A Flunking Grade in Quiz Writing

Clicking through headlines this morning, I saw one that didn't come as much of a shocker: "American's Get Flunking Grade on Economic Literacy." I clicked on it partly because of the irony of a "flunking grade" headline containing a grammatical error. (American's should be Americans.) But then I took the "quiz." From the very first question, I knew I'd been suckered into reading political propaganda instead of any honest attempt to survey American's for their economic literacy.

During the first two years of the Trump Administration, did the U.S. economy grow faster than the last two years of the Obama Administration or slower?  Faster Growth Rate,  Slower Growth Rate,  About the Same. 

If you clicked on slower or about the same, you were then informed the "correct" answer is Faster Growth Rate. But my problem with this as the "correct" answer is that "about the same" is also a fairly accurate answer, since "about" is a reasonably broad term. The final year of Obama's term did have a relatively slow growth rate, but 2015 had a growth rate of 2.9 percent. 2017 had a growth rate of 2.6%. So, Obama's second to last year beat Trump's first year. But more importantly, if you look at a few decades of economic data as found in this chart, there's really not been a dramatic shift in growth between the Obama years and the Trump years, with the disclaimer that there's only been two Trump years. It's hardly enough to show a trend or allow for any long term comparisons. It's apparent looking at data that the growth rate for the last decade mostly bounces around in a range between 1.6% and 2.9%. The question seems designed to make you conclude that Trump has managed the economy better than Obama, but I'm skeptical that a four year span is long enough to draw any meaningful conclusions from.

A few other questions seem placed to make Trump look good as well. The second question is about the Hispanic unemployment rate. It correctly notes that the unemployment rate for Hispanics is the lowest ever recorded. But, this is supposed to be a "Basic Economic Quiz." Slicing up the data to look at unemployment rates for different ethnic groups seems outside the scope of "basic" economic literacy. I think the average person could remain blissfully unaware of the Hispanic unemployment rate and still be well educated enough to balance their checkbooks, choose a good mortgage, and save for retirement. The quiz is only ten questions long, and, for the record, does ask a question about mortgage rates, but asks no questions at all about retirement savings. For a quiz about "basic" economic literacy, it skips over a lot of basics.

But I wouldn't be writing this blog post if it had just been questions with a political slant. I'm writing it because one of the questions just struck me as presenting an answer that's mostly wrong.

5. Generally speaking, if more people want to buy a particular product, will the price of the product go up, down, or stay the same?
 The price will go up
 The price will go down
 The price will stay the same
 Not sure

The "correct" answer, according to the quiz writer, is that the "price will go up."

"Generally speaking," this is wrong only if the question is modified. If people want to buy a particular product that's only available in a limited quantity, the price will go up. So, if more people that want to own gold, the price will get higher, because demand outstrips the increase in supply. The same is true for some brand name items where scarcity is a matter of design. A designer of handbags might only release a very small quantity, creating an artificial scarcity that allows the handbags to command a high price. In comic books, publishers deliberately create instant collectibles by printing variant covers in small quantities. Artists sometimes release numbered prints, so you know that you've bought one of only 100 existing copies of an image. It's scarcity by design.

But, generally speaking, for most commodities increased demand will result in prices coming down if there are multiple people competing to supply that demand. When I first got the internet, I paid $12 an hour to dial up to a very, very slow connection. But, a LOT of people wanted to access the internet. So providers did what they could to make it affordable to broaden their customer base. Even today, providers try to undercut the prices of their competitors to attract more customers. Per minute, I pay a fraction of what I used to, and get access to a product that is so superior to what I once had that it almost feels like magic. Maybe my internet bill will go up next year. But this will be offset by the fact that I'll probably be able to download more content at even faster speeds, and as a percentage of my total income, the cost will likely stay flat, or even shrink.

Inflation makes it difficult to compare prices directly, but if you like drinking soda, good news. A bottle of soda today costs a lot less relative to your total income than it did half a century ago. I can go to Walmart today and buy a good pair of jeans for under $20, which, again as a percentage of income, is a price drop compared to what they cost in the seventies or eighties.

If a commodity doesn't have an artificial cap on its production by a variety of competitors, in general a product that's in high demand will wind up being cheaper because you can make more money with a tiny profit margin if you are capturing a broad pool of customers. Raise your prices, and you'll start losing customers to competitors offering better prices.

Finally, I would also say that the question is ambiguous when it asks about a "particular product." Demand for I-Phones have kept the price for that "particular product" relatively high. But, as a category, smart phones with broadly similar capabilities have dropped sharply in price compared to what a phone with similar specifications would have cost even a few years ago.

Fortunately, I suspect that this "quiz" will soon vanish as a needle into the near infinite haystack of  the internet, as will this blog post. But, it still feels good to get this off my chest. If you're going to write a manipulative quiz about basic economics, maybe it would help to actually understand basic economics in the first place.