Over the past six months, COVID-19 gave many students the opportunity to make economic decisions, whether they knew it or not. This is true for both big decisions, like whether they should attend college this fall, and the day-to-day ones like whether they should go to visit a friend. This is not a new phenomenon, as many of us have been using basic economic principles to make decisions throughout our lives.
Everyday economics has been a passion of instructors and authors Betsey Stevenson and Justin Wolfers for years now. They literally wrote the textbook on it. Principles of Economics
To help foster an even better understanding of the history-making pandemic, Betsey and Justin added new, current examples to help instructors cover the pandemic in their classrooms and to show students ways that they are already using economic principles -- or not -- in their recent decision-making. Here are seven insights distilled from these lessons:
Students weighed the costs and benefits of leaving their homes. They analyzed the pros and cons to determine what worked best for them. And in many instances this meant staying home. In fact many students began to socially distance well before the government required them to do so.
Students did not always ignore sunk costs (though they should have). As the pandemic was just beginning, many students had vacations, parties and other activities that had been planned for and paid. With fear of missing out and since money had been spent, many did not cancel. Florida’s spring break was a prime example of why it’s okay to not continue to invest in sunk costs, as people got sick and some died after attending parties.
Students reviewed the opportunity costs. Some students considered changing their college plans by asking themselves “or what.” For example, they asked: Should I go to college or … travel (which is limited) ... get a job (which is harder because unemployment is up).
Students' actions caused supply and demand to shift. With social distancing measures in place, they didn’t go out to restaurants nearly as often, and overall demand for in-person dining decreased.
Students made decisions that impacted more than just themselves. The marginal external costs associated with risky behavior during a pandemic are larger the more infectious and fatal the disease because it's more likely to make more people sick with serious consequences. On the other hand, the marginal external benefits associated with social distancing and mask-wearing during a pandemic are also larger since averting potential infections could save many lives.
Students relied more on Amazon for goods, giving Amazon greater market power. An article in The Economist on April 11, 2020 noted: “As the world gets back on its feet, big firms will have better access to capital markets, giving them an extra edge over smaller competitors.”
Students played a coordination game when they bought more toilet paper than we needed to. Purchases in excess were made not because they feared a shortage, but because they were concerned that others feared it.
These seven examples of how COVID-19 impacted our choices represent just a fraction of how we're using economic principles to make decisions in our everyday lives. For more information about Principles of Economics with Betsey Stevenson and Justin Wolfers from Macmillan Learning, and to learn more about why every decision is an economic decision, click here.
Betsey Stevenson advised President Obama on social policy, labor market, and trade issues as a member of the Council of Economic Advisers from 2013 to 2015. She is currently a professor of economics and public policy at the University of Michigan and she serves on the Executive Committee of the American Economic Association and other boards. She is an expert on the impact of the economy on happiness, on public policies’ impact on the labor market, and the economic forces shaping the modern family, among other topics.
Justin Wolfers is a professor of economics and public policy at the University of Michigan. He is an expert in unemployment and inflation, the power of prediction markets, the economic forces shaping the modern family, discrimination, and happiness. He has been an editor of the Brookings Papers on Economic Activity, a board member on the Committee on the Status of Women in Economics, a member of the Panel of Advisors of the U.S. Congressional Budget Office, among many other board and advisory positions.