Lecture Issues in economics today - Chapter 28

The objectives of this chapter are to introduce perfect competition. After studying this chapter you will be able to understand: The characteristics of perfect competition; the perfect competitor’s demand curve; the short run and and the long run; economic and accounting profits; decreasing, constant, and increasing cost industries.

Chapter 28 Head Start McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Chapter Outline • • HEAD START AS AN INVESTMENT THE HEAD START PROGRAM THE CURRENT EVIDENCE THE OPPORTUNITY COST OF FULLY FUNDING HEAD START McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved The Head Start Program Head Start is an enhanced pre-school program for poor children • It began in 1965 • It enrolls nearly million children per year • Its budget is approximately $4 billion per year McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Head Start as an Investment The premise of Head Start was that early intervention with education for both parents and children would pay for itself in future years as the enrolled children would become better adults Specifically, the thought was that they would be – More likely to graduate from high school – Less likely to be imprisoned – More likely to delay having children McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Present Value Analysis Using present value analysis we must account for the fact that the costs of the Head Start program occur substantially prior to the onset of financial benefits • If it can be shown that Head Start has all of the benefits just listed, that is not enough • The present value of the benefits (the reduction in prison costs plus the increase in taxes paid by former enrollees) must exceed the present value of the cost McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved The External Benefits Argument If there are benefits to preschool for poor children that accrue to the general population there is a positive externality and a market will produce an inefficiently low amount • Generally, when there is a positive externality to any good, economists favor subsidies for it McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved The Early Evidence Studies from the 1980s showed that children of the 1960s who were given high quality preschool had significantly – Lower rates of imprisonment – Higher rates of educational attainment • These studies showed that every $1 spent on high quality preschool returned $5 later on in higher tax revenues and lower tax expenditures on crime McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Doubts Doubts were raised as to the quality and reliability of these studies Specifically it was doubted that – part-time preschool could overcome the effects of poverty – the results could be duplicated in a government program because of the nearideal nature of the study group McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved The Program Enrolls nearly million children – The population mirrors the poor population so it is disproportionately minority • Costs $5,000 per child enrolled • Is not fully-funded (there are not enough spots to offer Head Start to all who are eligible.) • Spending has been greatly increased since 1990 McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved E n r o llm e n t in 0 Head Start Real Spending and Enrollme 3000 2500 2000 1500 1000 500 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 Year Enrollment McGraw­Hill/Irwin Real Appropriation â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Evidence that Head Start is Ineffective Many studies conducted over the last 20 years have failed to find a significant link between Head Start participation and any of the long term variables • These studies find that all the benefits that accrue to participants dissipate after 3rd grade McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved The Opportunity Cost Question If the Head Start program cannot show significant long term benefits, then the opportunity cost of money spent is that: – the money cannot be spent on other programs – policy makers fail to consider other programs McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved  .. .Chapter Outline • • • • HEAD START AS AN INVESTMENT THE HEAD START PROGRAM THE CURRENT EVIDENCE THE OPPORTUNITY COST OF FULLY FUNDING HEAD START McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved... disproportionately minority • Costs $5,000 per child enrolled • Is not fully-funded (there are not enough spots to offer Head Start to all who are eligible.) • Spending has been greatly increased since 1990... be imprisoned – More likely to delay having children McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Present Value Analysis Using present value analysis we must account