Thursday / Friday 12 / 13 March

Class began with a quick review of what was learned from the study of Hula Hoops and Crazy Bandz. Students wrote a short paragraph in their notes of their "take aways.

The class reformed into groups of about four; groups shared names; something that they have built or made in the past; something that they would like to build or make in the future.

Next class analyzed the story As Demand for Welders Resurge; Community Colleges Respond and the accompanying info-graphics.

The class was asked to consider how the story relates to:
The Law of Supply
Wages (considering demand and supply)
Predictions the group has for the future
Personal connections, ideas, plans and dreams
Questions the story raises.


Next the class viewed a lecture The Determinants of Demand, a deeper investigation into the differences between demand and quantity demanded.

Next the class viewed another lecture from the same source. The lecture introduced the concept of Price Elasticity of Demand. This is a college level lecture, and the mathematics involved will not be assessed at this point, however the concept that price has an effect on demand and the quantity demanded that can be quantified is important.

Next the class divided into groups to work on the following activity:

Chocolate Sales: A Sweet Spot in the Recession – TIME

http://welkerswikinomics.com/blog/2010/09/23/the-magical-recession-proof-bunny/  by Jason Welker 

Living in Switzerland, I find an article featuring a local business from the town my school is in irresistible, particularly when it appear in TIME magazine. Lindt chocolate, the company featured in this article, manufactures its delicate treats right down the hill from the ZIS campus, which means that when the wind is just right, you can just catch the scent of fresh, creamy chocolate wafting up the hillside while walking to campus.

Lindt, as well as its global competitors in the chocolate business, is enjoying surge in demand even while countless other industries are forced to cut back production, lay off workers, and close their factory doors. From TIME:

While the credit crisis has slowed down sales of everything from cars to organic groceries, people seem happy to keep shelling out for chocolate. Last year, as the global recession was gaining ground, Swiss chocolate makers bucked the trend with record sales — nearly 185,000 tons, an increase of 2% over 2007, sold domestically and in 140 export markets…

“Switzerland’s image sells well abroad, and nothing says ‘Switzerland’ more than chocolate,” says Stephane Garelli, director of the World Competitiveness Center at the Institute of Management Development (IMD) in Lausanne, predicting that this comfort food will continue to sweeten the sour economy for months to come…

“Now that people don’t have a new television or a new car,” he noted, “they eat a bit more chocolate.”

“Chocolate is one of the more recession-resilient food sectors,” says Dean Best, executive director of Just-Food, a U.K.-based news and information website for the global food industry. “With consumers eating out less and eating at home more, there is evidence that they are still allowing themselves the occasional indulgence — and chocolate is a relatively inexpensive indulgence.”

But the question of why there is no meltdown in the chocolate business may be more a matter of psychology than economics. “There is well-documented evidence going back to Freud, showing that in times of anxiety and uncertainty, when people need a boost, they turn to chocolate,” says Garelli of the IMD. “That’s why when the economy is bad, chocolate is still selling well.”

Which goes to show that chocolate is more than a candy treat — it’s real food for the soul.

So does this mean chocolate is an inferior good, or one for which demand increases as incomes fall? I doubt many Swiss chocolate producers would consider their product inferior, but perhaps it does fit the definition.

On the other hand, perhaps the reason demand for chocolate increases during a recession has more to do with the substitution effect than the income effect. As people eat out less, they consume fewer expensive deserts at restaurants and instead fill their shopping baskets with more affordable dessert options for the home. I can say from experience that this is the case for myself.

Living in Switzerland, I find myself rarely going out to eat at restaurants, an activity reserved for special occasions in this country where a steak can set you back 75 dollars. Instead, I eat at home almost every night, and nothing is more appealing to me, especially during hard economic times, than a bar of delicious chocolate after a home cooked meal. Demand for chocolate may rise during recessions simply because the demand for one of its substitutes (restaurant desserts) falls.

Discussion questions:

1.     Do you think chocolate is an inferior good or a normal good? What’s the difference? What types of goods do YOU consume more of when you find yourself faced with a tighter budget?

2.     Does economics have a good explanation for the above situation? The article mentions Freud, a pioneer in  the field of psychology; do humans’ economic behavior always appear rational?

3.     If chocolate were an inferior good, what would happen to chocolate sales when the global economy finally turns around and incomes start increasing? What do you think will happen to chocolate sales when the economy starts improving? Explain.

Coming up next: 

Planet Money’s t-shirt, comparative advantage and protectionism. A lesson in International Trade