Student Debt on the Rise

Nowadays college tuition continues to rise and rise (We all have seen this at Marietta). With college’s rising tuitions more and more students resort to loans to get the education they want. But now Congress has cut back on the amount of student federal aid they will be providing. Interest rates on loans are rising by 1.84% or more, and currently 62% of undergraduates borrow this money. After graduation, students are expecting to get their dream jobs, make lots of money, and provide for themselves and future families, not be in debt as soon as they get out into the real world! This increase in interest rates is going to cause the graduates to continually be in debt until they are well out of college. So what can be done to try to help this student debt issue that is on the rise?

Elasticity of Demand for New Home Sales

The Commerce Department reported that new home sales increased 4.6% from April to May this year. At the same time, the price of new home sales fell 4.3%. In terms of a simple supply and demand model for new home sales, the combination of rising sales and falling prices could best be explained as a rightward shift in the supply curve. Thus, assuming a stationary demand curve, we can estimate the price elasticity of demand for new home sales as

Does this make the demand elastic or inelastic? What factors would make the demand for new homes more elastic than the above number would suggest?

Hospitals should set an example on smoking

Second hand smoke has been proven to be one of the leading killers, and the fact that we allow it in so many public places is harming more than a few people. Even though most hospitals have smoke free facilities, all a worker or visitor has to do is step one foot out the door and light one up, allowing all the fumes to get in and still harm the patients. Now my question is why are places like this allowing this on their grounds?

The Cheeseburger Has New Complements

Who would imagine that a complements for cheeseburgers would be a Krispy Kreme doughnut?! It seems to be a little far fetched and unappetizing to me, but the sales are booming. Many people think of complements like chips and dip or peanut butter and jelly, not cheeseburgers and doughnuts, that's what I would consider a substitute. Now new supply and demand graphs need to be made showing the demand for cheeseburgers and doughnuts rising together not a trade-off between the two. Seems to me nowadays the things we considered substitutes in the past will now actually turn into complements in the future. What do you think about these new complements and their sales?

Oil company mergers

As energy prices rise oil companies are trying to find ways to get more oil on the market. Several offer companies in the past few years have merged included ExxonMobil, ChevronTexaco (now known as Chevron), and ConocoPhillips.

As a petroleum engineer I have mixed views on mergers. Buying other companies with proven reserves is actually cheaper than developing new reserves. Even though Anadarko paid a premium price for the two oil companies the production of the reserves will more than make up for the cost. As with any consolidation some employees get cut or repositioned. One of the reasons I actually chose to work with Chevron this summer was to get exposed to a larger petroleum corporation that I feel will not get bought out.

After the last oil recession in the 1990's the oil companies fell behind over seas state owned oil companies. The mergers help keep the oil companies on a competitive level with these governments. I believe now we will not see as many large oil mergers due to the high prices of oil. In the future though we will see some smaller oil acquisitions by the major oil companies.

Before today I always feared Anadarko could have possibly been bought out by another petroleum company. This article has changed my mindset about the future of Anadarko and I am proud to know several Anadarko engineers who graduated from our college.

Super ethanol is on its way

Nowadays, the environmental problems, represented by global warming from industrial production, are becoming severe.The cost of solving them was significantly high. One of the main causations is the wide use of fossil fuels, which generated lots of greenhouse gases in the atmosphere, including carbon dioxide, methane, chlorofluorocarbons, etc.

To solve the severe problem, biofuel begins to play an important role in industrial production. Ethanol, as the most common biofuel, provides a valuable energy alternative to fossil fuels. Ethanol is considered to be a new, clear, and renewable energy because it can be produced by fermenting grains, such as corns and other crops. Although people argue that the ethanol fuels have negative energy balance, economics, and environmental impacts, it has made a great contribution to the world's energy in recent years. In order to get ethanol from the grain, the grain is first boiled to liquefy the starch by milling it into a fine powder. Under the enzymatic reactions, the starch is broken down to generate smaller sugars. These sugars can be fermented by certain microorganisms, such as yeast.

As indicated in this article posted on CNNmoney.com, the next generation of the biomass fuel, which is also called biofuel, could be chaper, ore plentiful and arriving sooner than you think. To get more information about the new biofuel and its benefits to the environment and the U.S. economy, please click on the link below.

http://money.cnn.com/2006/06/21/news/economy/cellulose_ethanol/index.htm

May still a solid sales month even with high gas prices!

Its interesting to see that even though the price of gas is at an all time high, people dont seem to be making much changes in their driving patterns. Its funny that you hear all these people complaining about the gas prices but small things that could help out a little such as cutting down on driving dont seem to cross their minds. It mentioned in the article that Wal-Mart was among the only retailers that did have a lower than normal sales number. This is because Wal-Marts target audience is for low-income consumers. Im not real sure if this is right but we talked about goods that complimented each other such as things like chips and dip. We need gas to drive to stores so to me it seems like a compliment. If people started driving less not only for them to save money but maybe a decrease in the economy would tell them to lower the price of gasoline. The question is what could people do to help save themselves a few extra bucks at the pump but still be able to get there shopping and other errands done?

Researchers look for alternative jet fuels

I know we have all heard this a time or two. Gas prices are going up and we are looking for alternative ways. We have found some alternative ways, but airplanes are a little unlucky in that situation. Researchers are trying to find an alternative fuel for jet engines. And it is hard to find when the alternative fuel, biodiesel fuel, freeze 35,000 feet in the air. And even if scientists can figure out a way to not let this fuel freeze, how is there enough farmland to be able to make all this fuel for cars and jet engines. A U.S. Department of Agriculture chemical engineer, Robert Dunn, says, "The main challenge right now is economics, even though the price of petroleum is going up, biodiesel is still at a disadvantage economically. It simply costs more to produce."
They are trying to come up with so many different ideas to try and lower to cost of fuel to run these jet engines. A couple ways is: biodiesel, liquid hydrogen, and biodiesel mixed with regular fuel. The one bad thing about liquid hydrogen would be that it could blow up on board and there would be troubles with the storage of it. Really all they are looking for now is something to look forward to in the future, and it is going to be a long while before anything is really completely figured out.

Economics of the Minimum Wage

Several of you have already commented in previous posts that you are in favor of raising the federal minimum wage (currently set at $5.15 per hour). I'd be interested in knowing if, after you work through Chapter 4, any of you will change your mind on this issue. The standard economic analysis of the minimum wage argues that an artificially high wage will create unemployment among low-skilled workers. That is, employers will react to the mandated higher wage by reducing the number of workers that they are willing and able to hire (or, equivalently, by reducing the number of hours of work they offer their workers). On the supply side, the higher mandated wage will entice some people to look for jobs that otherwise wouldn't want to work at the lower market wage. The combination of these responses results in a surplus of labor, i.e., unemployment.

The interesting empirical question, though, is the magnitude of the drop in employment coming from the higher mandated wage. Suppose that for every 10% increase in the minimum wage, the employment level among low-skilled workers falls by 3%. Is this a tradeoff that you're willing to make?

What if employers react to the higher minimum wage by changing the employment relationship in some other way. For example, suppose employers reduce the fringe benefits that they were previously offering (e.g., on-the-job training, laundry services for worker uniforms, or health benefits). Is this a tradeoff that you're willing to make?

See the title link above for additional perspective on the economics of the minimum wage.

Rising Gasoline Prices

We all know that gasoline prices have been rising over the last year or so. We also know that when you ask an economist why gas prices have been rising she'll say that it's all supply and demand. Some analysts will point to the rising price of oil and environmental regulations regarding the various blends of gasoline that are required for various parts of the country that make it more costly to supply gasoline. Others will point to American driving habits--our penchant for driving big SUVs and the lack of a well-developed public transport system--that lead to rising gasoline demand. See here for a tongue-in-cheek explanation of rising gasoline prices.

My question is this: given that both supply and demand factors have been changing over the last couple of years, how can we determine which set of factors has been the dominant cause of the rising gasoline prices? What information regarding the market would you look to answer this question? (Hint: Review your answer to Aplia's Question 5.3 from Chapter 3, Problem Set II.)

2006 Hyundai Azera: An Avalon Knockoff Comes Knocking

I just recently went car shopping with my sister and became inspired by the unbelievably complexity of the car market. The article above introducing a new Hyundai car which the company proposes is a better luxury car than any other in its class. While they promoted the car as being top notch for its class....a great deal, it seems that the car actually is not as impressive as people were led to believe. This brings me to my point:
Today, buying a car is a complex and extremely intricate process. With so many options and packages and rebates, it is unbelievable the choices one has to make just to get a new vehicle. I find it interesting that Hyundai expresses what a low price the new Azera is; however once you add all of the amenities that make the car so appealing (like a sunroof, sound system, side air bags) basically the executive package (which all car companies advertise) then the car really isn’t so cheap.
So one must weigh the costs of buying a new car with the bare minimum or with all of the amenities that make the car more attractive and in many cases safer. Today, it seems that car companies are more concerned with making a vehicle look more appealing to the eye than actually making the car a valuable safe purchase. As said in the article.... the real leather heated seats look nice, but aren't really that comfortable. I guess what i am trying to say is in the car world today looks can be very deceiving and while car shopping one must truly weigh the benefits of spending more for a good looking and safe car versus just finding a simple safe car that will do the same job.
Another point I would like to make is the new Azera is a substitute for other cars in its class. Yes right now, because the car is new form the Hyundai Company, sales may be high. However, in a year Avalon or Camry or another substitute in the same class will come up with a new or improved car that will take the limelight. The car market is constantly changing and as consumers it is important to remember that competition leads in the world of car companies and it is important to remember that when you see a commercial with a new car...when it says starting at say $19,999 don’t overlook the bottom where it says in small tiny letters car shown at $25,678, because what you see actually may not be what you can afford.

China's Coal Demand

Recently, there has been talk about China’s economy and what their plans are to reduce the amount of toxins being released into the air from the huge masses of coal being burned in their country. The demand for coal in China right now is soaring and the market for coal-fired power plants is growing so rapidly that a new one opens about every 10 days. The pollutants that are released from burning coal are responsible for nearly 400,000 premature deaths each year, and cause cancer, heart disease, and respiratory damage. Not only are the people of China suffering from the pollution, but the tiny particles of sulfur dioxide produced from the burning of coal also have an effect on global warming all over the world. The long term result will be warmer climates which can lead to a variety of problems such as crop failure, extinction of animals, rising sea levels, and the spread of diseases. It seems surprising to me that nothing has been done to stop or reduce the burning of such a harmful substance, but then again this is the new economy’s black gold. One way in which China is trying to counteract this harmful issue is to improve the nation’s energy efficiency, but this is not possible without the latest technology and help from other countries. More than likely, little changes will be made to the energy plan due to the resources that are needed and their availability. The question is, “Should we continue the supply of coal and watch the economy boom, or put more emphasis on issues of health and slow down the growth of this deadly market?”

Marijuana and Whoppers: Substitutes or Complements?

Like most goods, economists argue that the demand for marijuana depends on a few key variables: consumer income, prices of substitutes and complements, and expectations about future prices, to name a few. Changes in these variables will result in a shift of the entire demand curve. A change in the price of marijuana itself will not cause the demand curve to shift; rather it will cause a movement along the demand curve. It is an empirical question as to how sensitive demand is to changes in these variables. From a policy point of view, it's important to be able to quantify the relationship between these variables so as to better predict the impact on consumption of changes in, for example, the price of marijuana.

A recent paper by Sara Markowitz and John Tauras examines the consumption of cigarettes, alcohol, and marijuana by teenagers given changes in the prices of other goods that teens typically buy--namely, fast food, clothing, and entertainment. One result that they find:

Higher hamburger prices may reduce the probability and frequency of use of marijuana and the frequency of smoking among drivers.

In other words, hamburgers and pot are substitutes! (Thanks to Marginal Revolution for the pointer.)

Another important consideration is the relationship between the three vices themselves. Is alcohol a substitute or a complement for pot? At least one study argues that they are complements. If so, then policies that raise the price of alcohol (such as alcohol taxes) will not only reduce the consumption of alcohol, but marijuana also. (Just like an increase in the price of peanut butter will reduce the consumption of jelly.)

Cars or not

Since the economy and the level of people’s lives grow day by day, most of the people prefer owning high-tech and advanced cars. Also, many people love those kinds of cars such as jeeps and cross-country cars which have bigger exhausts and expend more gasoline for traveling at the weekends and vacations. However, there is a point of view illustrates that high-tech cars mean high-priced repairs. Besides, due to the booming market in the developing countries, the oil the cars need is getting more and more and the price of gasoline is increasing. In some big cities in the United States, many traffic problems like traffic jams appear there. Cars are unefficient there instead of increasing traffic speed. The expense of parking is increasing, especially in New York. Using cars is also one of the most important reasons for pollution in some developing countries.
Considering all of the reasons, whatever in economy or environment, do cars still bring more advantages to people or we should try to abandon them?

'Serious but stable'

After Ben Roethlisberger crashed his motorcycle and ended up in the hospital with injuries it has led to the question of whether or not professional athletes should be allowed to engage in dangerous activities that aren't in their sport. The NFL's standard player contract prohibits any activity involving "significant risk of personal injury" apart from football. But many prominent athletes ride motorcycles anyway, despite the risk and the possibility of losing salary. Based on this current case what are your feelings as to professional athletes partaking in dangerous activities outside their sport.

Cars and Corn?

I'm sure that by now most people have heard of the new GM E85 cars. These are the new cars that can run on gasoline or a blend of 85% ethanol and 15% gasoline. This ethanol is made from corn. Corn is a renewable resource that is readily available and relativly cheap. These cars are already out and about on America's roadways. They let the consumer choose which type of fuel that they wish to run their cars with. This is a large step towards finding better ways to fuel our cars. There are not many places to fuel cars with the ethanol blend yet but many are in the process of being built.
This new technology shows an absolute advantage against other competitiors in GM's field. These cars use resources that are cheeper than the common way of fueling. The cars also give the consumer a choice of which fuel that they want to use. This is going to push other companies to create more efficent cars. Is this the first step in making cars completely devoid of gasoline? How long before cars do not need gasoline at all?

Cultural Influence

When the Barbie Dolls were showed up in the market at the beginning, the selling number in Asian countries was not impressive. Since most of the Asian girls are black hair and brown eyes, they felt that the dolls with blond hair, big blue eyes and long legs were weird in some way. They prefer the dolls are more familiar with them. After the complements of their looks and patterns, the market of Barbie Dolls is getting bigger and bigger.
Many fast food restaurants, such as Mcdonald’s, KFC, are managed in China. They try to make different kinds of breakfasts. However, Chinese people have their own traditional breakfast, such as soybean milk and stuff like that. Most of the people are used to having traditional doughnut as breakfast instead of fries or coke. Fast food for breakfasts attracts many teenagers who are in a big consumer group. Do the companies need to fix their ways in eastern countries to attract more people in different ages or just try to fit teenagers’ appetites?

Did Wendy's really change their sizes?

Wendy's has made many changes in the past year including adding more salads to their menu, offering healthier choices for combos, using a healthier oil, and now doing away with "Biggie" sized. But have they really done away with "Biggie" or just changed the name? I was at a Wendy's yesterday and ordered their new "Large" style combo. But to my surprise their "Large" is not a normal large, but their former "Biggie" size. Their "Medium" is your normal large-sized and their "Small" is actually your normal medium-sized. So it seems to me that in Wendy's effort to do away with "Biggie" to promote a more health conscious fast-food chain, they are actually tricking their customers into buying a bigger size. If they wanted to do away with "Biggie," why didn't they just do that? Their still paying the extra cost of keeping the "Biggie" size around, and if they would really do away with "Biggie" then maybe that extra money could be spent on healthier items to add to their menu selection.

States take lead on minimum wage

You may or may not have heard about the raising of minimum wages throughout the states. The federal government has not taken their power to raise the minimum wages. Because of their failure to do so, the states have taken it upon themselves to try and raise wages. The minimum wage in states has been rising since 2004. More in the past six months. Many people agree with the increase. I believe that some business owners may not agree with this type of change. Small business owners could be afraid of losing money, because of having to pay their workers more. Workers could start being fired, because of their employers not wanting to pay them more. Overall I think that the rise in minimum wage is a great idea. It can help for workers to make more in their yearly salary, but also workers can feel like their actually working for a little something more money. What do you think?

Fat America

It is obvious as you walk down the street or sit at a food court to watch people and see that a vast majority of Americans are overweight. Obesity is a rising problem in our economy, up 37 million from 1980 and an additional 28 million are estimated to fall into the same category by 2013. Surprisingly, this trend is not only being held by low income Americans who eat at fast food restaurants nearly 2 out of 3 meals a day, but middle class Americans are quickly pursuing the same lifestyle. Of course, the fast food economy is booming right now along with businesses trying to satisfy those overweight by producing everything "super sized", but are we killing America at the same time? The business economy is being taken over by the "plus-size" population. New, wider seats are now on the market when buying a vehicle, along with seatbelt extenders to allow riders a more comfortable ride. Obesity is an important issue that inflicts so many lives each year and is the reason for a great amount of deaths. On the other side of the issue, a $49 billion weight loss industry is attempting to stop this deadly trend and get Americans in shape. It seems that even with the huge increase in gyms, diets, and low fat foods, the overweight community is continuing to rapidly grow.

The question is, "What do we do to stop this?" One obvious but very unrealistic solution to this problem would be to ban all fast food restaurants from America. This may help the issue of obesity but think about what it would do to the economy. Consider the opportunity cost of banning fast food chains from America, which would leave many Americans who are employed by food chains and the companies that produce the products without a job and money to support their family. Realistically, this would basically lead to more harm than good, so there has to be another way. In my opinion, I believe a great deal could be accomplished by reducing the portions of food served at restaurants and by throwing away the "super-size" or "biggie" menu completely. This would not hurt the economy, instead it would teach people to eat and be satisfied with smaller portions of food. There is always going to be a need for industries that produce products to fit all shapes and sizes, but there is nothing wrong with putting forth an effort to improve the health of people in our economy.

Outsourcing: Good for You, Good for Me. But should I mow my yard or pay someone to do it?

There has been much talk recently about the economic impact of outsourcing and whether it is good for the American economy. Commentators such as Lou Dobbs of CNN have argued that outsourcing is the bane of our economic existence. Let's be clear: Outsourcing is simply another name for international trade. Economists, by our nature, tend to be ardent supporters of free trade. In Chapter 2, you are introduced to David Ricardo and his theory of comparative advantage. Ricardo argues that nations can increase their standard of living if they allocate their resources so that they specialize their production in those goods in which they have a comparative advantage. By focusing on those goods at which they are relatively more efficient at producing, nations can then trade for the goods produced by other countries. By so doing, both countries can benefit by obtaining goods at lower prices than what could be obtained solely from domestic production.

Greg Mankiw, the former Chairman of the Council of Economic Advisors under President G.W. Bush, and strong supporter of free trade, learned a lesson in the politics of trade and jobs as recounted here.

This all brings me to the following dilemma: should I mow my yard or outsource it to some neighborhood kid? I'm pretty sure I can mow my yard in a shorter amount of time than some 14-year old kid. But, the theory of comparative advantage says that doesn't matter. What matters is the opportunity cost of my time: I could be teaching economics, for example. Even though I may be better at mowing my own yard compared to the kid, I may be a lot better at teaching economics than the kid. Thus, I should specialize in teaching economics and simply pay the kid to mow my yard. Trade benefits all!

The funny thing is, though, that I have never paid a kid to mow my yard. I have been mowing my own yard for over 20 years now. My question is: Am I irrational?

Illegal Immigration

Most of you probably have heard lately the great debate over illegal immigration. The government seems to be divided on how to spend our resources on the project. Some want to charge the illegal immigrants with felonies and send them back to their native countries, while others feel they need to be embraced with open arms.

I believe we can not simply just "ship all of the illegal immigrants back." The explicit costs of paying the agents, tracking equipment, and a high security grade fence along the borders would be too expensive. These measures would also make our country the "largest prison" in the world. The resources needed to pay for these projects will also make the national debt grow more. One of the implicit costs would be the land to build the fence on.

The most effective way to target illegal immigration I believe is to crack down on businesses who are hiring illegal immigrants. After the businesses crack down on hiring illegal immigrants more of these immigrants will have to go through the civil way of becoming legal residents. By this time hopefully we will have enough border security officers in place to patrol the border and build technologically advanced devices to more effectively monitor the border. We can not give illegal immigrants more rights than the citizens who have lived in this country all of their lives. This country was built by immigrants, but most followed the appropriate steps to enter the country.

Library or a Swimming Pool or a Parking Lot or a...

As you may know, Marietta College recieved a $10 million gift toward the construction of a new library cum learning center. The current Dawes Library will be razed and the new library built on the green space that currently lies between McDonough and Dawes. The linked article estimates that the total cost of building the library will be $20 million. My guess, though, is that this is an underestimate of the economic costs of building the library.

One of the concepts that you have read about in Chapter 1 concerns opportunity costs. Opportunity costs represent the highest valued alternative use that was sacrificed for the choice chosen. The cost of building a new library does not just include expenditures on construction, maintenance, and insurance, for example. Such costs are known as explicit costs and refer to the costs of using other people's resources. The cost of building a library also includes the cost of using our own resources--so called implicit costs. The land where the new library is to be built could be used for other purposes. Would a new parking lot be a better use of the college's resources? How about a new residence hall? or a swimming pool?