They're in Hot Water Now!

Last year Antoine and Antawn occupied separate apartments; each consumed 300 gallons per month of hot water. This year they are sharing a larger apartment. To their surprise, they find that they are consuming 1000 gallons per month. Explain.

Dallas Cowboys Stadium

The new Dallas Cowboys Stadium got me thinking: At a football stadium where some fans live nearby and others travel great distances to attend, where would you expect to find a higher percentage of long-distance travelers: in the cheap seats or in the expensive seats? Why?

Farm Decisions

An economy consisting of farms has the unusual production function for each farm as described in the table below. Apparently with an even number of workers, they play cribbage.

Number of Workers	Marginal Product
1	20
2	15
3	19
4	14
5	18
6	13
7	17
etc.	etc.

If you had 10 farms and 40 workers, how would you allocate them among the farms? How much total output would your farms produce? Explain.

Congratulations to Qi Wu for being the first to come up with a correct answer to this week's question. Read her answer (spread over two comments) in the comments section.

By the way, thanks to the late George Stigler for the above question.

Marietta Armory Square

The city of Marietta is currently debating the future of the old Armory building on Front Street. Suppose that the mayor has proceeded with his plans to refurbish the building and use it as a transportation hub and visitor center. The estimated cost to complete the museum was initially $1.6 million. The mayor also believes that the transportation hub will generate an estimated benefit of $2.4 million.

The benefit estimate appears to be correct, but costs to date total $2.7 million, and the transportation hub still is not ready. The cost of completing the transportation hub, X, is uncertain.

City Council member Flintstone wants to stop now: "Whatever the value of X, it is clear that the transportation hub will yield negative net benefits." Council member Rubble wants to continue: "If we stop now, we will have wasted $2.7 million."

Comment. How should the decision depend on the value of X?

Congratulations to Kaitlin Huck for being the first of three to submit a correct answer. Using marginal analysis, the decision on whether to continue the project or not hinges on the value of X, the cost of completing the project. The $2.7m costs to date are sunk costs and should not affect the decision to continue or stop the project.

Name That Economist

Do you know me? I am a Harvard trained economist and later became the youngest tenured professor ever at Harvard at the age of 28. Both of my parents are economists and two of my uncles are Nobel prize winning economists. Who am I?

Congratulations to Matt Hickman on being the first to identify Larry Summers as the mystery economist. Lawrence (Larry) Summers is the current Director of the White House's National Economic Council. His past positions include Secretary of the US Treasury, Chief Economist for the World Bank, and President of Harvard University.

Elasticity of Apartment Demand

Suppose that an effective rent ceiling has been established on the market for apartments in Marietta. What sort of disequilibrium would this cause?

Now, suppose the rent ceiling is removed. Evaluate the following statement:

"The removal of the rent ceiling will cause the total expenditures on the part of consumers to rise if the demand for apartments is price inelastic."

Beeronomics

If consumers buy 1000 bottles of beer per week, and if the price of beer rises by $0.50 per bottle, then the consumers' surplus will decrease by $500. True, False, or Uncertain. Explain your answer.

I am retiring this question. Using Jacob's numbers, let's assume that the initial price of beer is $2 per bottle and that the demand curve is linear. Furthermore, let's assume that for every $0.50 increase in price, the quantity demand falls by 200 units. These assumptions imply that the demand curve intercepts the price axis at $4.50. The graph below illustrates our situation.

If the price of beer rises from $2 to $2.50, the quantity demanded falls to 800. The resulting loss in consumer surplus is shown as the yellow area. A simple calculation shows that this area equals $450. That is, CS will fall by less than $500.