The i-phone

The new apple iphone seems to be the stir up in New York City as it prepares to make its premiere debut. The new phone looks like its a big hit as any new technological device is when it first comes out. Question being is it to much for apple? I mean thinking about it, the phone has everything that would cause sales on ipods and other apple software and devices to decrease. The phone just might have to much stuff in it. Apple designed the phone to give the user everything they would ever need in the palm of there hand but I think it might cause ipod sales to decrease a little and maybe even cause the ipod price to drop overall. Since there is Mp3 capability on the phone people might feel like why buy an ipod when i can get a phone and have it built in to it. The iphone is surely a new break through in phone technology but is it to much in your hand?

The Demand for Fireworks

With the 4th of July just around the corner, fireworks are hitting their peak season. The Zambelli family leads the pack in firework displays. During this time of year they have to hire 2500 additional employees to cover the increase in demand for firework productions. How does Independence Day impact the market for fireworks? The average firework show costs $10,000, but the prices spike up to $450,000 during this time of year. The fourth of July also impacts other markets. Idahoans are still spending money to travel despite the mid-week holiday and high gas prices. Around the country though, gas prices remain high and travelers will remain low because of the way the holiday falls and the decrease in demand to travel.

An iPod Has Global Value.

This article focuses on the assembly of the iPod. It shows that trade does pay off, or none of us would be walking around with that box attached to some body part. Apple outsources the entire device piece by piece. There are about 451 parts that go into an iPod. Three researchers at the University of California followed the trail of all the parts and realized how complex the global economy is. The most expensive part of an iPod is the hard drive which is made by Toshiba for $75. The finally assembly in China only cost about $4 U.S. Even though Toshiba is a Japanese company, they outsource the creation of the hard drive to the Philippines and China. This happens with all the other parts. It can get very confusing. The parts that are outsourced have smaller parts that are further outsourced. The $73 Toshiba hard drive contains $54 in parts and labor. Toshiba added $19 in value to the hard drive plus its own direct labor costs. This $19 is attributed to Japan since Toshiba is a Japanese company. The largest share of the value added in the iPod goes to the United States because of the units sold. The researchers estimated that $163 of the iPod’s $299 retail value in the United States was captured by American companies and workers, breaking it down to $75 for distribution and retail costs, $80 to Apple, and $8 to various domestic component makers. Apple figured out how to combine 451 mostly generic parts into a valuable product. They may not make the iPod, but they created it. This article shows how just one small product can have a global presence. Since the United States is a service economy, our ideas and creativity are more valuable than our labor or assembly. What do you think?

Housing/Home sales continues to fall....

With mortgage rates rising and a surplus of unsold homes in the market, the housing market continues to slump. Many real estate agencies are looking at pricing cuts as the only way to clear the market of all of these unsold homes. In another MSNBC article I read, others are taking action by living with strangers, because the prices of housing are so high. Some analysts are forecasting that the housing market has yet to bottom out, and sales will continue to slow. What, if anything, can be done to help the housing market rebound?

Turbulent Times for Aircraft Manufactures

It is no secret to the U.S population that aircraft manufactures are having a rough time staying in the air let alone in business all together. It is reported that in May there was a 22.7% drop in aircraft manufacturing. However, aircraft manufactures are not the only ones feeling the pressure to sell products. Heavy manufactures and metal are all feeling the squeeze to sell their products. Looking at it from the aircraft manufactures if they can not sell plans to companies it is no wonder that metal and heavy manufactures are suffering as well, saying that aircraft constructions uses both of these business in order to produce their own product. The aircraft manufacturing industry is starting a ripple effect that is branching out to other industries. What could possible help save these companies? A higher demand in air plans, let alone want/need to travel by plane or something else?

Price Controls Are Short-Sighted

From time to time I am asked to sign a letter espousing a particular economic policy position. I recently signed a letter urging members of congress not to impose restrictions on trade between the US and China. I've also signed on board as opposing any form of price controls, whether it is for health care, prescription drugs, or gasoline.

What follows is a letter to the editor of the Marietta Times that I wrote following the Katrina disaster.

Recent events in the Gulf Coast have shocked our economy and have led to calls for re-examining our nation’s emergency response systems. Among the calls to action is the enactment of price gouging laws, particularly as applied to gasoline. Such laws would be unnecessary at best and counterproductive at worst.

Price gouging laws reflect a basic misunderstanding of the role of prices in a market economy. Prices serve as a signal of the relative scarcity of a product. When a product like gasoline is in short supply due to, say, the disruption of production and distribution channels, then basic economics suggests that the price of gasoline will (and, indeed, should) rise. The higher price sends a signal to consumers that they should economize on their use of gasoline. Thus, consumers are encouraged to eliminate unnecessary trips, form carpools, drive more fuel efficient vehicles, and other ingenious responses. By doing so, consumers are doing their part to help allocate gasoline to those who place a higher value on the available gasoline, e.g., those engaged in the reconstruction effort in the Gulf Coast. Furthermore, a rising price will send the necessary signal to producers to expand their production in order to help alleviate the short supply.

If price is not allowed to rise to levels that equate supply and demand in the face of such disasters, then prolonged shortages are sure to follow. Is it better to have a smaller amount of gasoline available at artificially low prices or to have more gasoline available, albeit at higher prices? If the price system is not allowed to freely operate, then some other means of rationing will likely occur. For example, one would certainly expect long lines at gasoline stations to develop—reminiscent of the 1970s failed price controls on oil. How much are we willing to pay by wasting our time in such lines?

It is often argued that gasoline stations that charge extraordinarily high prices after disasters are mere profiteers, looking to make an extra buck in an unfortunate situation. If a rogue gasoline station does charge such high prices, then we are always free to shop elsewhere. If enough people react similarly, then the offending station will receive the appropriate message. Furthermore, the offending station will have to consider the harm to their reputation for their opportunistic, short run, pricing behavior.

I do not presume to second-guess the wisdom of the market as some politicians and the editors of the Marietta Times have done by calling for the application of price gouging laws. No single person (particularly any politician) has any informational advantage over the dispersed knowledge of thousands of buyers and sellers as reflected in market prices. Anybody who thinks they can “beat the market” has succumbed to what F.A. Hayek has referred to as the “fatal conceit.”

Organic Milk vs. Conventional Milk

Based on our consumption experience, organic mild normally cost three or four times as much as conventional milk. Consumers are encouraged to buy organic milk because of the health issue and environmental benefits. However, this is not true anymore. The price difference between organic milk and the conventional milk is getting closer and closer. Conventional milk prices are getting pushed by several factors. For example, Australian drought, disappearing European subsidies, higher feed costs due to corn-based ethanol production and swelling global demand chief among them all increase the price of conventional milk. Meanwhile, the organic milk price has been dropping due to a one-year glut in production caused by farmers taking advantage of a regulatory grace period regarding feed requirements. According to the new regulation, starting next year, farms will have to go 100 percent organic. Farmers expect some cash inflow by competing with the conventional milk. The increase in supply decreases the price for organic milk. What do you think about the milk market? What do you think will happen after the 100 percent organic farm is built up?

High School Dropouts

What is the cost of quitting school? Most teenagers don't understand the long-term effects or opportunity costs associated with dropping out of high school. In an article by Christine MacDonald and Brad Heath of the Detroit News, the major opportunity costs not only to the student but also to the society are lower wages, costs of adult education, and higher taxes. MacDonald and Heath estimate that a high school dropout will earn $19,900, a high school graduate will earn $25,100, and a college graduate will earn $35,500 per year. Dropouts will have a 9% higher unemployment rate and 13% will live in poverty.

The cost of a high school dropout to Americans will be 38.2% of a greater chance they will be on public assistance. Is it beneficial to the government to spend more money now to keep students in school or let them drop out and continue providing some type of assistance; perhaps for their entire lives? Also, how do you convince taxpayers that spending the extra money now will save them in the long run?

Some Things Never Change

The article through Radio Economics which was published through The Japan Times tells about how Japan doesn't have an open market for foreign goods. Most citizens of Japan buy their good from their own country. Why is this? According to this article, it's due in part to America and Europe are too expensive. The article also states that Japan grows certain items, such as mangos and bananas in abundance. Americans purchase foreign automobiles everyday. The foreign markets make both right-hand and left-hand driving vehicles. Yet, Japan says that they can't get vehicles, at decent prices, from America or Europe. Also, American vehicles are too big and use too much gasoline. Therefore, they purchase vehicles from their own market. In my opinion, Japan is sucking the money up left and right from foreign countries -- yet, they don't give back by bringing the foreign goods into their market for Japanese citizens to purchase. This is extremely unfair. How do you feel about this strategy of Japan?

What causes gasoline prices to rise (and fall)?

Most prices fluctuate over time. Gasoline is no different as this chart indicates. The chart distinguishes between the nominal price of gasoline and the real (or, inflation adjusted) price. Our economic models are primarily designed to explain changes in real prices. From what you've read in Chapter 3 about supply and demand, what do you think are the main factors contributing to the rising real price of gasoline? Do you think the real price of gasoline is destined to rise forever?

Is it really better to give than recieve?

According to a study done by two Missouri-Columbia researchers, companies that have good reputations and give to charitable organizations see a positive return on business. On the other hand companies with bad reputations who give to charities see a negative return on business. I found this to be quite interesting. Attempts by companies to recover from a bad reputation, such as donating money, lose business. Corporate public relations managers who plan to give money to 'save face' after severe reputation damage should reconsider their giving because the public is diligent about interpreting the real motivation for why a company gives money to social causes states Jiyang Bae, one of the researchers. So what are your thoughts, do you think the American public is truly getting the picture when it comes to sympathy donations?

Fuel effeciency standards

I think the U.S. government require automobile manufacturers to meet fuel efficiency standards. I recently read an article about policies to increase vehicle fuel economy. This article was presented by the American Council for an Energy-Efficient Economy (ACEEE).

One policy proposes raising Corporate Average Fuel Economy (CAFE) standards by 5% annually until 2012 and by 2% thereafter. They believe this could save 1.5 million barrels of oil per day (MBD) by 2010, 4.7 MBD by 2020, and 67 billion barrels of oil over the next 40 years. The ACEEE also tells us that imports of crude oil and finished petroleum products are projected to rise 66% from 1999-2020. If CAFE standards are raised the energy savings would cut that increase to 19%.

Engineering analyses show that this level of fuel economy improvement is feasible and could be achieved using conventional (non-hybrid) technologies. Also the ACEEE believes that costs of fuel economy improvements of this magnitude would not be very high. These fuel-efficient cars would cost less than an average 2010 vehicle --with no efficiency improvement-- if current price trends continue.

Automakers: Still fighting...but change is coming

Today I came across an article that is very similar to the one that we read for the graded assignment due tonight. The article addresses the issue of legislation and automobiles, and the need to increase environmental standards/fuel standards. One of the bills speaks about changing the CAFE (currently 27.5 mpg average for cars and 22.2 mpg average for trucks) and combining them, so that all vehicles would have to meet 35 mpg by 2020.

The most interesting part of the article talked about the rising gas prices and the effects it has on fuel consumption. One point was presented by the Vice President of General Motors. He compared mileage standards to obesity, arguing that raising mileage standards to solve fuel problems is like telling clothing manufacturers to sell only small sized clothes in order to fight obesity.

Obviously the government needs to step in to regulate fuel in SOME way. Gas prices are high and the environment isn't benefitting at all. There are many steps the government can take; but the two this article specifically mentions are raising prices of gas even higher(so less people will drive) and raising mileage standards on vehicles. A third of course, would be alternative energy. What do you think legislators should do to make a difference?

Flat as a Pancake

The book The World Is Flat by Thomas L. Friedman covers how the spread of information technology is evening the playing field across the globe, hence, making the world flat. Areas such as Asia, India, and Africa are using recent education on info-tech to move their Production Possibility Frontier's outward. While this may seem bad because it provides higher competition to countries like ours, it is good because it shows economic growth around the world. This increases the amount of countries that can begin trading services and goods with us.
This article tells us that the new economies benefit from the trial-and-error that others have gone through in info-tech. They can now grow very quickly and become of greater value to the rest of the world in this area. Because a big part of economics is the interaction between economies, this is good news for everyone. Now time and employees will be used more efficiently in businesses of these emerging economies.

Cavs' 4th quarters

The Cleveland Cavaliers made their city proud when they beat the Detroit Pistons in the NBA playoffs to move on to the finals against the San Antonio Spurs. During the games against the Pistons, the Cavaliers became notorious for making a big 4th quarter push, which resulted in winning games 3, 4, 5, and 6. Now in the first two games of the finals against the Spurs, the Cavs are still making 4th quarter pushes, but the aggression and concentration is coming too late in the game to pull out a win.
I believe that this article demonstrates many economic practices that we have learned thus far. If the Cavs do move to playing harder in the first quarter, this will take away some of their limited resources of energy for the end of the game. On the other hand, waiting until the end of the game to make a push limits the time left to win the game.
Mike Brown says of Spurs' Genobili "That was a heck of a shot and a smart play on his part, very smart," when Genobili leaned into Gibson to force a foul. Basketball players must use marginal analysis to decide if they should make a shot or force a foul. They must also decide at the margin how many points they need to score in a shot (2 or 3) in order to benefit them best according to the current score. Now, I'll admit, I know very little about basketball, but I do find it interesting to realize that economics is all around us.

More on fuel standards (sorry, Adam, I edited your title)

I think the US government could try to enforce car manufacturers to meet standards but they have to u9understand that standards are hard to meet in the fuel category. Cars burn fuel that's why they go and plus if you really wanted to be an efficient person go out and by a hybrid. I know for a fact that there are 3 or more companies that are manufacturing hybrid cars and are very successful.

Corn vs. Tequila

This article focuses on resource scarcity and cost benefit analysis. Mexican farmers are setting fields of blue agave on fire. As many know, blue agave makes tequila. They are not leaving the land barren. They are now planting corn. This is in reaction to the booming ethanol industry in the United States.
"Those growers are going after what pays best now," said Ismael Vicente Ramirez, head of agriculture at Mexico's Tequila Regulatory Council.
There has been an over supply of the plant, and the prices are dropping. It is also suggested this new corn craze will now leave a 35% gap in agave production. It takes many years for an agave to grow to a size worth exploiting.
Land is scarce. This is a trade off the Mexicans are hoping brings greater wealth. They can either plant agave, or they can plant corn. One or the other. They are trying to cash in on a profitable market in the United States. This also relates to trade between nations and a possible comparative advantage. We may have more land, but the value of their time might be less.

Economics of New York City

I've just returned from a little vacation to New York City to visit my brother. If you've ever visited the city, you'll know that prices of most goods and services are a bit higher than what you'd pay in Marietta. You'd also be amazed at the variety of markets that cater to every possible consumer preference. While we have yet to develop a formal theory of prices (that's part II of the course), the notion of relative scarcity can go a long way to explain the high prices.

This article describes the economics of operating a variety of businesses in NYC. One industry that surpises a lot of people is the taxi cab market. You'd think it would be pretty easy to get into the business...after all, all you need is a car, right? Wrong. The number of taxi cabs is artificially limited by the city government to around 13,000. Each cab owner must possess a license (called a medallion) to operate the cab. Given the restriction on the number available, the market price of a medallion hovers around $240,000. How's that for an entry barrier?

By the way, why do you suppose the city government artificially limits the number of medallions? Why not simply open the city up to free and unfettered competition?

While in NYC, I also ate $4 hot dogs at Yankee Stadium, got propositioned by a hooker while looking for a cab with my wife and daughter, and stood three feet away from someone called Rihanna while she signed her latest CD for my daughter (pictured in the foreground looking to her right in the previous photo).