commonly referred to as a "moral hazard" problem. The idea of using a spike on the steering column has been attributed to Sam Peltzman.  Here's a related cartoon.

Wednesday, September 10, 2008

Envelope stuffing

Suppose you had $1000 that you split into 10 separate envelopes so that you could give any amount of money from $1 to $1000 when asked. How much money would you put in each envelope?

Congratulations to Matt Ginsky for being the first to submit the correct answer. The correct distribution of the $1000 into 10 envelopes would be: 1, 2, 4, 8, 16, 32, 64, 128, 256, and 489. (Do you notice a trend in the first 9 numbers?)

Monday, September 1, 2008

Can you identify this famous economist?

Known for his research on productivity in the service sector, models of money demand, and pricing in markets subject to "hit and run" competition, this economist is a perennial contender for a Nobel Prize in Economics. His recent work has concentrated on the role of the entrepreneur in a market economy. He is also an accomplished artist.

Congratulations to Seita Kawamoto for being the first to correctly identify William Baumol as the famous economist.