Friday, February 28, 2014

Economics in Choosing Class

Economics in Choosing Class
by Jackie, Yixuan, Van, Shijia

Jessica is an incoming Mount Holyoke freshman. She is asking advice for choosing classes. She is very interested in music and sports and, she is planning to major in Music. After researching through the music and PE class catalogues, she wants to choose between Scuba diving and swimming class, violin and piano class. To add more fun into her study life in Mount Holyoke, she decides to take the riding class and join the equestrianism team. As a freshman, she only has a very limited budget--2000$ to spend for the whole semester, and the budget is for mainly four parts—riding class, swimming class, music class and recreations, so she has to spend the money wisely.

Jessica loves swimming and she definitely wants to take her swimming skill onto next level. She starts to look at the PE classes, and she has two choices, regular swimming class or scuba diving class. If she takes Scuba diving class, she will eventually take the Scuba diving test and earn the certification. In this way, taking scuba diving class and taking certification test are complements. However, this would cost over 500$ not even including the travel expense. This takes almost ¼ of her budget, which is not very ideal. Then, look at the other option—regular swimming class. If she decides to take swimming class, she would only need to pay $25. Paying less money but enjoying swimming at the same time makes taking a swimming class a good deal. Its cost strictly limits within the budget constraint and still leaves room for other expenses, so she finally decides to take the swimming class, instead of the expensive scuba diving.

Jessica also has another hobby--horse riding. She knows Mount Holyoke has a brilliant equestrianism team and dreams of joining the varsity team. Taking horse-riding class costs approximately $800. Of course, for her, this is a huge amount of money. However, she is informed that as long as she makes to the varsity team, she does not need to pay for horse riding anymore. We are confident that she is talented and will eventually be accepted to the varsity team after taking several lessons of horse riding. The diagram of her budget constraint will look like this:


As Jessica’s hard work pays off, she will be able to enjoy horse riding for free. This satisfies her budget constraints and also leaves enough money for other activities.

Among all the instruments, Jessica chose violin and piano but she cannot decide between these two. She asked some professors from the music department, and she was told that she could take private lessons for both violin and piano. Furthermore, the two lessons cost nearly the same. Because of the limited budget, Jessica can only take one of these two lessons in order to learn the basic of music, which means violin lesson and piano lesson are substitutes. However in order to practice at home, she needs to own either a piano or a violin. Since Jessica’s mom had been a violinist, Jessica is able to get one free violin from her mom so that she can practice in her dorm. In this way, violin and violin class are complements. On the other hand, so are piano and piano class. If she chooses to play piano, she has to buy one for practice, which cost far more than the free violin and outweighs her original budget, so she can’t even afford it. Reasoning through, she found taking violin class is very economic for her. Thus, she decides to sign up violin class in the fall semester.


Now, Jessica is ready for her first semester in Mount Holyoke this fall.

Saturday, February 22, 2014

Turn Your Frown Upside Down with Some Chef Jeff Cookies

Turn Your Frown Upside Down with Some Chef Jeff Cookies
by Thu, Dorothy, Niole, and Kate

Sam, Ivy, Avery, and Claire are all students at Mount Holyoke College. During their first few weeks on campus as first year students, they all developed a love for the Chef Jeff cookies and the other goods sold at Uncommon Grounds. They then had to learn to manage their love for baked treats throughout the semester based on their own preferences and budgets.
Sam, a Mount Holyoke Student, loves to visit Uncommon Grounds. She enjoys nothing more than finishing her Friday morning class and then on her route back to Rockies, she stops by Uncommon Grounds for a strong cup of their “Fogbuster” coffee and a delicious chocolate chunk Chef Jeff cookie.
She has quite particular tastes and would not enjoy her chocolate chunk cookie without a cup of coffee. She only consumes the cup of coffee and cookie together. For her they are the Perfect Compliments to each other. For example, when she orders two cookies she would also order two cups of coffee because she would not consume them independent of each other.

Therefore her Optimal Consumption Bundles would be one cookie and one coffee, two cookies and two coffees, three cookies and three coffees, and so on. We can draw a line connecting her OCBs which we can call the Income Offer Curve. As she has 30 Dining Dollars each semester, her budget line will be 30 dollars. Theoretically, her consumption of cookies and coffee will be proportionate a every income level. To describe how her demand for each good changes with her income level, we can use quantity of goods consumed and income level to draw an Engle Curve.  
 

During the reading days before her finals, Ivy, an international Mount Holyoke student, decides to spend all of her dining dollars at Uncommon Grounds.  She does not want to spend much more than her dining dollars and she has spent $10 in Blanchard Café during the semester, so her budget constraint is fixed at $20.  Since Ivy does not like coffee, tea or ice-cream, she decides to buy Chef Jeff cookies, which cost about $1.25 each, and smoothies, which costs about $4 per cup.
Now she definitely does not want to spend all her budgets on 16 cookies or 5 cups of smoothies.  If she buys 4 cups of smoothies, she only has $4 left to buy 3 or 4 cookies, which are not enough for her.  Therefore, she would rather forgo a smoothie to buy more cookies, so that she can have 3 cups of smoothies and 6 or 7 cookies.  However, she still wants more cookies.  Therefore, she chooses to buy 2 cups of smoothies and 10 cookies, and she feels that she has made the best choice.
The graph below shows Ivy’s indifference curves and budget line.   Ivy’s optimal consumption bundle, which consists of 2 cups of smoothies and 10 cookies is represented by the red dot at the tangency between her budget line and one of her indifference curves.
Claire, a student at Mount Holyoke, loves Chef Jeff cookies. It doesn’t matter what type of cookie it is, Claire will eat it. However, she does have two favorites. She loves the chocolate chunk cookies and the Oreo cookies. Whenever she passes Uncommon Grounds, in the student center, she stops for one of these cookies. She does limit herself to her $30 dining dollars budget though, so that she doesn’t spend all of her money on Chef Jeff cookies. Because the cookies are $1.25 each, she can consume 24 cookies throughout the semester, if she does not use her dining dollars budget for any other good.
  Sometimes she stops at Uncommon Grounds and they are selling both chocolate chunk cookies and Oreo cookies. Other days she stops and they’re only selling one type of cookie. It doesn’t matter to Claire though, she is equally happy with either, for her, they are perfect substitutes.



As shown on the graph, Claire has many different optimum consumption bundles. She would be happy consuming 8 chocolate chunk cookies and 16 Oreo cookies (the blue dashed line). Claire would also be happy buying 16 chocolate chunk cookies and 8 Oreo cookies (the green dashed line), and would be happy consuming both 12 chocolate chunk cookies and 12 Oreo cookies (the red dashed line).

Avery has a severe nut allergy. While growing up, visiting a cafe like Uncommon Grounds was like touring a minefield. Happily, just in time for her High School graduation in 2010, a miracle over the counter drug called Nutsafe appeared on the market in the form of a pill to be taken daily. Ever since then, food establishments have become a much safer place for Avery. While attending Mount Holyoke College, she even developed a taste for Chef Jeff cookies.
Depending on the cookie and because all of the cookies are made and sold in a not quite nut free environment, Avery can only consume so many cookies before she notices a slight anaphylactic reaction. One could even conceptualize the limitations on her cookie consumption as a budget constraint.
Avery absolutely loves Chef Jeff cookies. She likes to mix and match cookie types each time she visits Uncommon Grounds and has a few favorite combinations that also work with her nut allergy. Avery knows that after taking one dose of Nutsafe, she can consume a maximum of 6 cookies, given that they don’t explicitly contain nuts. Because she isn’t particularly picky about how many of each cookie she eats, she treats chocolate chip and Heath Bar Chef Jeff cookies as perfect substitutes. Avery’s nut budget constraint takes the form of: 6=x+y,

After taking one dose of Nutsafe, Avery’s budget is a maximum of 6 nutless cookies. With every additional dose of Nutsafe she can consume an additional 6 nutless cookies. Chocolate chip and Heath Bar Chef Jeffs are not just perfect substitutes for Avery, their individual health and monetary costs are also exactly the same. This implies however, that Avery prefers no one combination of chocolate chip and Heath Bar Chef Jeff cookies to another. In other words, it is the case that every bundle of goods represented in the above scatter plot could be called Avery’s Optimal Consumption Bundle.
We can also approach this idea from a mathematical angle. The Marginal Rate of Substitution of the Indifference Curve along which Avery’s nutless cookie budget constraint lies is -1. After rearranging the nutless cookie budget constraint, we see that y=6−x. The slope of her budget constraint equals -1, or ,−P-x./,P-y. = −1, which is exactly equal to the MRS of the above depicted IC. In other words, −M,U-x./M,U-y. = −1 = −,P-x./,P-y.. These pieces of information tell us that Avery’s entire nutless cookie budget constraint intersects with the above shown IC, which has a utility for Avery equal to 6 nutless cookies.
Avery has also found that she can increase her resistance to nuts by taking additional Nutsafe pills. This enables her to eat a proportionately larger number of cookies. She only does this occasionally however, because the long term effects of overusing Nutsafe haven’t yet been determined. As a runner on the Mount Holyoke College cross country team though, Avery readily doubles, and even triples her cookie consumption, showing a homothetic preference for Chef Jeff cookies,

1 Dose Nutsafe6=x+y, 2 Doses Nutsafe → 12=2x+2y, 3 Doses Nutsafe → 18=3x+3y

Avery loves cookies and never hesitates to buy six at a time. As a senior, she requires lots of cookies to keep her company on lonely nights researching her thesis in the library. Luckily for her, she has enough money saved in the bank to support her Chef Jeff habit through these stressful times.
As shown in the above examples, Sam, Ivy, Avery, and Claire each have their own unique preferences. They each figured out a way to manage their own personal budgets while still maximizing their utility of cookie, smoothie, and coffee consumption. Students, faculty, and staff are all familiar with this struggle as they pass Uncommon Grounds. In its own right, it is practically a Mount Holyoke tradition.


Monday, February 17, 2014

Winter break: How Should Students Spend It Financially?

Winter break: How Should Students Spend It Financially?
by An, Maame, Meher, and Mariah

What do Mt Holyoke students usually do during winter breaks? Staying on campus preparing for next semester, travelling with friends, or enjoying Christmas and New Years Eve with their family? There are many choices, so how can they make the best decision based on the amount of money they have and their preferences? These questions are not so easy for many students to answer because there are many factors to consider based on their budget constraints. Therefore, we will help both domestic and international students find the most appropriate strategy to enjoy their winter break based on these basic following factors:
- Places: home, hotel, campus, etc.
- Food: food at relative’s, buying pre-made, going out, grocery shopping, dining hall, etc.
- What to do: visiting relatives and friends, road trip, studying, etc.

Given that domestic students cannot stay on campus during the two weeks between the end of fall semester and the start of January term, the roughly 75% of students who are domestic must temporarily relocate somewhere off campus. A domestic student could live any distance from just down the street to five thousand miles away from Mt Holyoke. More than a quarter of students live less than 500 miles away, making travel home a few hundred dollars cheaper than a flight or two to California. We’ll look at two different domestic students: Katie, from Long Island, NY, and Eliza, from San Francisco, CA. Both Katie and Eliza have been working all semester and earned close to $1000 each, which they plan to put towards their winter breaks. They are willing to spend a lot of that money given a high amount of utility in return.

Katie is looking at two options. She could drive home, which costs roughly $40 in gas one way. If she drove or rode with other students going there as well, she could easily halve this cost. By staying with family, she eliminates rooming costs and most if not all meal costs. Katie could also travel with two or three friends down to Florida for the break. Such a road trip would cost her roughly $80 in gas each way and about $400 in hotel room costs. Food would also be around $400 for Katie, but many fun activities could be done without spending anything. All around, a two-week road trip with friends would require a budget easily around $1000. Katie has the option of relaxing at home and spending very little or enjoying herself on a vacation with friends for quite a bit more money. Weighing both costs and benefits of her options, Katie might have a much better time with friends than feeling stuck at home with family obligations, thus gaining a much higher utility from her expensive road trip.

Eliza also has a few options for winter break. Flying home to her family in California costs $400 each way. Though she would have rooming and food taken care of, she will have spent a lot in travel alone leaving very little for nights out with high school friends while home. Another option for Eliza would be to stay at her roommate’s parents’ house in Boston for part of break and then meet up with another friend for a few days in the Big Apple. Travel from Boston to NYC and then NYC back to school on Amtrak trains would incur costs around $100. Hotels for three to four nights would be around $375-500 for each she and her friend. On top of that, food costs could range from $150 to extremely expensive in New York City. Eliza would also need to budget at least $100 for entertainment while there. Either way, Eliza ends up spending roughly the same amount, so she must choose based on the utility she would gain from either trip.

In the case of our two international students Maame (from Ghana) and Meher (from Pakistan), things are a bit different. Home is far away - at the other end of the globe - and plane tickets are at least $2000 roundtrip. Luckily for Maame, she was able to save some money from interning last summer, so she’s thrilled to be going home! Yes, $2000 is a lot, but Christmas is important to her and she hasn’t seen her family in a year. Her budget for the entire break is a little bit over $2000 since she has to find a way to get to the airport. If she goes with the SGA bus, she’d have to pay $25. Otherwise, she’d have to take a cab and pay at least $75.  Back home, she wouldn’t have to spend much because she will be with her family and it will be easy to move around. Meher on the other hand cannot go home over the break because she cannot afford it. Luckily, her roommate who lives in Boston has offered to take her home over the break and then she’ll return to campus to work over J-term. Meher’s only expense is to pay for gas, which is about $30 dollars. During the break, food and other expenses are covered by her roommate’s family.  Evidently, December break is much cheaper for Meher than it is for Maame. However, the opportunity cost is greater since she gives up spending time with her family. Maame on the other hand, has a higher budget due to her expensive plane ticket, but is able to spend time with her family and friends.


In conclusion, regardless of being domestic or international, students who live far from Mt. Holyoke College have to spend quite a large amount of money on winter break due to the expensive travel expense unless they stay with friends or relatives near school for most of the vacation. Thus they are forced to work more to have larger budgets to compensate or choose a less preferable but affordable option. Students who live much closer have more options due to fewer travel expenses required for the going home option. Therefore, they should carefully take into consideration all the aforementioned factors to make them work out best for each specific budget and preferences so that students can have a happy and joyful break.

Friday, February 14, 2014

Does Your GPA Actually Matter?


Does Your GPA Actually Matter?
An Analysis of the Opportunity Costs of Studying in College
by Maniza, Linh-Lan, Geena and Sukanya

Opportunity costs are the benefits you must forgo in order to pursue an alternative choice. “What do I have to give up in order to get this?” is a common question in all of our minds. In college, students come face-to-face with many opportunity costs throughout the day, because there just aren’t enough hours in the day to do everything. Time is a scarce resource, and college students everywhere learn quickly that how they allocate their time affects their college experience. While studying enough hours is an important step to academic success, there are other successes to be accomplished during college within work experience, extracurricular activities, and friend circles. Time needs to be allocated efficiently in a way that satisfies a college student’s wants for optimal happiness.
College students may find it easier to use marginal analysis while deciding on how to allocate their time efficiently. In economics, marginal analysis is an examination of the additional benefits of an activity compared to the additional costs of that activity. Marginal analysis serves to allocate a scarce resource like time efficiently.
For example, for every extra hour that a student spends working, her additional benefit is the money that she earns from her current work in the short run. Her additional opportunity cost is the time she could have spent studying for her courses. The time she forgoes by not studying could have been spent on studying harder and achieving a higher GPA. Holding all other variables constant, better grades in college would increase her chances of getting a high salary job in the long run. On the other hand, for every extra hour that a student spends studying, her additional opportunity costs would be the income she forgoes by not working. Her additional benefit would be more time to devote towards getting a higher GPA and a better job in the long run.
So, while deciding on what to do with an additional hour, the student needs to weigh both the costs and benefits of an activity and reach a decision where the benefits outweigh the costs. A trade-off between costs and benefits in the short term versus the long term is also observed. Time management is a crucial factor here. The student should utilize time in such a way so that her net bundle of activities in a certain day (i.e. how much time she chooses to devote towards studying, working, or other activities) would render more benefits than costs.
The trick is to identify the costs and benefits properly, and sometimes the costs and benefits associated with a particular activity are hard to determine. For example, the benefits of not studying and forgoing additional study hours could mean that the student is devoting those hours to productive extracurricular activities like working in the student newspaper or participating in the debate society. These activities could in turn contribute towards her future career goals. Thus, this time devoted to pursuing an extracurricular activity may actually benefit the student’s future goals more than if she just spent her time studying. Obviously, the nature of the activity should be taken into account and compared to the student’s future goals.
In some instances, a student’s extracurricular activities at school may conflict with her study schedule. This means that there is an opportunity cost in participating in school organizations. However, depending on what a student would like to do after she graduates, the benefits of participating in a club may actually outweigh the costs of lost study time.
For example, if a student would like to enter the field of journalism, it may be better for her to write for the school newspaper or volunteer at the writing center. This means that she would give, or allocate, some of her time to these various activities. While she may not always have enough time to study for an exam or attend a review session, the benefit of some “real world” work experience may actually make her better off in the long run. In the short run though, she may have to forgo getting an “A” in every class.
But, when the student graduates from college, she may actually be more employable than a student who had a perfect GPA but no extracurriculars. This is because the student who wrote for the school paper or volunteered for the writing center better understands the field in which she is working.
While it’s important for students to be productive during their college years, continually studying, working, or participating in an activity can become tedious. For a college student, socializing is also an essential aspect of her life. Although gathering, chitchatting or hanging out with friends seem trivial at first, the experience of creating a network for yourself is extremely valuable. So often there are successful stories about college students who get hired immediately after graduation by a large firm or organization. Their secret to success somehow includes knowing someone important in the company, or just gaining trust and confidence with the interviewer. Such interpersonal skills are trained and sharpened nowhere else but in quotidian life.
Moreover, for careers that involve interacting with other people (such as politicians, lawyers, speakers, social workers, and even scientists), the ability to socialize and connect with others is even more favorable and beneficial than theological knowledge. Similarly, just being collaborative and amiable with colleagues brings about happiness in the classroom and workforce environment. Hence, for a college student, sacrificing a few hours of studying to just relax with others and traveling to different places not only relieves stress but also enhance her own personality and chances of being successful in the future.

All of these different options on how to spend your time in college can be overwhelming for students. Most, if not all, college students want to maximize their utility—they all want to make choices that will allow them to enjoy optimal wellbeing. In order for them to do so, students perform cost-benefit analyses all the time (without even realizing it). It is important to note that these analyses can be subjective, based on the student’s preferences. Students have different preferences when it comes to “making the most out of college,” because whether a choice is rational or not depends on the decision maker. Every college student’s time management is different, so every one will do different things depending on whatever makes her happy.

Wednesday, February 12, 2014

To enroll: Choosing a college within my budget constraint

To enroll: Choosing a college within my budget constraint
Maria, Norma, Xiaotong

When evaluating where to go to college numerous aspects come into play. Conversations about budget constraints are predominant. For some, this conversations arise when starting to look at schools, others don’t even have this conversation.  We will discuss two cases in which two individuals make decisions depending on their budget constraint.
Someone’s decisions will be affected by the following:
1.     The type of education that your are interested in Liberal Arts College vs. University
2.     Intended degree / Program
3.     Rankings
4.     Size of school
5.     The amount of financial aid or Scholarships they can receive from an institution / “financial aid package”
6.     Location

Sarah and Clara are seniors in Milton Academy a private school. The main difference is that Sarah comes from a very wealthy family and pays full tuition in Milton Academy whereas Clara comes from a middle class family and has a full scholarship at Milton Academy. Both of them are in the top 10 percentile of their class, got SAT scores above 2,100, they are dancers and want to major in Finance. Thus Clara and Sarah have different budget constraints, which will lead to make difference choices.  Because of their similar interests they started to look at schools together yet what they paid attention to within the catalogues was quite different.

We will first look at Sarah’s college decision process by looking at the two factors location and type of education. Sarah had a higher budget constraint because her income was high enough so that she could afford any school that she wanted in the location that she wanted. Sarah was interested in attending a topnotch college but she knew for sure that she wanted to be in a city. For her she preferred to sacrifice going to a very great school for going to a school in the city. Sarah got into Amherst College, Boston College, Wellesley College and Cornell University. Sarah decided to rank her options she discarded Amherst College and Cornell University because they where in rural areas that she did not want to be in although they were better schools but she knew that being in a city would make her happiest. She faced a decision between Wellesley College and Boston College they were both great schools that where in suburbs right next to Boston, MA and she could be in the city in 15min by train, yet one was an all Women’s College while the other was Coeducational, she was indifferent between both. She decided to go to Boston College because she had more friends that were going to that school.

Now we will look at Clara’s college decision process by looking again at the same factors location and type of education. Clara’s budget constraint was limited by the fact that she needed a scholarship or financial aid. In her position she was willing to make a tradeoff between going to school in the city and/or a top-notch school. Her decision would be based upon what was the cheapest or most affordable combination of a topnotch school and a location that she could get with her income. Sarah got into Harvard University where she would only pay $22,000, University of Pennsylvania paying $25,000 plus $8,000 in student loans, Wellesley College for $15,000 and $3,000 in work-study and Amherst College for $15,000 and $3,000 in work-study. She discarded U Penn right off the bat because she considered that it was too expensive for her. She finally made the choice to go to Wellesley College where she was able to afford and at the same time get a great education but it was also in a great location. It was near Boston, MA and she could visit Sarah frequently too.

In conclusion the two girls’ budgetary constraints and preferences lead to different choices. This shows how two people have different budgetary constraints and how one’s limit is not necessarily the other one’s limit. In short in economics, no two people are the same, each and every case is different and unique.