Money in the Air, Five Airlines Fined for Conspiring

Air France, KLM, Cathay Pacific, Martinair, and SAS, all of which are national airline companies have been charged a whopping total of $504 million dollars after being involved in a conspiracy to fix cargo rates throughout the entire industry. The rates were higher, and eliminated competition. However, the problem with the entire situation is that consumers were the main victims. According to Scott D Hammond, deputy assistant attorney general in charge of criminal enforcement for the department's anti-trust division, consumers and American businesses were the ones to pick up to tab for the increase.
Similar penalties have been faced by other airlines in the past. Should heavier restrictions be made in order to keep this problem from reoccurring?

Rising Prices Due to Flooding in Midwest

I am sure we have all heard the horrible flooding that has happend in the midwest. We can all only imagine how much damage has actually been done. Federal and state officials have started to tally up the total economic cost. They are projecting that the damages will cost in the billions. 88 million dollars has been given to the sufering states to start to rebuild their houses and for other important needs like crops.

Due to this natural disaster the price of corn and other crop food will rise and there might even be a shortage of supplies especially since we are now into the popular corn eating season. Most people think that the only economic problems occur to only the people that are located where the disaster took place but that is not the case. This disaster will cause problems all over the united states because the food will be more money and will be harder to find because of lack of supplies. What can the government do to help control this economic loss? Will setting a tax or a price ceiling/price floor? Where will the gain be, with the producers or consumers or neither? Do you think deadweight loss will be higher than normal?

The Demise of Suburbia

The price of gas is causing many people to rethink the way that they love their lives. Be it the vehicle they drive or how high/low they set the thermostat, but one thing is for certain, the rise in gad prices is driving those that live in suburban areas to move into the cities or at least closer. 

People can no longer afford to refill their propane tanks for heating, or pay that costly furl price if one makes a hour long commute everyday. However this only presents complications. Firstly, the decline in property value of suburban homes and an increase in city homes. People want to move into the city but find themselves either unable to find a place to live or are unable to pay the increasingly high monthly rates. So are we seeing a reverse in how Americans live their lives? 

Brazil Strikes Oil

Recently, Brazil, an already oil-rich country, has located 700 million barrels of oil in the ocean surrounding the coast. The oil reserves are located over 400 meters below the oceans surface and because of this great depth, Brazil's progress in drilling to the oil has been slowed. By the year 2011 they should be able to start producing the oil and will then climb the economic ladder not only on South America but also in the rest of the oil producing world. Other countries competing for the richest in oil, like Saudi Arabia, are producing up to 12 million barrels a day while even with this new discovery in Brazil, they still are only estimated to produce about 1 million barrels a day. Since the US and Brazil are partners in trade, this new discovery will hopefully lower the prices at the pumps here in America, and further increase trade to the country. With the new success and profit gained by Brazil, and the constant supply of oil to the US, Brazil will have fat pockets full of American dollars that will in turn be used to buy American goods. If this snowball effect continues, the Brazilian economy will skyrocket and the American economy should follow in suit. This hypothetical situation is one in which both the US and Brazil will benefit but only time and technology will tell if this new discovery of Brazilian oil will actually last and better Brazil's economy. I firmly believe that within the next few years the United States' government will put forth great efforts to better befriend the Brazilian government; all in hopes to better its own economy in the long run.

South Korea Lifts Ban on U.S. Beef

I know this is really not related to our chapter. However, if we think about how South Korea will do to protect their cow business, we can realize that it is related to our chapter. South Korean worry about mad cow disease. However, every other country people may think if South Korean didn't buy American beef, that is no problem. But, the American beef is really cheeper than Korean beef. Also, they know the American cow has mad cow disease and this is really harm to human. If the American beef is imported to Korea, most restaurant would use American cow because it is really cheep. Also, some restaurant fake to Korean. Every people couldn't eat food only their home. Therefore, they ban about American cow. In this case, what the South Korean government should do? There are two ways. The first way is that they take some excise tax to American beef. The other way is that they imposes a nonbinding price floor to Korean beef. The ways can protect Korean beef because customer want to buy more cheeper product.

Oil Decision

There is no question that oil and gas prices are on everyone's mind. This article shows the debate over offshore drilling for for oil. The demand for oil has increased more and more each year and companies are becoming desperate for finding oil. The high price of oil causes high gas prices and high home-heating bills. Polls show that American people are extremely frustrated at the high prices and criticize the major oil companies. This debate over drilling offshore is very vital to solving or fixing the oil shortage. If offshore drilling is increased than the possibility for finding oil is a lot higher. Unfortunately the supply of oil is decreasing as the demand is increasing.

Jelly Belly in high demand

Although Jelly beans are not in the peak season of easter or any other holiday for that matter the Jelly Belly company is still seeing an increase in demand. Many people just say that the brand is more appealing because of the looks and taste which could be a reason for the increase. The simple fact that people like the brand better than others, which is making the supply of beans go up. Sales have gone up twenty five percent, which is thought to be directly linked to better marketing and globalization of the increasingly well known company. There is talk that due to the better avalibility from higher supply, that demand will go down because the thrill of the hunt for the prized possessions will be lost. The company Jelly Belly is now faced with the challenge to continue to increase both supply and demand to reach a higher equilibrium.

Why oil prices will tank

So you are saying to yourself right now, "Enough with the gas prices already". The topic is a hot issue right now and will remain so for sometime. So sorry, it is another article about gas prices. But this article offers a little bit of hope, based on basic economics. Now whether it will play out the way the author predicts is yet to be seen. But if you drive at all, how can you not read an article titled "Why Oil Prices will Tank". I found it particularly interesting because it cost me $52.00 to fill my Mazda6 sedan this evening.  It just seems wrong to pay over $50.00 to fill up a sedan. I may date myself some as I am not a traditional student, but I can remember back in the mid to late 90's when I was in college the first time, that gas was $0.99 a gallon. I could fill up my little Cavalier for $11.00! Does anyone remember the days when you were excited to be given $5.00 in gas money from your parents and you could run around all weekend on that. That will only get you about 1.25 gallons of gas now. 

The author makes the point that if you consider gas prices in terms of basic economics, the issue is not whether gas prices will decline, but when. Worldwide demand has surged and supply has decreased due to government control and mismanagement. And we know from Chapter 3 that a simultaneous shift in both the supply and demand curves, in this case, demand increasing and supply decreasing, will lead to an increase in price. But the author contends that the price cannot remain elevated indefinitely. The current market is "classically unstable" with the increased demand and decreased production throwing it out of balance. With record-breaking profits in the oil industry, people realize there is money to be made and new supplies will be developed. Demand should start to decline as well, if slowly. At least in my life, demand for gas is relatively inelastic. I do what I can, but I have to drive to work everyday and that quantity of my driving does not change with the price level. But the oil market has under-anticipated the conservation brought about by high prices. Car sales are decreasing, Americans are cutting down driving, and airlines are scaling back flights. So these factors together, in theory, should bring down the market price of oil. Though the point of the article may simplify the complicated oil market, it gives cause for hope that we may see lower prices at the pump...eventually.

TV's Shrink in the Big Economic Picture

This is an interesting article about the waning demand for luxury items in the face of increasing food and energy prices, specifically what the article refers to as "the Humvee of TV's - the 46-inch-and-above, $3,000.00 plus flat-screen high-definition set". Industry analysts are finding that people are spending less on TV's overall, however, some are shifting spending away from luxury models to smaller sizes and concentrating on lower-priced models. The demand curve for higher priced TV's has essentially shifted left. This has led to an increase in supply. Riddhi Patel, an iSuppli TV Analyst, states that "inventory levels are at 8 weeks, which is very high."
What will be the result of this decrease in demand and an increase in inventories? The equilibrium quanitity and price will decrease. The prices on these luxury TV's will have to lower to clear the inventory, and many firms will have to cut back on production to adjust to the decreased demand. But industry analysts are hoping that the lower prices would stimulate more demand for these items, especially in the wake of increased travel costs. With gas at or exceeding $4.00 dollars a gallon in most places, maybe buying a cheaper big screen TV later this summer and staying home and watching a movie located at the beach will be just as nice as being at the beach.

America's untapped oil

The hot topic in today’s news is the price of crude oil and its effects on the economy. As discussed in the previous chapters supply and demand has a large effect on how much is produced compared to how much is consumed. Theses chapters also discussed ways that the government implements laws that are suppose to help the economy and unfortunately hurt the economy. The government has implemented banning laws forbidding oil companies to drill in parts of Alaska, coast of California, the entire east coast and the gulf coast from Florida to Louisiana. These laws were originally designed to prevent any damage to the wildlife, however these laws now prevent the needed amount of crude oil production. Some experts say that the oil companies are not even drilling all the areas they are allowed to; why should they give them even more oil. The oil companies replied by saying that they have to research areas in great depth before they risk drilling these areas. As a petroleum engineer, this fact is true. Before taking the risk of drilling a multimillion-dollar dry hole, it is key to determine whether or not hydrocarbons exist. I also know that the oil industry is like any other major corporation and plays the market to make as much as a profit as possible. A few questions that were discussed in America's untapped oil, written by Steve Hargreaves were: Are oil companies not using their resources to the fullest? Would allowing oil companies drill in these areas benefit the economy? Should only a few of the areas be opened for drilling?

Shortages in Agriculture

I had a hard time coming up with something that really related to what this next exam is on, but I did find a blog article that talks about shortages. These shortages are competely unrelated to any price floor, but rather due to the weather. We've been discussing that there are price floors in the world of agriculture to help protect the farmers, but as we can see from http://www.agweb.com/Blogs/BlogPost.aspx?src=OutlookToday&PID=8dd94e8b-d534-42a7-9da0-1c5c06983589 the price floors aren't even a factor. I think it will be interesting to keep an eye on the crop markets as the year continues to see what prices do. I look for them to keep sky-rocketing due to the shortages. A good website to watch is: http://www.agweb.com/Default.aspx it shows what the different markets are doing. These high prices and shortages really concern me, because my in-laws farm, but they don't sell these crops, they own a hog farm, and therefore they have to pay these high prices in order to keep the hogs fed. However the pig market is not following suit in the high price category. Hog prices are down in fact. So who helps these farmers? Do they have, or will they get a price floor to help them??

Have gasoline prices really risen?

Ok, everybody knows that the price of gasoline has been steadily rising for some time now. The media is flush with images of frustrated drivers, posturing politicians, and scapegoat oil executives testifying before the Senate. What and who's to blame for the rising price of gasoline? Is it all supply and demand?

First of all, let's be sure that gasoline prices have really been rising--after all, lots of prices rise over time. What we're really interested in is the relative price of gasoline (that is, the price of gas relative to the overall price level). The chart below shows gasoline prices from 1976 to 2008. You'll see two lines in the chart: the blue line represents the "current" dollar price while the red line represents the "constant" (or inflation-adjusted) price of gasoline.


Notice that the constant dollar price of gasoline rose quite dramatically in the late 1970s and then steadily declined until the mid-1980s and was essentially flat until the late 1990s. Since then, the real (constant dollar) price of gas has again risen quite dramatically, reaching an all-time high just within the last month or so.

So, why is the price of gasoline rising? The simplistic answer is that it's all supply and demand. To explain a rising price it could be that the demand curve is shifting out to the right or that the supply curve is shifting to the left. What factors are most people pointing to as shifting these curves? How can we tell which factor is the dominant cause of the rising gasoline prices? (This question is analogous to Question 5 from Chapter 3's Problem Set II.)

Individual Choice and Advertisement

Chao Gao
Advertisements always affect individual choice. The individual choice is the first
principle of economic, so it is very important for economy.
I think the most effective way to influence the individual choice is advertisement. Advertisement can let people the functions and features about a good. People must know everything about a good than they will consider buying it or not. So there is question that how people know about a good or product, a person does not know everything about the features of a good, we are not experts in every area. So what should we do when we want to buy or realize some commodities in our daily life? My answer is advertisement, advertisements exist everywhere in our life, when you walk in the street, open TV, and search the internet, you can see them every time in everywhere.
For instants, I want to buy a mobile phone, which phone should I choose become the first question, so most of people would to look for some advertisements about mobile phone, therefore people will open TV, search the internet, and buy a magazine to fine some advertisements about mobile phone, and compare the features and functions that are told by the advertisement, at the end they decide which phone they will buy. From the example, we know in the procedure advertisements play a very important role and have big influence on person’s decision.

Record Drug Bust in Afghanistan

In just one hit on Wednesday, the Afghan counter narcotics uncovered over $400 million dollars worth of hashish. Under six foot trenches, 260 ton of hashish was recovered in what is predicted to be possibly the biggest drug bust of all time. Hashish is a concentrated form of marijuana. To put it into better perspective, it is said that the hashish weighs up to 30 London double decker buses. Even though this sounds like a serious bust, the hashish is not even the leading produced drug in Afghanistan. Opium, is produced heavily throughout the country and just last year 9,000 tons produced were recorded. Over 90 percent of the world's supply comes from this source.
Recently, officials have given warning of crack-down on the opium production to farmers and instead cannabis plants have been grown. In result, the country has a second drug problem to battle.
Drug dealers across the nation have been arrested and the police have taken account for a large portion of the opium production across the lands. However, if such business is being targeted and shut down, how will these farmers survive? Much of their crop is illegal, and police officials are being killed through the raids. Is crashing such a large market worth the risk of lives? These drugs are produced in other areas across the world and although Afghanistan is currently a top supplier, would it not be just as easy to move the locations of production? With this bust behind officials, what is the best route to continue to follow?

Ethanol discussed at World Pork Expo// 10 Jun 2008

It states in this article that Conservation Reserve Program acreage is being opened up to haying and grazing, this may be good for the farmers, but what is it's opportunity cost to the environment? If this land was originally set aside as reserve land it has probably been left idle and therefore will need to be modified to provide the best benefit to the animals it will be supporting. Modifications would probably include spraying undesirable plants, such as multi-flora rose, with round-up, then it will probably be necessary to reseed the entire area, because fescue is not very nutritious. Therefore the farmers will need to do a lot of prep work to the land before it will be viable for the grazing and especially the haying. The article doesn't state what kind of shape this land is in, but let's suppose that it is does require these kinds of modifications, what will this cost the farmer? Will the marginal benefit outweigh the marginal cost? I think probably yes, but I would wager that there will be some environmentalists who will try to stop this from moving forward. Something needs to be done to help the farmer out, lately it seems everything is against him, from soaring fuel prices to sky-rocketing feed bills. What are some other things that could be done to help the farmer out? Everyone needs to realize that without the farmer we, as a people, don't eat. It's as simple as that.

A Barter Economy

In today's crazy society, with so many people who want to jump straight on the fast track to success, it is amazing to me that such a primitive form of trade can still exist in our economy. When I think of bartering, and I am sure many of you do to I think back to that of fur traders and Native Americans; or the old general store owner working with new frontiersmen. However, with the uncertain economy we live in today, many new businesses have been using this same concept to get things for their business, but instead of using money for payment, they in return performs services for the other person or business. This old-fashioned idea has actually stimulated the economy and sprung up new jobs through businesses that deal specifically in matching other businesses to barter together. This in effect keeps jobs alive, by saving these small companies money, they are better able to stay on stable ground, and perform a service to the community. Not only with the goods, they intend to sell, but also by creating jobs for local citizens, who in return spend money at other places who possibility bartered with their employer. This stimulates the economy in an area, which is what all businesses owners are hoping to achieve.

Food Is Gold, So Billions Invested in Farming

One of the most important metarial to human is food. And the world's needs for food will greatly increase. After that, the opportunity cost will be increased than now. Therefore, a few big private investors are starting to make bolder and longerterm bets. I think this is the one example of comparative.

Huge investment funds have already poured hundreds of billions of dollars into booming financial markets for commodities like wheat, corn and soybeans. But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment.

Wheat, corn and soybeans are important food in the world people. However, the supply of them is enough now. Therefore, the few investors are starting to investe to other metarials because wheat, corn and soybeans opportunity costs are not bigger than the others.

Fuel Issues for Airlines

The average person is wondering how they are going to afford soaring fuel prices but what they forget to realize is the major fuel consuming industries and how they can afford these prices too.
Airlines are stuggling to find ways to save money so they can buy fuel. These airline companies have been working overtime and extra hard to find a way to pay for these soaring ful prices. Southwest airlines have decided that power washing the jet engines to get ride of the dirt and grime, using less water in the bathroom facilities, and updating the passangers seats with lighter ones will all benefit their fuel comsumption. They believe that all of these things will save gas which will decrease the amount of spending in fuel.
Forty percent of the ticket price goes straight to fuel expenses, while a couple years ago only fifteen percent went to fuel. Do you think there is a possibility that airlines will reduce flights because they will not be able to afford the price of gas after a certain amount of time? Do you think this is the perfect time to update airplanes with these new "fuel-saving" ideas? Do you think these ideas will actually cut the costs of fuel? Do you think summer travelers will spend more money in plane tickets than spending more money in gas for their own care knowing they are paying for fuel in both circumstances?

Apple Hides High Cost of New iPhone in Hidden Fees

The critically aclaimed Apple iPhone is packed with games, internet, business advantages and tones more, but is it worth it? The new 3G iPhone that is going to be released soon has been said to be cheaper than the original iPhone. According to yahoo.com, the new 3G iPhone costs $199 but the basic voice service is upped from $60 straight to $70. The 2 year plan for the new iPhone is actually $1,879 compared to the old $1,839. Business users (biggest buyers of iPhone) get shafted big time, considering they have to pay $85 ($15 more than original iPhone) just for service. This "cheaper" iPhone will obviosly appeal to the audience that wishes to save money on the popular device but unsuspecting buyers will be slammed with high hidden fees.

Apple hopes to boost sales with a cheaper iPhone

Although the Apple iPhone is a very cool new and technologically advanced invention, the price of the phone at the start is what some might call outrageous. The phone is completely jam-packed with capabilities but it sells for just as much as a person would pay, for a Playstation 3, or Nintendo Wii. So when a person thinks about buying such a thing costs, and benefits must be taken into consideration. Do you pay $ 399 for a iPhone, or the high end gaming system. Internet, talking and iPod capabilities that are portable, or a system with a blu-ray player and virtually all the capacity of the iPhone but stationary. In the increasingly mobile world that we live in today the iPhone might pay off for some people, but not me. Which is why Apple has decided to come out with a smaller gigabyte version of the iPhone with all of the same capabilities and a price of $199. For someone like me for instance now the judgment made at the margin might change because at that price you would not be able to afford a game system and the fact that the phone is now at a comparable price with other smart phones is definitely enticing. By lowering the price of the phone Apple has hopes to change the decisions that people are making at the margin.

Should Babe Ruth have been a pitcher instead of a hitter?

Babe Ruth was arguably the greatest baseball player of all time. He was a prodigious home run hitter, swatting 714 over his career, most of them while playing for the New York Yankees from 1920 to 1934. Few people remember though that the Babe was also one of the best pitchers in the game prior to joining the Yankees in 1920. Pitching for the Boston Red Sox from 1914 to 1919, Ruth helped the Red Sox win World Series in 1915, 1916, and 1918. After his contract was sold to the Yankees before the 1920 season, the Yankees decided to use Ruth primarily as a hitter. The rest, as they say, is history.

In terms of economics, what economic concept best describes the Yankees decision to use Ruth as a hitter rather than a pitcher? For a hint, click here. (Scroll down to read it all.)

Feeling the strain of increasing fuel prices

The constant rise in gas prices at the pump can make people feel stressed and alone, however everyone is in the same predicament. Even large corporations are feeling the strain of increasing fuel prices Continental Airlines Inc. was force to take drastic measures in order to compensate for the rising price of fuel. The airline reported that they plan to lay off 3,000 of their employees and eliminate nearly 8% of their fleet. Continental did state that they plan to continue to pay the 3,000 employees remaining salary throughout 2008. Continental is predicting that the cost of fuel will be over 2.3 billion dollars more than in previous years. These are the details discusses in the article Continental to cut 3,000 jobs, slash capacity, flights. Now lets discuss what types of models and economic ideals that may have been used to determine how many people to lay off and how many flights to ground.
Continental could have created a model which showed that it would be cheaper to pay the 3,000 employees that are being laid off their remaining salary for the rest of the year then to have them up in the air working. Continental along with numerous other airlines have created models to show the overall expenses for each flight and the number of flights to determine how many flights they can have in the air before it becomes uneconomical or when the marginal cost becomes greater than the marginal benefit.

Days of the Oversized American Vehicle Over?

As many of you might already know, General Motors announced  Tuesday that it was shutting down four of its plants that produce large sized trucks and SUVs. Why is it doing this? High gas prices primarily. It is no longer profitable for auto makers to mass produce these gas guzzling machines. The target market for these types of autos is drastically decreasing with every passing day. America has been very lucky it has taken it this long for gas to become as high as it is. European countries that share many of the same economic freedoms and prosperity as we do have little or no market for SUVs and pickup trucks. Although there are many reasons one giant one is the fact that their gas prices have been at the 4 dollar mark and higher for many years now in some countries. As consumers look for more fuel efficient vehicles, the SUVs and large trucks are being taken from the showrooms and front lots and taken to the back lots and small 4 cylinder cars and hybrids of all kinds are being pushed into the spotlights. So the question is simple, are the days of the SUV and heavy truck finally nearing an end in the United States?

Is it rational to ignore some costs?

After reading Chapter 7 you will have been exposed to the basic paradigm in economics--namely, the rational man (homo economicus) model. The model posits that much of human behavior can be explained as if individuals made their day-to-day decisions by comparing the marginal benefits and marginal costs of various activities. For example, consider the decision facing a customer at Burger King. Let's imagine that our rational man has already consumed one Whopper. Should he buy (and eat) a second Whopper? Well, if the marginal benefit of another Whopper exceeds the marginal cost, then it is rational to gobble up another Whopper. What about a third Whopper? I suspect that at some point the marginal benefit of an additional Whopper will start to decrease (how much happiness can a third Whopper possibly give you?) such that it's not "worth it" to buy another one. Thus, the marginal benefit/marginal cost rule tells us "how much" to do of something. Namely, continue the activity up until the point where MB = MC.

Marginal analysis, by its very nature, is forward-looking. A rational individual is always trying to compare the additional benefits versus the additional costs of her behavior. Not all costs, however, show up in the future. Some costs may have been incurred in the past and, consequently, are unavoidable. These are called sunk costs. According to homo economicus, sunk costs should be ignored.

Read the following episode from the life of Alex Tabbarok Do you think Alex made the right choice?

What are some other examples of sunk costs that people ought to ignore if they wish to emulate homo economicus? Can you point to anything from your own personal experiences?