Is Healthcare's Future Monopolies?

Another issue in the list regarding the health care issues that seem to be never ending pertains perfectly to the topic we have been studying in this very course. What topic would that be? The topic of monopolies and there effects on markets prices and efficiencies.

With the help of Obama and his view that if we consolidate and create networks between health care providers we can come to a reasonably priced health care. I can see where he is coming from if it is done in moderation but forcing companies to come together is basically giving them the green light to form monopolies. In the short run prices might fall but in the long run the prices will be in the hands of the monopolized health care companies and not in the hands of the consumer.

This would not be the first time that monopolies have occurred in the health care industry in the article it mentioned Partners Health care and its 4000 physician network who was accused of using its clout to set prices and marginalize competitors. Health care is already in a position to set prices in that when you need health care services you don’t usually have time to shop around so giving them the power to band together and monopolize leaves no chance for a competitive price of health care.

I am not trying to say it is inevitable that health care will be monopolized but the workings are there to lead health care in that direction. With the government getting involved you never know what will happen other than it will probably be less efficient than a competitive market.

Integrated Care's Drawback: It Could Lead To Health Monopolies


Utah's liquor monopoly rakes in big profits

I recently read an article that explained about the Utah's liquor monopoly. As per the article government can earn big revenue from liquor monopoly. According to article "nearly $100 million flowed into state and local treasurers from sales this fiscal year (ended June 30), up $2 million from last year and $20 million more than in 2006, according to a report released Tuesday by the Utah Department of Alcoholic Beverage Control. This year, total revenues topped $129 million, up from $126 million for 2008".
I think the liquor monopoly is good for the Utah state government. The liquor demand is also increase in Utah. As we know the demand curve for competitive firm is horizontal because they are price taker where as, the monopoly firm has downward sloping market curve. so I think by keeping the liquor monopoly government can reduce competition in a market and earn more profit by charging a higher price. Government can also increase its market power by liquor monopoly. so i think the liquor monopoly is good idea to reduce the Utah's budget shortfall.



Wal-Mart and price discrimination

In this competitive corporate world price discrimination is common world. I read Chapter 9 in the book and its talk about different kinds of pricing and discrimination. In this blog I talk about price discrimination. Today Wal-Mart is the largest retailer in the world. Wal-Mart generated $240 billion in sales, which accounted for a little less than 2.5 percent of the U.S. gross domestic product in 2002 (Bureau of Economic Analysis, U.S. Department of Commerce Website, and Fortune, February 18, 2003).

According to this article Wal-Mart competitors blame, Wal-Mart doing unfair competition and not provide predatory pricing. The predatory pricing means company must be shown that the prices of its products below its costs. Wal-Mart can earn an additional profit and competitive advantage because these suppliers are charging relatively higher prices retailers for the same product. U.S. retailers, such as Kmart or Target, were to make the same allegation against Wal-Mart and its U.S. suppliers. Example, a laundry-detergent manufacturer is price-discriminating if it sells its 64-oz container to Wal-Mart for a unit price of $1.79 but sells it to Kmart for $1.92.
Here I think price difference is common issue in business world. By contrast, in this article we saw suppliers and Wal-Mart price discrimination. I think they can earn more profit at discrimination than uniform price. I think because of this price and cost policy Wal-Mart becomes more profitable compare of other businesses. I think U.S suppliers doing complete price discrimination with other buyers.
What you all think about this case? Are they doing price discrimination?


Sports and Opportunity Costs

Costs are around us everyday whether we realize it or not. Chapter 7 in the book proposes several different kinds of costs. Probably the most common cost we face everyday are opportunity costs. These are trade-off costs, or the cost of the highest valued alternative that must be foregone when a decision is made. I face this situation everyday when I make the decision to take a day off work to study, or pick an elective class of economics over a management class.
Major league sports face this cost every season. When deciding how much they should pay a certain player they must look at the opportunity cost of doing so. An article I found was about the Toronto Blue Jays in 2002, not signing Jose Cruz, when he wanted 5 million a season to play for them. The Blue Jays let him go and in return drafted 6 new players for a little over 6 million dollars. The opportunity cost the Blue Jays faced was giving up one of their most popular players for about the same price as getting 6 new players.
Sports team face opportunity costs like this one, every year when they do their draft picks. They must decide if a player is worth the money they want or if their is an opportunity cost out there for the team. It is amazing to me how economics can play into major league sports without most people even realizing it.


Boeing's Billion Dollar Costs

I have been reading many articles regarding the airline industry as a whole and about the airplane manufacturers, and the entire topic of airlines has economic topics written all over it.

With demand sinking and costs rising what's next for Boeing? I was shocked at the enormous costs that are encountered both fixed and variable. Boeing is writing off $1billion in costs due to higher costs of its 747-8 program and the current market conditions. Most of this is from higher fixed costs to produce the airplane. A firm like Boeing needs to be fairly good at predicting future demand when it comes up with a concept for a new plane. Creating, engineering, and testing new planes can take a few years. And for the 747-8 engineering plans came later then expected which raises costs of re-work and adds disruption to the process.

The remainder of the $1 billion cost come from market conditions and lower production rate due from a decrease in demand.

Boeing is also working on a new fuel efficient 787 that was suppose to have its first test flight in 2007, it is now more then 2 years behind schedule with an expected first test flight in 2010. Boeing will book another $2.5 billion in costs for 3 test planes that have no commercial value.

"Boeing is grappling with dwindling orders during the global recession, which has undercut demand for air travel and cargo services. Some airlines have been forced to cancel or delay plans to buy new planes."

"Boeing has cut costs, including plans to slash 10,000 jobs and scale back production of some planes."

Fun Fact for ya'...Boeing held a monopoly for a long time in commercial aircraft, up until Airbus started gaining market share. Also when Boeing merged with Lockheed Martin, the government granted the company monopoly rights to the production of military aircraft.

Boeing to record $1B charge due to 747-8 costs


Oil Prices

Oil prices were extremely high in mid 2008, and finally dropped drastically in late 2008. In the midst of a recession, it is common to have cheap prices for oil and gasoline; that is not the current scenario. Although oil prices have not reached what they were in 2008, they have climbed steadily over the last several months. The Law of Demand suggests that when supply is high and demand is low, the price will be low to force the market back to equilibrium. If this is true, then why are oil prices continuing to rise?

Speculation is believed to be the main cause for the high prices. Continuous decreases in sales should keep the prices low, but traders are relying on the fact that they believe the worst of the recession is over. Speculations of recovery from this recession are driving the prices rather than actual proof of recovery. Many believe that the price of oil is dictated too heavily by speculation which explains why the prices of oil are not what the Law of Demand would suggest they should be.


The Impact of Recession on Religious Organizations and Tithe Payers

Religious organizations survive by tithing its members. As church members slog through the most difficult economy in decades, religious institutions are among those organizations most hard hit by the downturn. In fact, an unusual number of religious schools have closed down through 2009. Not only do religious institutions finances vary perfectly with tithe payer income, whose income levels are down, but due to “boarder line” committed members forgoing tithing donations, the number of tithe payers is down.

Religious organizations are by no means immune to macroeconomic fluctuations, in fact, there is compelling evidence, as noted above, that a sour economy will decreases tithing donations. But do those continuing to pay tithing through a tough economy face greater income elasticity concerns? My opinion is “yes” there are added financial considerations both the tithe payer and the religious organization face during a recession.

How do some tithe payers and religious institution survive and even thrive through these difficult economic times while others tithe payers file bankruptcy and institutions dissolve is an interesting question. For more on this discussion, please see the link below entitled “problems with tithing.”



Slash The Cash

Are consumers finally becoming more responsible with their credit cards these days, or is being approved for a new plastic card becoming harder?
In July of this year the American consumer reduced their total credit card dept by $21.6 billion, when $4 billion was expected. Economist have expected that consumers will spend less, decreasing credit card debt, but not by this amount. The last time consumers were this close to cutting their credit card spending was in 1943. But what has really stumped the economists is which force is influencing the decreased borrowing. Is it the lack of demand by consumers who might be cutting up their credit cards? Or is it the lack of credit supply from the banks?
I say both. The downturn in the economy has left consumers more cautious in spending, especially as unemployment rises. Consumers don't want to be caught paying for purchases they made on credit while unemployment is expected to rise. In addition the credit crunch has caused banks to put lower limits on credit cards, as well as increase the standards to obtain credit.

Consumer slash borrowing by record amount


Water Demand Curve Shifting to the Right

I recently read an article that explained the price of water and the effect it has on demand. It explains that at low prices, consumers will not pay attention to the consumption of water and will only determine what they will use it for, not how much they will use. Or in economic terms, it remains inelastic at low prices. Though the article was related to agriculture, I think it applies well to what is going on in St. George. As most people know, water consumption and conservation are a hot topic right now. The Lake Powell pipeline is in the works to keep up with the growth and consumption, but it may not be enough. Buildings continue to be erected and grass and other water features remain part of the landscaping. This continued trend, along with all of the golf courses and extremely hot summer weather don’t help the issue of conservation.
Until there is a substantial rise in the price of water, the demand curve will continue to shift to the right while the quantity will level off and force the price to go up.
I will bet that the rise in price will cause more “natural” and gravel landscaping instead of grass and water features that consume that majority of water. This will cause the demand curve to move back as people will be persuaded to try alternative routes to high water consumption.

Water Article


What's More Stimulating...Supply or Demand?

Over the past year, we have seen various stimulus packages in an attempt to re-energize the economy i.e. the cash for clunkers, bank bailouts, individual tax credits, and the housing stimulus tax credit. An article I read introduces the idea of stimulating the supply of goods, not the demand. It talks about how consumers have unlimited needs and wants, so the demand for a product is always there. It is in the supply of a good, more specifically the price of a good supplied, which deters one from purchasing the product. "Supply stimulation is achieved through the transfer of productive assets from those who paid too much, to those who can put the assets to profitable use at a lower purchase price." What this means is that instead of sitting on abandoned homes and idle manufacturing plants, the assets need to be sold at a loss to someone who could create the product at a market-clearing price. "Through the creation of supply at lower prices, demand is stimulated."

Although I see the logic behind the author's reasoning, I am not fully convinced supply is the answer to solving an economic recession. According to a recent Gallup poll on consumer confidence, the demand for products has decreased dramatically from a $116 3-day rolling average in September 2008 to a $52 3-day rolling average in September 2009. That is a decrease of over 50% in spending per person on a 3-day average. Prices may be too high; agreed. But even people who have not been affected by the economic hardship are still skeptical on spending. Even if the supply has reached a market-clearing price, less people are inclined to demand products. Only at market equilibrium can supply and demand be maximized. And if one is able to produce supplies at a lower cost, then more power to them. However, it will not cure the lack of products demanded.

This article can be found at:

Come back of bonuses

Bonuses in the finance sector more specifically, Goldman Sachs Group Inc. (GS) and JP Morgan Chase & Co.'s (JPM) are to soar above the bonuses of last year. They might even be comparable to the hay-day bonuses of 2007 with some admirable performance on the part of financial industry employees. The year is only three quarters done and things are looking on the up and up for these companies. I feel that the hard time the industry has been facing has inspired people to work harder. It seems as though great things come out of challenging situations.

Bonuses have been a hot topic especially since the government takeover of the financial and insurance industry, the car manufacturing industry, and the mortgage industry. Sorry I got a little of topic but its true. There has been more scrutiny over bonuses and compensation plans especially when it comes to the tax payer’s money. In tough times things have a way of working out to benefit everyone.

What comes to mind when I think of the issues facing the financial industry and what it took to recover from those pessimistic situations, I think of the ever present “Invisible hand” that brings peoples self interest into play among other things. The competitive nature of people and markets to survive helps those companies endure. The ability for supply and demand to cause equilibrium though their can be many swings you can see where I’m going with this. Things tend to fix themselves and even in the face of scrutiny they find a way to improve all the individuals’ interests in self preservation.

Link to article

Economic feasibility of amnesty for undocumented workers in the U.S.

Last month, Alex Segura, a member of the Federation for American Immigration Reform (FAIR) special interest group and founder of the Utah Minuteman Project, traveled from his home in Utah to Washington D.C. to protest/lobby for immigration reform. The issue of illegal immigration has and will continue to be a hot-topic for political pundits and candidates as the attention paid to our undocumented friends from the outside ebbs and flows in response to the political climate. One thing is clear, the presence of illegal immigrants affects our social and economic systems and impacts us at all levels of government and commerce in profoundly significant and complex ways.

Since 1986 (when President Regan signed into law SB 1200 which created an amnesty program) it is estimated that there may be as many as 20 million undocumented people in the U.S. at present time with 500,000 more entering illegally each year (although that number may be decreasing with economic recession). It is a little late to try to slam the door for those 20 million people which, to me, is akin to a sunk cost. Will we now throw good money after bad trying to deport illegal aliens?

Illegal immigration cannot be ignored. But is it economically efficient to round ‘em up and put on a bus to Mexico? I think the economic realities of the issue are surprising.

The cost burden of correcting “the problem” will be transferred to government agencies not intended to deal with the scope of work. The Internal Revenue Service will “discourage” businesses (mostly small businesses) from utilizing undocumented labor but that is not really their job or best skill set. The transfer price will be high to law enforcement if given the task of discovering, detaining, and/or deporting 20 million mostly non-violent individuals. If law enforcement is spending time and resource on immigration, there must be a steep opportunity cost to other law enforcement activities. Imagine the impact of non-amnesty on the judicial system. It is mind-boggling to think of our courts trying to deal with the disposition of so many immigration cases. Think of all the frivolous litigation that would have to wait! The U.S. would have to appoint an Immigration Czar and create new quasi-judicial and administrative agencies just to process illegal aliens, if we can catch them. These are avoidable costs. And from a purely economic standpoint it would also destroy the cheap labor underpinnings of our capitalistic system labor inputs would go up causing a leftward shift in supply curve and increasing prices and movement along the demand curve for industries affected by undocumented labor (just about every industry utilizes undocumented labor in some segment).

In an attempt to avoid a bottomless cost center which is pursuing illegal aliens, an amnesty program can actually turn the issue into a profit center. Suppose that in order to get resident alien status with work visa an undocumented worker had to accomplish 4 simple things.

1. Come forward voluntarily and apply for amnesty.
2. Pay a fine/fee of $2,500 for entering the country illegally and to process application.
3. Pass a background screening (to exclude applicants with drug, weapon, violence crime, sex offenses, whatever) and English language proficiency exam.
4. Obtain an employer sponsored bond in the amount of $2,500 per worker to be employed. Now the employer shares the accountability of their hired labor.

Given the economic cost of after-the-fact law enforcement and adjudication of undocumented aliens, advancements in technology that would allow for better management of an amnesty system and a fee structure that could at least off-set the transfer costs of the program, it is more economically feasible to again offer amnesty to undocumented workers in the United States.

Click here for article


Health care reform and costs

I found an interesting article on BusinessWeek's site today that relates to costs, specifically sunk costs, in terms of health care. Top economists are discussing implementing an "individual mandate" requiring individuals to purchase some form of health insurance, or face a fine. If implemented, it would be something similar to requiring people to have car insurance, something that all law-abiding citizens simply accept and don't put up too much of a fuss about.

I don't know about the rest of you, but I treat my monthly cost of car insurance as a purely sunk cost. In Chapter 4 of the text we learned that sunk costs are costs that are commited and therefore unavoidable. All of us purchase car insurance, even though most of us have probably never been in a serious enough car accident to justify the cost of the insurance. Similarly, I think requiring all individuals to have some basic form of health insurance is a smart idea. Even though a lot of us in school right now are young, in good health, and have probably never ended up in the emergency room, there is always the chance of a "serious accident" occuring, which is the point of having insurance. If all of us simply treated the cost of health insurance as a sunk cost, people wouldn't be getting so worked up about health care reform.

The article discusses the right price point for the fine to incentivize people to just buy health insurance coverage rather than having to pay a significant fine. I think that this situation represents an opportunity cost, in the financial sense. Here is a hypothetical situation to help illustrate my point: Let's say you have the choice of purchasing health insurance for yourself for $1000 per year, or you can not purchase health insurance and pay a yearly fine of $600. The opportunity cost of not purchasing health insurance is the chance to save $400 per year. However, let's say you factor in the chance of having a catastropic accident, one that would leave you with $100,000 worth of medical bills if you were uninsured, or $10,000 worth of medical bills if you were insured. Now your opportunity cost of choosing to remain uninsured is a much larger net loss, versus a much smaller net loss if insured. Which would you choose?

This article helped illustrate to me why the health care crisis our country faces right now is so important, both on a macroeconomic level and a microeconomic level, since it stands to impact the lives of every individual as well as the state of the country as a whole.

What do you all think?

Health-Care Reform: The Mandate Debate


Remodel the Store

My father owns his own appliance/electrical business (and the building where it is housed). Recently he undertook the task of remodeling the building that has had the same appearance for a number of years. In the front of his store he runs the appliance business (and in the back the electrical business). The remodel is only affecting the appliance business. He had originally planned to not sell appliances during the remodel, but he was approached by another business owner that wanted to have the option of selling the appliances in a furniture store that he had just opened. Profit would be split 50/50. If my father does not sell appliances during this time, his opportunity cost would be the profit he would earn by allowing this other business owner to sell appliances for him.

Another principle to learn from this situation is that of joint cost – Chapter 7. The furniture store owner needs appliances in his store, but the cost of purchasing the appliances from a major distributor could be quite costly. By combining his resource of space with my father’s resource of appliances, both come out ahead. The appliances and furniture store share joint costs. Even without the appliances, the cost of running the furniture store is present. The profit from my father’s appliances would help offset some of this cost.


NY taxes deapening the recession

I read this article about New York increasing the taxes of the rich to help alleviate the stress of the recession. From reading this article I determined that the state government truly did not evaluate the long term effects increasing taxes would have on the economy. Many of New York's wealthiest residents have now moved from the state taking their businesses and the jobs they create with them. This proves that residency in the state of New York is not nearly as inelastic as the state government had anticipated. By raising taxes the state has decreased the supply of jobs available in the New York area. Rather than improving the recession and the unemployment problem the state has only made it worse.

Opportunity Costs in the Simplest Form

As I read through chapter 7 I started thinking more and more about opportunity costs. I tried to come up with a real complex example of a real world experience that could apply to most people, well, besides the opportunity cost of going quitting a job and earning a degree which is in most textbooks. But I face an opportunity cost almost every 3-day weekend. I grew up in a small town in Northern Utah where it takes about 6 hours to drive home to see my family. From Cedar City, you can make it to the beach in 6 1/2 hours. I love seeing my family but I also love hanging out on the beach.

The book defines an opportunity cost as the net revenue from the best alternative course of action. In my situation of either going home or to the beach I replace the word revenue with benefit. So this is how I weigh my difficult decision: Gas to each place is about the same, the weather is almost always better in San Diego, and going to California seems like more of a road trip and different experience then going home. So on a 3-day weekend, I usually go to Huntington Beach or San Diego instead of home. It's not that I love the beach more than my family, it's just that the opportunity cost is better. What are some opportunity costs that others in the class face?



The Psychology of eBay

This posting refers to the paragraphs in Chapter 1 which deal with bounded rationality. This concept reveals that people do not always follow a logical path in their decision-making when purchasing goods. There are several reasons this happens. I found an article over the psychology of buying on eBay and the results were very interesting. There are two ways to buy on eBay: by auction, or the buy-it-now feature which allows one to immediately buy the product at a set price if there are no bids already placed on it. The study found that people usually pay around 7% higher in 51% of the auctions than the buy-it-now price. This is because they are basing their decisions on something rather than the price. They may get caught up in the competition, or they may be basing their decision on other factors which are sometimes not relevant such as the seller rating as compared to another.

The solution to this problem is to look at the buy-it-now price and decide if we would be willing to pay the price listed. If not, using eBay’s maximum bid function which allows us to set a maximum bid on the item, we should place a bid lower than the buy-it-now price and not bid again. This is because we are presumptuously stating with the maximum bid that that price is the highest price we are willing to pay. If the price goes over that, then we should look for a new auction. If we continue bidding, then we could lose money by going over the buy-it-now price, which we already decided was too much at the beginning.

I am not exempt from the numerous fallacies presented in the article. A couple of months ago, I bought a printer and put my bid actually above the buy-it-now price. I could have just bought the product and not worried about losing the item. I would encourage all eBay buyers to read the article, even though it is a little long.



Apple As A Monopoly..?

As I was reading through chapter 8 of the textbook, the idea of a current Monopoly really struck me. Apple. The idea of a monopoly is that they have market power. Or more generally, they have they power to block entry for other companies trying to enter the market. Monopoly set prices in the market by by setting the price, and letting the market determine how much to by. Or they decide how much to sell and let the market determine the price at which they will buy the quanity.
In an article I read, Apple has been compared to Microsoft as being a Monoploy, holding the seller pricing power, and putting up barriers for others to enter the market. The basic idea is that Apple (i-tunes) basically holds all the market power in that industry. The article is unbasis because it also states a different point of view; i-tunes as a monolopy killer. It was interesting for me to look at both sides of Apple and think about what it means to be a Monopoly, and if in fact Apple (i-tunes) is one.
The article states, "A monopoly does not refer to the popularity of a product, but rather the control of a market."
The article is mainly about Apple, but it also refers a lot to Microsoft, and what happens to the market when a Monoploy goes bad. It takes apart the myth of Apple being a Monoploy or a failure. Here is the URL for the article if anyone wants to check it out. http://http://www.roughlydrafted.com/RD/Home/E36929A1-EA70-493B-B823-DCCEA85DAF54.html