![Page 1: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/1.jpg)
Teaching Economics Series
Arnold Wentzel
![Page 2: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/2.jpg)
Overview
1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining ideas in Economics 4. Explaining graphs and equations in Economics 5. Making ideas interesting in Economics 6. Making ideas memorable in Economics 7. Basics of assessment in Economics 8. Designing appropriate assessments in
Economics 9. Using PowerPoint slides appropriately
![Page 3: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/3.jpg)
Teaching Economics Part 3: Explaining graphs and
equations
Arnold Wentzel
![Page 4: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/4.jpg)
Basics
• Economics = cause-effect stories
• We tell it through:
– Graphs
– Equations
• How I realised it and refined it…
![Page 5: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/5.jpg)
![Page 6: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/6.jpg)
![Page 7: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/7.jpg)
And then the buyer’s income went up and look how his demand
curve shifted! WOW!
We love story time!
![Page 8: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/8.jpg)
Pixar’s 22 rules of storytelling
• Rule 4: Once upon a time there was ___. Every day, ___. One day ___. Because of that, ___. Because of that, ___. Until finally ___.
• Finding Equi: Once upon a time there was equilibrium. One day something happened that upset this equilibrium. Because of that, something else happened… Until finally equilibrium was found again.
![Page 9: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/9.jpg)
![Page 10: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/10.jpg)
FIRST, TELL THE STORY OF THE AXES
![Page 11: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/11.jpg)
Axes as cause-effect framework
Cause/Effect
Effect/Cause
Price-Quantity AD-Y Cost-Quantity ConsumeA-ConsumeB
OutputA-OutputB
![Page 12: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/12.jpg)
AD
Y
The story of the Keynesian axes
![Page 13: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/13.jpg)
SECOND, TELL THE STORY OF THE CURVES
![Page 14: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/14.jpg)
Curves as manifestations of agency
• Agency = ability to choose
• Curves represent cause-effect relationships for different agents or groups of agents
![Page 15: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/15.jpg)
Story of a curve
P
Q
Those making choices about how much to buy – what is their story?
![Page 16: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/16.jpg)
Story of a curve
P
Q
Those making choices about how much to sell – what is their story?
![Page 17: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/17.jpg)
Story of a curve
AC
Q
Those making choices about how much to produce – what is their story?
![Page 18: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/18.jpg)
THIRD, TELL THE STORY OF EQUILIBRIUM
![Page 19: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/19.jpg)
Story of equilibrium and dis~
AD
Y
Story of why no change is needed… Story of how disequilibrium forces change…
![Page 20: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/20.jpg)
Income
Production Spending
AS AD
AS AD AS
AD
Unemployment rises Inflation rises
![Page 21: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/21.jpg)
Story of equilibrium
P
Q
Flea market negotiations…
![Page 22: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/22.jpg)
Story of disequilibrium (Ice cream on the coldest day of the year)
P
Q
Items left on my table at the end of the day… What will change?
![Page 23: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/23.jpg)
P
Q
Items on my table all gone at end of day, but people still in line What will change?
Story of disequilibrium (World Cup Final Match)
![Page 24: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/24.jpg)
FOURTH, TELL THE STORY OF CHANGE
![Page 25: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/25.jpg)
Understanding shifts
• Any change inside the framework = no shift
– i.e. if the inside-cause changes and the inside-effect responds – move along
– Everything else stays the same
• Any other cause outside the framework…
– …changes both the inside-cause and inside-effect
– Needs a third axis, or else…
– …the whole cause-effect relation needs to change
![Page 26: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/26.jpg)
Principle
P QD
y x
![Page 27: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/27.jpg)
Example: AA-curve cause-effect system
M P
M/P
R
L
M* P*
M*/P*
R*
L*
Ee
Exchange
rate
Foreign asset market Domestic asset market
Y Y*
Shows more clearly why we need ceteris paribus…
![Page 28: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/28.jpg)
The story behind the shift
• Does the cause lead to…
– …more of the effect (usually right)?
– …less of the effect (usually left)?
• More = away from zero (hence right)
• Less = toward zero (hence left)
![Page 29: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/29.jpg)
Every shift has a story
P
Q 0
Every day… …then one day… …and then… …and then… …until …
![Page 30: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/30.jpg)
Use colours and animations
P
Q 0
![Page 31: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/31.jpg)
FIFTH, FINDING EQUI AGAIN…
![Page 32: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/32.jpg)
Approach
• Story of the axes frame everything
• Curves represent agents with their own story of how they make choices
• Equilibrium is the story of why change is not needed
• Shifts follow the Pixar story pattern:
– Equilibrium-change-equilibrium
![Page 33: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/33.jpg)
![Page 34: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/34.jpg)
Then as Q rose by 2 units, AC rose by 3.2 units… and the accountant cried out,
“Oh, no! We have diseconomies of scale!”
And there was great panic…
![Page 35: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/35.jpg)
Basics
• Graphs are convertible into equations
• Both involve:
– Causes and an effect (variables)
– A starting point (intercept and equilibrium)
– Cause-effect change (coefficients and signs)
• Equations as effect factories…
![Page 36: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/36.jpg)
Operators & symbols have meanings
• Multiply: interaction or inseparable
• Divide: comparison
• %: to judge size
![Page 37: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/37.jpg)
Signs have meanings
• Plus: positive cause-effect relation
– Cause then Effect
– Cause then Effect
• Minus: negative cause-effect relation
– Cause then Effect
– Cause then Effect
• No problem if you know the story
![Page 38: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/38.jpg)
Interest rate parity story
M P
M/P
r
L
M* P*
M*/P*
r*
L*
Ee
Exchange rate
Foreign asset market Domestic asset market
38
Y Y*
𝒓 = 𝒓∗ + 𝑬𝒆 − 𝑬
𝑬
![Page 39: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/39.jpg)
Coefficients mean something • Link cause to effect
Time = B x Result
• Bigger is stronger (elasticity) Time = 0.2 x Result
Time = 1 x Result
Time = 3.5 x Result
![Page 40: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/40.jpg)
Relate story to graph
• Demand story:
– Frame: price (cause) and quantity (effect)
– Start: price too high, nobody buys
– Cause: price falls
– Effect: quantity demanded rises
– Relation: negative
![Page 41: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/41.jpg)
Relate story to equation
• Demand story:
– Frame: price (cause) and quantity (effect)
𝑷 = 𝑎 − 𝑏𝑸
![Page 42: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/42.jpg)
Relate story to equation
• Demand story:
– Frame: price (cause) and quantity (effect)
– Start: price too high, nobody buys
𝑃 = 𝒂 − 𝑏𝑄
![Page 43: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/43.jpg)
Relate story to equation
• Demand story:
– Frame: price (cause) and quantity (effect)
– Start: price too high, nobody buys
– Cause: price falls
– Effect: quantity demanded rises
– Relation: negative
𝑃 = 𝑎 − 𝒃𝑄
![Page 44: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/44.jpg)
Relate equation to graph
P
Q 0
P=a-bQ
![Page 45: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/45.jpg)
Manipulations are…
• …about isolating a cause or an effect
• Why 𝑷 = 𝒂 − 𝒃𝑸 or 𝑸 =𝟏
𝒃(𝒂 − 𝑷)?
• Don’t assume basic skills…
![Page 46: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/46.jpg)
Interest rate parity story
M P
M/P
r
L
M* P*
M*/P*
r*
L*
Ee
Exchange rate
Foreign asset market Domestic asset market
46
Y Y*
𝒓 = 𝒓∗ + 𝑬𝒆 − 𝑬
𝑬
![Page 47: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/47.jpg)
Interest rate parity story
M P
M/P
r
L
M* P*
M*/P*
r*
L*
Ee
Exchange rate
Foreign asset market Domestic asset market
47
Y Y*
𝑬 = 𝑬𝒆
𝟏 + 𝒓 − 𝒓∗
![Page 48: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/48.jpg)
Most equations are stories
• Consumer equilibrium: 𝑀𝑈𝑎
𝑃𝑎=
𝑀𝑈𝑏
𝑃𝑏
• What is the story?
– As long as you have money, keep on spending. Buy those things that offer best value for money.
• What is value for money?
![Page 49: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/49.jpg)
Which one?
Shop A Shop B Shop C
What you get from one battery
100 hours
5 hours
40 hours
![Page 50: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/50.jpg)
Which one?
Shop A Shop B Shop C
What you pay for one R200 R2.50 R10
![Page 51: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/51.jpg)
Which one?
Shop A Shop B Shop C
What you get from one battery
100 hours
5 hours
40 hours
What you pay for one R200 R2.50 R10
Value for money?
![Page 52: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/52.jpg)
Most equations are stories
• What is value for money?
– What you get? (MU)
– What you pay? (P)
– Or what you get for what you pay?
– i.e. MU as compared to P?
• Value for money: 𝑀𝑈𝑎
𝑃𝑎
![Page 53: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/53.jpg)
Story of equi and dis
• If (Value for money)a > (Value for money)b
– Buy A – no equilibrium
– Translate: 𝑀𝑈𝑎
𝑃𝑎>
𝑀𝑈𝑏
𝑃𝑏
• When are you satisfied?
– All money spent
– No product is more attractive
– Translate: 𝑀𝑈𝑎
𝑃𝑎=
𝑀𝑈𝑏
𝑃𝑏
![Page 54: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/54.jpg)
Another example
• PPP: 𝐸 =𝑃
𝑃∗
• What is the story?
![Page 55: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/55.jpg)
A tale of two islands
• A: 1 coconut = $1
• B: 1 coconut = R2
• They start to trade
• Exchange rate should be…?
• What if $1 = R1?
A B
![Page 56: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/56.jpg)
Purchasing power parity
• Arbitrage corrects (sell ZAR and it depreciates)
• Or else: A gets all the money and B gets all the coconuts
=$1 =R2
$1
R2
$1=R1
$2
![Page 57: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/57.jpg)
Exchange rate should reflect price
• ER/$ = P/P* = R2/$1 = 2 so R2=$1
• Exchange reflects relative price levels
=$1 =R2
$1
R2
$1=R2
$1
![Page 58: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/58.jpg)
Derivation of PPP formula
• If for a hamburger PSA = R14 and PUS = $2 which one is more expensive?
• It depends…
• On what?
• To compare – convert into same currency
• How turn PUS into ZAR price?
• PUS in ZAR = PUS x EZAR/$
• PSA = R14 and PUS = $2 x R7/$ = R14
• We have equilibrium…
![Page 59: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/59.jpg)
Absolute PPP
• PSA = PUS (in ZAR)
• PSA = PUS x EZAR/$
• Solve for EZAR/$
• EZAR/$ = PSA/PUS or E = P/P* • So if E = R7/$ it means…
• PPP: Prices of same basket of goods are equal
![Page 60: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/60.jpg)
Approach
• Deconstruct an equation
– Cause, effect, relation and strength
– If there is a diagram, relate them
• Reconstruct it with a story
– Show how the story creates the equation
![Page 61: Teaching Economics Series€¦ · Teaching Economics Series Arnold Wentzel . Overview 1. Knowing what to teach 2. Techniques of explaining concepts in Economics 3. Principles of explaining](https://reader034.vdocument.in/reader034/viewer/2022052017/602f7b2b2086d73e1748417c/html5/thumbnails/61.jpg)
Challenge
• For a graph of your choice, develop an explanatory story
• For an equation of your choice, develop an explanatory story