Activity: Marginal Analysis – Would You Swim There?
Download Activity 6 Teacher Guide, Handouts, Visuals (.doc file)
In the “Would You Swim There?” simulation, students play the roles of community members wrestling with the problem of cleaning up a polluted pond on their common property. They quickly discover that because of their different values and interests, the important question is not whether to clean up the pond, but how much clean-up they are willing to pay for.
- 2-3 class periods
- 1 copy of handouts #1, 2, and 10 for each student
- Overhead transparency or slide of visuals #1 & 2
- Copies of handouts #3-9
- (See handouts in download link above.)
- Explain that in this lesson the students will play the parts of community members who are trying to clean up a pollution problem.
- Distribute (or display on overhead) Handout #1. Read the pond scenario and check to see that the students understand the issue. Ask: Where has your family moved? (To a planned community with a large pond.) Who owns the pond? (It’s common property, owned by all community members.)
- Distribute Handout #2, the consultant’s report, and read through it with the class.
- Divide students into seven interest groups and assign roles in each group:
- discussion leader (keeps group on task)
- recorder (responsible for worksheets and/or recording discussion points)
- time keeper (allow 15 minutes for discussion and 5 minutes for preparing your group’s presentation)
- encourager (responsible for bringing everyone into the discussion) activity)
- reporter (responsible for presentation to the Board)
- Provide each group with copies of the appropriate role handouts #3-9)
- TP2 (Tired of Teenagers Tee-Peeing): A concerned-parents group that wants their kids to have access to reasonable, healthy activities that will keep them out of trouble.
- KPK (Keep our Property Kleen): A dedicated environmentalist group that campaigns for the elimination of pollution, even if the solutions require sacrifices.
- Boosters: Active families and young adults who want and are willing to pay for a wide variety of recreational activities that are conveniently located, in order to eliminate the necessity of driving into the city. First-time homeowners with growing families and careers.
- Out-of-Sight-Out-of-Mind: These property owners are mostly elderly, retired people who live on the end of the development opposite the pond, where smaller, less expensive houses are arranged in patio clusters around a central activity center. They have no views of the pond and don’t believe that its existence—or disappearance—will have any effect on their lives. Many of these people live on fixed incomes, and they are less worried about their property values than they are about yearly membership fees charged by the homeowners’ association.
- PPP (Pond Perimeter Property owners): These people own the most expensive homes in the development, with large lots that back up to the greenbelt separating the community from the pond. Many of them assumed, without asking, that the pond would be cleaned up, and they are angry that it hasn’t been. Many purchased the lots because of the gardening potential and the accessibility of pond water for use in gardening. Needless to say, they were none too happy to find that the slimy sludge not only smells terrible, it kills their roses!
- The Fish: This group of teenagers is afraid that adults will overlook the most important thing about ponds—swimming. With their slogan, “Keep Us Off the Streets,” they are lobbying for a beach and a summer hang-out.
- The Homeowners Association Board: As members of the community, you share concerns with some other groups forming around the pond issue. However, as Board members, you have a responsibility to consider what’s best for the entire community. Although you are volunteers, you take your duties seriously and you want your decision on the pond issue to benefit as many people as possible, while imposing only reasonable costs.
- After assigning roles, ask each group to meet, decide which level of pollution clean-up they support, and prepare a 3-5-minute presentation for the Homeowners’ Association Board meeting. The presentation should include a brief description of the group, the stage of the project they support and reasons for their choice.
- Display Visual #1. Instruct each group to ask the following questions about each stage of clean-up:
- How much additional benefit does the community gain by doing this clean-up? (If the community does nothing, there is no benefit. By completing Stage 1, people gain about $3.5 million in benefits.)
- How is this benefit distributed? Who gains? (Groups will determine whether or not they benefit, based on their role descriptions.)
- How much additional cost is there to attain this level of clean-up? (If the community does nothing, the cost is $0. If it completes Stage 1, the additional cost is $1 million.)
- While the students are working, set up the room for the Homeowners’ Association Board meeting. Instruct the Association president how to conduct a meeting.
- Hold a Homeowners’ Association Board meeting in which each group makes its presentation.
- After the presentations are over, open the floor for questions and discussion.
- Ask the Board members to make a decision and to tell why they decided as they did. Ask for a show of hands from the homeowners to see how many would support the decision.
- Perhaps the Board will make the “right” decision, using marginal analysis. But the activity can work well even if the Board does not use marginal analysis, provided that the debriefing is conducted carefully and thoroughly. Even if the Board fails to use marginal analysis, you can illustrate the power of marginal reasoning by showing the pitfalls in the Board’s reasoning.
- Lead a class discussion to analyze the simulation. Ask:
- How did you figure out which stage of the project to support? (Accept a variety of answers. Encourage the students to talk about comparisons of costs and benefits from one step to the next. If students offer an answer based on total costs and total benefits, ask them why they did not look at costs at each step of the problem. The key to getting the students to accept this approach is to ask, at each step of the problem, what else could have been done with the money that was spent, and could a different expenditure provide the same or more benefit?)
- Marginal analysis means that we look at the additional costs and benefits of each step. Display Visual #2. Ask: For which state of the project were marginal benefits greatest? (Marginal benefits were greatest in the first step of the pollution clean-up project. Encourage students to consider why this would be the case. The biggest and most obvious pollution is the easiest to remove, requiring the least technological sophistication and making huge improvements that are immediately obvious. This is usually the case with pollution clean-up. Dollars spent produce the greatest results at the beginning of the project. Cleaning up more and more becomes more and more expensive.)
- For which state of the project were marginal benefits smallest? (Marginal benefits were smallest with the last step of the project. Spending the last million dollars results in less than $250,000 of benefit. Encourage students to examine the reasons for this. What is more expensive: hauling rusted cars out of the pond or filtering out microscopic pollutants? Again, this outcome tends to be true of all pollution clean-up projects. Removing the last five percent of pollution is certainly more expensive than removing the first five percent, and it may be more expensive than removing the first 95 percent!)
- For which state of the project were marginal costs greatest? (As we have set up the consultant’s report, marginal cost is the same for each step of the project. However, ask the students to look at marginal cost per 10 percent of pollution removed. The cost of removing the last 10 percent is $2 million—the cost of Stages 4 and 5.)
- At which state of the project were marginal costs smallest? (The cost of removing the first 10 percent of pollution is smallest—an average of about $250,000.)
- If the Board decided on the basis of marginal cost/marginal benefit, which stage of the project would it support? Why? (On the basis of marginal analysis, the Board would support only Stage 3 of the clean-up project. That is because, at Stage 1, a $1 million cost gets people about $3.5 million worth of benefits; at Stage 2, an additional $1 million cost gets people an additional $2 million worth of benefits; and at Stage 3, an additional $1 million cost gets people an additional $1 million worth of benefits. But at Stage 4, an additional $1 million cost gets people an additional benefit of only $750,000—less that the additional cost the community must pay.)
- Why does the marginal analysis provide a better way to decide than looking at the total costs and benefits? (Looking at the project in stages allows us to see what we are getting for each level of expenditure and to consider whether each additional step is worth it. What other things could the Homeowners’ Association do with the 4th million dollars? With the 5th or last million dollars? Might they be able to do something that gets them more benefit, or the same benefit by spending less—for example, building a swimming pool for $500,000 instead of doing the Stage 4 clean-up for $1 million?)
- Did people in the community share the costs and benefits of the project equally? Why or why not? Give examples. (In many homeowners’ associations, tenants pay the same yearly dues or fees to the association. In that case, each household pays the same cost. Students may argue, though, that because fees are charged per house, people with larger families, or with more children, pay a lower cost per individual. Regardless of whether the costs are shared equally, community members do not share the benefits equally. Some people have children; some do not. Some have gardens; some do not. Some houses have views of the pond; some do not. Additionally, the costs borne by different community members are in no way correlated with the benefits they receive.)
- Did the unequal distribution of costs and benefits make a difference to people in their decisions about which stage of the project they supported? (Yes. People tended to look at the costs and benefits to themselves and to others who shared their concerns and interests. For example, why might the retired people support only Stage 1 or 2 of the project instead of Stage 3? They fear that their fees will go up to cover the next $1 million expenditure, for which they will receive few benefits. They live where they can’t see the pond; they tend not to care about the recreational amenities. They’re not as worried about property values—which will accrue to their heirs when they die—as they are about immediate costs, like the homeowners’ association fees they pay.)
- What happened to marginal benefits as the project progressed through the stages? (The marginal benefits for each $1 million spent declined.)
- What happened to marginal costs as the project progressed? (The marginal costs stayed the same: $1 million for each stage, 1-5. Another way to look at it is to say that the marginal cost of each additional 5 percent or 10 percent of pollution cleanup increased.)
- Fill in the blank: As the project progressed, we got (more or less?) additional benefit for the same additional cost. (Less.)
- Why do you think that happened? (At each successive stage, the pollution became harder and harder to clean up, or as the water became cleaner, additional cleanliness was harder to achieve.)
- Do you think that’s usually the case with water pollution clean-up, or was it only in this situation? Why? (Yes, it is usually the case. The pollution that is easiest and least costly to remove is removed first. Informally, this is often referred to as the “80/20 Rule,” meaning that 80% of the pollution can be cleaned up for 20% of the cost, or that the last 20% of pollution clean-up will be 80% of the cost.)
- Do you think it’s the case with other types of pollution clean-up? Why? Can you give an example? (Yes. Students may refer to the fact that pollution that is harder to see is costlier to clean up, requiring more expensive technology or more sophisticated techniques. A good example is cleaning up your bedroom. The room looks much better if you pick up the dirty clothes and school books from the floor and make the bed. What about cleaning the last 5 percent of “pollution” in your room—dusting the baseboards, wiping down the light fixtures, washing and polishing the windows?)
- Pose one final example. Suppose that the Board learned that if the completed Stage 4 of the pollution clean-up, a bottling plant in the city would take water from the stream below the pond because the water would be clean enough for their use. The plant would reap a benefit of about $25 million. Should the Board change its mind and pay for Stage 4? (A variety of answers is possible here. Should the homeowners pay for benefits to someone else? Personal values will enter in. What if the bottling plant offers to pay for part of the Stage 4 clean-up? How much should it pay? How much is it worth to the plant? Does that amount make it worthwhile to the homeowners?)
- Suppose that in Stage 4 of the clean-up the swimmers offer to pay a fee to use the pond. Should that change the board’s decision? Why? (Will the fee cover the additional costs? If it would, so that those who would benefit from the Stage 4 clean-up were bearing the costs, then the Board should consider the possibility. However, both sides should consider alternatives—the option of a swimming pool, for example.)
Distribute Handout #4 and instruct students to complete the chart by showing 3-5 stages of room clean-up. For each stage of clean-up define the cost in units of time. Encourage students to use a reasonable time period—say 15 minutes or a half-hour rather than an hour. For each stage of the clean-up, they should also define the benefits—that is, the improvement in the cleanliness of the room. Expect students to list things like no clothes on the floor, books on desk put in shelves, desktop straightened, bed made, carpet vacuumed, etc. In deciding on the level of pollution clean-up, students should show their understanding of marginal analysis. Thus their answers should include such things as “Spending another half-hour dusting the baseboards and bookshelves didn’t seem worth it when I could use that half-hour to finish my homework or watch a favorite TV program.” Optional Alternative: If you want to maintain the water theme, change the scenario from the student’s bedroom to a backyard pool and an upcoming pool party.