Social & Global Studies

Unit 1 Economic Problems & Principles

FOUNDATION READING  The Economic Problem

Approaching Economics Through Problem Based Learning

Game 1 Can we trust the game?

Game 2 Can we trust each other?

Competitive Pricing Strategy

Consider the two dominant firms in the global smartphone market, Samsung and Apple.  Now compare their respective premium smartphone series, Samsung Galaxy S22 Ultra 5G and the iPhone 14 Pro Max Each company must decide on a fall 2022 pricing strategy.  Your 2 or 3 person team will represent one of these companies.

Assume you and your competitor both have a commanding share in the N. American smartphone market (i.e., Apple approx. 48% and Samsung 30%) and currently enjoy relatively high prices with healthy profit margins. The decision you must make is — Should you lower your price?
Pricing Strategy Choices / Outcomes — 2 Strategies, 4 Possible Outcomes, Decide Your Strategy
STRATEGY 1 — High Price
POSSIBLE OUTCOME a) Cooperative Higher Price Strategy  →  profit of $1 billion USD per week IF your competitor follows the same strategy.
POSSIBLE OUTCOME b) Cooperative Higher Price Strategy  →  profit of $0.2 billion USD per week IF your competitor does NOT follow the same strategy.

STRATEGY 2 — Low Price

POSSIBLE OUTCOME c) Competitive Lower Price Strategy  →  profit of $0.5 billion USD per week IF your competitor follows a low price strategy.
POSSIBLE OUTCOME d) Competitive Lower Price Strategy  →  profit of $1.3 billion USD per week IF your competitor does NOT follow the same strategy.


1.  As a Team Develop a Strategy  (15 min.) DEVELOP — Take your time to discuss and decide on the pricing strategy you will make for your company.  You MUST keep this decision confidential from ALL OTHER TEAMS be it an Apple or Samsung team. 


Hint 1 — Discuss what decision is most rational and what decision maximizes your company’s interests.  You may need to discuss

             what your company’s interests actually are and articulate them clearly to make your decision.


Hint 2 — Try and deconstruct your competitor.  Discuss what decision is most likely from your competitor given your own

              company’s strategy.


2.  Test Your Strategy (15 min.) REVEAL — your team will be paired with another who is representing your competitor.  Join together and each group will write out the name of the pricing strategy (either High Price or Low Price) they chose on a yellow ballot, fold it over and exchange it with your competitor.  Each company will open the other company’s paper at the same time and see how much each company will profit given your strategy choices.   DISCUSS — which company won market share/profited and why each company chose the strategy they did.  Did non-price information factor into your decision?  If so, what types of non-price information did you consider? Do you notice any patterns or necessary assumptions in your strategy?  How does cooperation and competition play into this activity?  Can you place the 4 profit scenarios in a decision matrix (Hint — think quadrants)?  Can you relate your outcome to any economic principles you know about or we discussed in Game 1?  What is the bottom line statement that Game 2 teaches us about price competition, self-interest, the common good, profit motive or individual behaviour in a competitive market?

3.  Large Group Debrief — MAKING LINKS to economic principles, assumptions, and the dominant economic models.

Prisoners' Dilemma Decision Matrix

Major Incites about GAME THEORY to Take Away From PROBLEM 1
PROBLEM 1 Full Debrief



Game 3 Can I remain competitive?

How Do We Create Stability & Order in Society Under Resource Scarcity?


♦ The simulation can be described as a competitive approach to the condition of scarcity where self-interest went unchecked.

♦ A re-think of the simulation and the hypothetical “second chance” could be described as a collective approach to the condition

   of scarcity where self-interest is restrained by cooperation, or “implicit collusion” (i.e., a High High vs. Low Low strategy … think about the lessons of GAME 2 … counteraction … allow your game partners to profit too).

♦ Unrestrained self-interest coupled with distrust versus restrained, rational self-interest coupled with a trust in the agreed upon


♦ The schematics and all available resources represent a market.

♦ Distribution of wealth problematic / MAJORITY MARGINALIZATION evident.

♦ No formal system of exchange or currency.

♦ No formal price signals or demand and supply economics in operation (other than non-price signals of participant behaviour).

♦ An oversimplified economy in-play.

♦ Illegal markets in effect.

♦ Unrealistic moral hazard (when a party takes on more risk because someone else bears the cost of those risks … it arises when

   the parties have incomplete information about each other).

♦ Disproportionate # of participants idle (i.e., waste), even when specialization and economic interdependence operated.

♦ System of trade and specialization not “internationalized”.

♦ No capacity to expand resource base by trade or exploration.

♦ Production / Consumption parity.

♦ No formal markers of status or wealth.

♦ Universal ability to participate / contribute.

♦ 3 economic questions predetermined (What, How, & For Whom to produce).  Innovation deficit.

♦ The ordering/ranking of the 3 economic goals of Equity, Stability, & Efficiency not clear.

♦ Anti-competitive behaviour operated.

♦ High High strategy, implicit collusion, and counteraction quickly & easily transformed in a Low Low strategy … the F*#k You Buddy Effect …).

♦ Opportunity cost skewed.

DOMINANT DESIGN of the Game prevailed (the design that all/most competitors emulate).

NETWORK EFFECTS in play … the more competitors that use the dominant design the stronger the pay-off / incentive to use it by all competitors.

The Condition of Restrained Self-Interest

→ Thinking About How to Restrain Self Interest in the Free Market (WATCH Milton Friedman in Greed is Good Clip).


What are the Dangers Posed by Fallacies & Assumptions that Underpin Market Economies?

TRUTH / FALLACY 1 → Infinite Economic Growth is Possible Under the Constraints of the Invisible Hand

CASE STUDY RESOURCE Guest Speaker on the Origins & Impacts of the 2008 Global Financial Crisis 

Listen to Jeff Rubin, former Chief Economist at CIBC, discuss the links between the economic growth imperative, oil and the 2008 global financial crisis (click on the audio on the left → minute 3:00 to 13:47).

Jeff Rubin on 2008 Financial Crisis CBC Ideas Podcast 07 September 2012.

Subprime Mortgage Market and Risk Backgrounder to Jeff Rubin's Audio Comments

Why did banks hold these toxic assets? Why were these subprime mortgages created in the first place?

In the early years of the new millennium, ever increasing housing prices were outstripping the increases in incomes. Fewer and fewer could afford new homes so banks needed a new way to entice buyers with ever more attractive mortgage conditions. These loans became known as NINJA loans (meaning, No Income, no Job, and no Assets).

The dangerous assumption these new subprime mortgages were predicated on was that housing prices always go up, thus, despite the low interest payments the banks (and others who bought the assets once they were turned into securities traded on a market) would collect on these mortgages, they assumed they could sell these houses financed by subprime mortgages for an attractive profit in the future.

Since banks must hold a reserve of funds available in cash relative to the size of their assets, banks used financial wizards to design ways to keep these subprime mortgages off their balance sheets. Anything that has a predictable steady stream of income can be packaged and sold as a security (called securitization), thus subprime mortgages were bundled into securities and sold to other banks and financial institutions as an investment. This kept these mortgages off the books, while the banks still enjoyed the monthly interest payments as a revenue stream.

Banks bundled these subprime mortgages with a diversified mix of low to mid to high risk mortgages, thus spreading the risk and impact of any one individual default on the value of these subprime securities. Once interest rates jumped from 1% to just under 6% from 2004 to 2006, it didn’t take many of the high risk mortgages to default on payment to send their AAA rating, and thus their market value, on a landslide to Junk rating and almost worthless in the markets.

Suddenly banks and other financial institutions that held billions in these toxic assets witnessed their value evaporate into huge losses. The financial crisis began to unfold as institutions “too big to fail” folded in bankruptcy, confidence in the markets faltered, and bailouts became reality.

Rubin’s Story in Broad Strokes


The Growth Imperative? Capitalism vs. Climate CBC The Sunday Edition 12 September 2014.

Commentary Article “Let’s Abolish Social Sciences” by Michael Lind

TRUTH / FALLACY   2  →  An Economic System Based on the Belief That We Are Rational, Self-Interested

                                           Beings Maximizes Freedom

CASE STUDY RESOURCE  Documentary Film The Trap Part 1 F**k You Buddy BBC

The fallacy of self-interest as rational, simplified human behaviour.

CENTRAL QUESTION IN THE TRAP DOCUMENTARY → Can stable economic order be created in a modern and complex world simply by unleashing individual freedom and self-interest?


The Trap Part 1 “F**k You Buddy” (2007 BBC Documentary)

The Free Market Claim → Individual freedom allows for self-directing individuals to maximize personal advantage by acting in their own self-interest according to market incentives and performance targets all the while balancing one’s self-interest against all others.

The Trap Documentary Notes

PUT ANOTHER WAY  Maximizing Economic Freedom Maximizes Human Outcomes






TRUTH / FALLACY   3  →  Economic Modelling is Values–Free

CASE STUDY RESOURCE  Audio Documentary It’s the Economists, Stupid CBC
It’s the Economist’s Stupid   AUDIO DOCUMENTARY   CLASS BOTTOM LINES 2019
It’s the Economist’s Stupid   AUDIO DOCUMENTARY   CLASS BOTTOM LINES 2018

FALLACY 3 CONTINUED → Economic Modelling is Values--Free: The Case of Debt, Austerity, & Greece

The fable of the ant and the grasshopper. This characterization of Greece as an economy that caused it’s own problems has led to a crisis of confidence and credibility.
Greece Debt Crisis BACKGROUNDER

Austerity, Public Good, & Public Choice Economics → A Case of Freedom, Stability, & Order Undone

2.     How Does Varoufakis’ Ideas Fit into the Prospect of the Greek Economy Recovering?