PG-13 Is More Profitable, Really?

In the article, "BYU Study Finds PG-13 Rated Films Make The Most Money", Mary Richards reports on a BYU-student based study finding the difference in money making potential between a R-rated and PG-13 rated movie is about 40% more for the PG-13.  The study also finds that the closer the PG-13 movie is to receiving a R-rating, the bigger the profits.

These findings, if proven correct, will motivate the movie producers to make the necessary changes in the final product to garner the PG-13 rating.  However, producers will only cut out the least amount of content necessary to receive this rating to maximize the profits afforded to being as close to an R-rating as possible.

The result of the PG-13 movie demand curve shifting to the right is causing a forward shift in the supply curve from movie producers who are taking advantage of the shift in demand to produce higher profits and revenues.  Also, because the profitability increases even more if the PG-13 movie increases in elements and material more like an R-rated movie, the differences in material between the PG-13 and R-rated movie will continually shrink.

The article stated that 55% of movies are R-rated and 35% PG-13.  The percentage of PG-13 movies will increase in the future.  Is this study conclusive evidence that movie makers should abandon making all R-rated movies?  I do not think so.  I assume that the movie industry will want to ensure the facts in the study are correct and that the findings are true due to the conservative nature of the school producing the results and other articles reviewing the same study but reporting different numbers.

Runway Closure to Affect Airfares?

I am blogging in reference to an article from Bloomberg Businessweek entitled "JFK: Close a Runway and Charge More." This article spoke of how a runway at JFK International Airport was being closed for 120 days for widening. This is being done to make the runway capable of handling the new Airbus A380, an even larger jumbo jet than what they are accustomed to. They are decreasing arrivals and departures, each by 250 per day. The question posed is whether or not the decrease in the supply of arrivals and departures will reflect an increase in the price for airfares during this 120 day period. The general consensus is that it won't. This is due to the fact that many of the airlines aren't filling all of the seats on their current flights at JFK, leaving some excess capacity. This is also due to the fact that Laguardia and Newark Liberty International airports are all relatively close and all have some excess capacity. When these other options are considered, demand for tickets at JFK will most likely not increase enough to justify higher airfares. On the flip side, when the runway is completed, being able to accommodate the larger airplanes may increase supply enough to lower the price of some flights.

Drowning or Waiving

In the article, Drowning or Waiving, it discusses the issue of many homeowners owing more than their house is worth. Approximately 25% of American borrowers are "under water" creating a difficult situation for the economy as a whole. Areas hardest hit are Nevada and Arizona. Over 4 million households owe at least twice as much as their home is worth. Estimates from 2009 suggest that 26% of defaults were "strategic" in nature. When homeowners default, the property usually is not maintained and the surrounding home values are pushed down. The government is looking at additional ways to fix the problem. The mortgage crisis, however, will not go away until the government supports the real estate market in effective ways. There are many people and groups to blame for the meltdown of the housing market. As a result, these people should bear the brunt of the economics involved. Homeowners that bought more house than they can afford, and are overleveraged, should take the hit and move on. Banks that made the loans should write off their losses and deal with the consequences of making loans to people that really should not have received the loan to begin with. The government up until recently, offered tax incentives to buy homes, such as the $8,000 tax credit for first-time homebuyers. This, coupled with extremely low interest rates, has increased demand for homes but obviously not enough. Homeowners are less inclined to walk away from their home if they have made a significant deposit up front when buying it. It also reduces the total financed amount creating a lower monthly payment, which reduces the chance of default in the future because lower mortgage payments are easier to make than larger ones. Laws and regulations need to be adjusted in the loan process to recognize this. In the long run, taking a more conservative approach to home ownership will benefit not only the individual homeowner, but the economy as a whole.

What's the Fed's Next Move to Recovery

It is likely that Fed is going to buy more treasury bonds in order to stimulate the economy further. This move is considered risky since it may cause more future inflation that would be acceptable. The idea is that buying treasury bonds will lead to lower interest rates and further give incentives to banks to loan money to potential borrowers. The borrowers would then be able to refinance their mortgages and increase their disposable income. An increase in disposable income would lead to more purchases and move the country to a quicker recovery. The move would also motivate businesses to expand with lower monetary costs, and thus hire more employees. Although the article cites a relatively low number in jobs created by this move, the Fed seems to be willingly to take the risk, rather than slip back into a deeper recession.

Japanese Cigarettes

Japan announced a national tax increase on cigarettes raising the price by a third. Cigarette sales shot through the roof and has given the economy a little boost. The demand for cigarettes is usually inelastic because smokers want or need their cigarettes and will pay most prices to get them.
Looking at the demand for cigarettes in this case we can see that the people realized there would be a price increase and therefor a reduction in the quantity that could be purchased. Also, considering the inelasticity for the demand of cigarettes these people would still purchase cigarettes even if the price were increased. So, to save money, these consumers started stock piling cigarettes to save some yen.
One consumer purchased 100 cartons and saved approximately $1,300 in potential taxes. Many others are buying what they can with 30 cartons being the norm. This hoarding effect will cause a future drop in sales but things should return to a normal level after the stock piles are smoked. Once this consumption does return to a normal level you should see the quantity demanded decrease from the consumption level that existed before the tax announcement but not by a third, it should be less due to the inelastic nature of cigarette consumption.

IPhone Coming to Verizon Network?

Over the past several months, I have continued to hear about Apple's agreement with Verizon to release the Iphone on Verizon's CDMA network. According to The Wall Street Journal, the exclusive U.S. arrangement with AT&T is set to end. This would end AT&T's monopoly on the Iphone market that dates back to 2007.

As soon as Verizon is able to make an agreement with Apple to produce the CDMA ready Iphone, we will begin to see AT&T's 43% share of the smartphone market decline. There is a large demand for the Iphone on all wireless networks. Remember, a monopolist maximizes producer surplus by selling less output and at a higher price than what would happen in a perfectly competitive market. Because of the monopoly that Apple has allowed AT&T to hold over the Iphone market, we have not been able to see perfect competition take place. I believe that by allowing other carriers to add the Iphone to their networks and sell the phone, we will see better rates for both the Iphone and the data plan associated with it.

The difficulty for Steve Jobs at Apple is to determine whether or not to renew an agreement with AT&T to be its exclusive carrier for the Iphone...a lucrative deal that has AT&T paying Apple a large some per Iphone, or to open up the Iphone to all carriers and benefit from more sales but at a lower margin.

U.S.-China Trade Deficit

The demand for manufactured goods from China continues to rise in the United States. The trade deficit in 2009 was $227 billion. According to this article on about.com this is the largest deficit in the world between any two countries. What does this mean for Americans? It means that American businesses are having difficulty competing with the low cost of goods produced in China, and will have to lower costs by moving operations overseas or seek some other method of lowering costs, or shut down operations. As long as the Chinese hold the value of the Yuan lower than the US dollar, through buying US treasuries (and other means), Chinese goods will be cheaper and the demand for those goods will continue to rise shifting the demand curve out to the right.

Creating the OPEC of Fertilizer

Fertilizer companies dealing in potash are bidding and negotiating on mergers. There currently aren't very many suppliers of potash in the world and with mergers in the works this number looks like it will decrease. With a world oligopoly in sight and a monopolistic effect on local farmers, prices could very easily go up especially in the short run. A price increase would stress farmers and would be passed to consumers in the form of higher priced food. This is a lot of control for fertilizer companies to have simply because we all have to eat.

Housing Crisis

In the Bloomberg Businessweek article, Mortgage Mess: Shredding the Dream, we learn the frightening story of what was really happening in the mortgage industry between 2005 and 2007.

Due to the “housing bubble” and perceived “good times ahead,” mortgage lenders were frantically closing home loans for anyone who applied; regardless if the applicant was qualified. Even though closing loans for unqualified borrowers is bad business, the problem becomes worse as lenders habitually “fudged” on the paperwork by not adequately completing documents or filing them properly.

To compound matters further, the lending industry relied on Fannie Mae’s digital overlay system, known as Mortgage Electronic Registration Systems (MERS), to create images of their paperwork. MERS would serve two purposes. First, they would digitize the agreements and thus businesses would not need to keep hard copies of their files. Second, MERS would become the “third party that would foreclose if a borrower stopped paying.”

The major problem with MERS, however, is their system was unable to keep up with the flow of agreements. As a result, a number of contracts were never scanned and thus became lost or accidentally destroyed. Of those contracts which were digitized, a number of them were not correctly filled out and thus the agreements were not legally binding.

According to the article, due to the recession, between $2 trillion and $6 trillion in “U.S. mortgages and home-equity loans that were securitized during” 2005 and 2007 are “likely to go into default.” In other words, those individuals who should not have received loans but did are now unable or unwilling to make their monthly payments and thus the banks need to foreclose.

However, due to the problems of incomplete documentation or un-scanned (lost) contracts, banks are having a difficult time proving they have the right to foreclose on said individuals and thus, it appears, they have no legal rights to reclaim their properties.

From and economic standpoint, this article brings to light major flaws within the mortgage industry and foreshadows more difficult times in the future. Who will bear the expense of the losses if banks are unable to reclaim their properties? Will the Government, once again, feel compelled to “bail out” the banks? If that were to happen, taxes would unavoidably increase. Will the banks find a way to prove ownership and thus evict tenants? If that were to happen, the supply of houses for sell will shift to the right and thus home prices will continue to fall and citizens nationwide will continue to see their wealth deplete.

From any angle one approaches this news, it is apparent, in the near future, home values will continue to fall, banks will lend less, and the Government may very likely raise taxes. Hold on to your wallets!

Poor Mortgage Documentation Shredding Housing Dream

As if the housing market wasn’t bad enough, Bloomberg Businessweek produced the article, Shredding the Dream, in their October 25-October 31, 2010 issue in which they quote J.P. Morgan Securities reporting, “some $2 trillion of the $6 trillion in U.S. mortgages and home-equity loans that were securitized during the height of the bubble, from 2005 through 2007, are likely to go into default. The report says the housing bust will ultimately cause losses of $1.1 trillion on those bonds.” Due to such a decrease in credit standards during these lending years, a lot of these default loans are lacking appropriate documentation if there is documentation at all. As a result of this, foreclosures are being frozen and some people are living in these homes payment free. The fear is that as consumer confidence in the housing system declines the amount of people willing to walk away from their payments will increase and something is going to have to change, most likely a political intervention. The government’s current attempts at modifications are not succeeding and some suggest reducing principal loan amounts. While this solution sounds good to all home owners, lenders probably don’t share the same enthusiasm. The answer is there is no easy fix. By the looks of things the housing market is in a bigger mess than anticipated, and there are going to be more problems than answers in the near future so start dreaming of something different than the dream home.

Utah's Monopoly on Liquor

Is Utah's monopoly on selling hard liquor good for the state or for the consumers? Mark Shurtleff is requesting that the United States Congress allow Utah to keep its unique system. Utah's system creates a governmental monopoly on the hard liquor sold here. With that system in place, the state liquor board can set any price it would like to set for the liquor. Utah does not want to give up the system in place because that would significantly decrease the revenues to the state. And in such a time as this where the state budget is so tight, Utah is not going to have any motivation to loose that revenue.
- Ralphie

Demand

The Cash for Clunkers program provided incentives for automobile consumers, essentially lowering the price of the product. This lower price increased the quantity of cars demanded and sales dramatically went up. When the program was over and the price went back down, so did the car sales. This is a very accurate example of the change in demand through price. We can also see that the program was effective for the fuel efficient cars but not for the gas guzzlers. We can see that fuel efficient cars are a substitute for gas guzzling trucks because the decrease in price of the fuel efficient cars decreased the quantity demanded for the other. We can also see at the end of the article where automakers manipulated price again to decrease the quantity demanded so that they could replenish their inventory. What a good article for the topic of demand.

Google: Supply, Money, and Copyright Law

Google has set a goal to digitize millions of books and create an online library. This would shift the supply curve for such material to the right; which, economically speaking would drive down prices at any given point on the demand curve. This program which Google positions to be a public service and a research aide has many skeptics. Authors, publishers, even competitors are outraged with Google’s intentions and especially the way that Google has gone about its intentions. Google made a legal ploy by making those with copyrighted material opt out from being a part of their plan, instead of the traditional opt in that in the past has always been necessary along with negotiations of terms. Many with copyrighted material, including thousands of authors whom have opted out, feel threatened and don’t understand how they are going to benefit and make their money in Google’s business model, let alone what control they will have over their works.

Marxism Economics: Karl Marx’s Das Kapital

I was encouraged by one of my professors to read a book by Karl Marx, Das Kapital. I am a self proclaimed capitalist and this reading along with The Communist Manifesto was supposed to help me be more objective in my views. I do believe that Karl Marx whom lived during the industrial revolution saw a different capitalism than I know today. In fact the capitalism I see today in many ways could be viewed as a socialist capitalism to Karl Marx who wanted a progressive income tax and public education among other things in his ideal communist society.

One of the most important parts of Karl Marx’s economics is to describe value and how money works in this system of assigning prices/values to objects. Money serves society by performing various tasks. Namely it provides the means by which exchanges of goods can be made in an efficient manner. I believe that when a price is given to a good or, as Karl Marx would say a commodity, it represents the value that the market is willing to pay for such a good or service. This is a free enterprise and capitalistic way of looking at the value of a good/commodity and one which Karl Marx opposes. Rather his is the view that, “but what is the value of a commodity…the objective form of the social labor expended in its production. And how do we measure the quantity of this value…by the quantity of the labor contained in it” (Marx Das 255). Simply put in Karl Marx’s terms, “price is the money-name of the labor realized in a commodity” (Marx Das 79). Especially, in today’s automated manufacturing and service oriented businesses the price of a good or service definitely doesn’t represent the labor that goes into it. I think this is one aspect of economics that Karl Marx got very wrong.

Nevertheless, Karl Marx did use his thoughts on the exploitation of labor to identify how capitalists use such labor to create surplus value and combined with greed establish a wealthy class in society. I have attempted to piece together Karl Marx’s idea of how capitalism works in the following; “the capitalist buys labor-power…that…labor may reappear in a commodity… capable of satisfying a want of some sort” (Marx Das 143). This object of want which needs to be sold for a profit, or rather at a surplus value above the capitalists expenses, so “the rate of surplus value… (Is) the degree of exploitation of the labor-power” (Marx Das 174). This surplus value adds to the profits of capitalists “who extracts unpaid labor directly from the laborers, and fixes it in commodities” (Marx Das 280). Then the capitalist becomes greedy and “becomes a hoarder of money…gold and silver thus become of themselves social expressions for superfluity of wealth” (Marx Das 109). This social class of the wealthy becomes ever more lustfully greedy, “the expansion of value… becomes his subjective aim…ever more and more wealth in the abstract becomes the sole motive of his operations” (Marx Das 124-125). I agree that this cycle does take place in capitalist societies, but I disagree that it becomes each capitalists’ sole purpose and driving force in life. Bill Gates, Warren Buffet, and other wealthy capitalists whom start and fund charitable foundations that benefit society and humanity are examples of the utopia that can come from capitalism. Karl Marx would have never have fathomed such benevolent philanthropy from the wealthy capitalist class of society.

Capitalism to Cure Healthcare

I agree that with rising costs in healthcare something needs to be done; however, I don’t agree that more government programs and oversight are the solution. In fact I agree with Mitt Romney that many of the problems in healthcare exist because of government’s involvement. Mitt Romney in his book, No Apology: The Case for American Greatness argues that the cure for healthcare is to overhaul it with the tools of capitalism that America has fined tuned over the years. In the current system there are very few incentives to shop around for lower costs while maintaining quality. In the free markets of capitalism consumers make trade offs between quality and costs daily in an effort to decide what they value enough to spend their money on. Value in the free market is created by a willing buyer and a willing seller coming to an agreement and exchanging goods or services for resources or money. Capitalism rewards individuals and companies that are able to improve productivity, innovate, cut costs, and still provide quality at a price that consumers are willing to pay. Competition drives these measures and reduces costs as more competitors enter the market. There is no lack of competitors in healthcare, but because the pay structure is not set up as it is in capitalism to reward and incentivize doctors and healthcare providers whom are able to increase productivity, innovate, and cut costs, then costs continue to rise for the consumer. One example Mitt Romney gives is that once an individuals deductable has been met then they no longer have to pay for their portion of their healthcare for that given year. Consumers at this point are not price sensitive and have no incentives to shop around for quality care that is offered at a competitive price. Another example given is the way that doctors and healthcare providers are paid for the amount of tests and procedures they conduct not the quality they provide in those given tests or procedures or in regards to improving the individuals health. Mitt Romney provides insights as to this problem and how capitalism could correct the problem without big government involvement. I have this book on CD and would recommend it.

Construction Wrapping up at New St. George Airport

Construction Wrapping up at New St. George Airport means that St. George will be in a better position to create business opportunities for its residents. City leaders say the primary benefit for locals isn't flights but the promise of higher paying jobs in the community because St. George can now compete for business oportunities throughout the country. The total cost will be about 260 million and is the biggest construction project in the city's history. The existing airport will still be used but is too small for commercial jets. It's location on the bluff makes it prime real estate. This should expand the local economy and should increase the number of jobs, not only from new airport employees, but also from new businesses entering the market. In the past, it may not have been cost effective for these companies to have done business there but that barrier is now gone.

Recreation Industry Provides St. George Economy Boost

The city of St. George has turned to its scenery and weather to entice athletes all over the world and of all ages to come spend money in the beautiful St. George of southern Utah. St. George’s growth based economy has been hurting since the housing market collapse and has been able to draw crowds of thousands to attend special athletic events. According to the ksl.com article, Recreation industry jump starting St. George economy, the marathon, senior games, and ironman bring in about $23 million dollars collectively and the southern Utah golf courses are estimated to be up to $35 million dollars. While St. George continues to pray for a housing recovery, these value-added events bring in spending dollars which is exactly what St. George needs to boost spending for our St. George business.

WalMart Price Cuts Backfire

In a move made to generate increased traffic at their stores, WalMart earlier this year decided to drastically cut prices on many of their food items. Their hope in cutting prices is that these items would be loss leaders and bring more people into the stores to purchase more profitable items. Unfortunately for them, this plan backfired, and people came into the store to purchase those extremely cheap items, and did not stick around to purchase other items. As a result, WalMart has been required to increase prices once again.
Some are questioning WalMart's decision in lowering their prices in the first place. The decision to lower their prices to spur revenue would have been a wise decision, had the overall economic well-being of our country been healthier. Since people are still hesitant to spend money on unnecessary items, their strategy backfired. Instead, WalMart should have taken a different approach, such as cutting the prices on some of the large ticket items, while maintaining a reasonable profit margin on complementary items to those large ticket items.
- Ralphie

Move to the Cloud

There are few modern businesses in Southern Utah. I am increasingly surprised how many business majors are unaware of the advantages GoogleApps provides and the number of small-business owners who have not yet harnessed it. Google’s Internet-scale cloud computing framework accomplishes economies of scale that yield considerable cost savings for customers. With over 3 million users and 3000 organizations signing up each day, Google’s marginal cost is incredibly low, therefore it is able to offer the service at just $50 per year per user. This service is valuable to me because it is scarce. Few companies offer such efficient and user-friendly cloud software at a reasonable price. If I were to create it on my own I’d have substantially higher costs with a much lower rate of success.

FASB Proposed Changes and its Impact on Commercial Real Estate

The proposed FASB accounting changes will have a large impact on the commercial real estate (CRE) market. Sellers, Lessors, Buyers, and Lessees of CRE will all experience the changes differently. A summary of the impact of the proposed FASB changes on the different groups are outlined below:

Sellers- The commercial real estate market has been hit hard by the economic recession. CRE values have declined due to the bad economy. If the proposed changes occur, sellers should expect some stabilization of value due to an increase in demand.

Lessors- The changes will impact the lessors financial statement, but more importantly, will impact the terms of the leases. Lessees will desire shorter-term leases due to the reporting factor.

Buyers- It is already a great commercial real estate buyer's market and with the extension of the SBA fee waiver there are even more reasons to buy now.

The impact of the proposed accounting changes may not have a huge effect in the stabilization of the commercial real estate, but it should help provide some incentives for buyers. This is what the commercial market desperately needs in order to recover.