Burgers Beware

This article here states that Cargill is recalling 850,000 pounds of hamburger that may have E. coli contamination. The news of this bacteria possibly being in the market may disrupt hamburger and other meat sales in the short-run. One company, Topps Meat, has completely shut down due to the costs associated with taking back 22 million pounds of ground beef.

The market scare will reduce the demand (shifting it back) and the suppliers will suffer. Strangely enough, the price may actually increase since the supply of uncontaminated meat will be more scarce and hamburger is an inferior good. A main factor that may deter the possible price increase will be the availability of substitutes, but their price may increase because of the sudden increase in demand.

Big Music Smiles

In this article here Big Music is smiling as a Minnesota jury ordered that Jammie Thomas, a 30-year-old single mother is responsible to pay $9,250 X 24 songs ($222,000) that she uploaded to Kazaa (a file-sharing program). There are a reported 26,000 similar trials to take place in the future.

What is the point in requiring an exorbitant amount of money from a single mother, who clearly cannot pay the fine, and force her and her children into bankruptcy and/or welfare? Is it really that important that you make a poster child of a young mother in such a blatant manner? Will this really deter file-sharing on a large scale as Big Music is hoping, or will it actually spurn file-sharing to reorganize and find safer ways to push more stuff? Humans are funny in the way that they love to push the envelope to see how far they can go or what they can get away with.

Big Music is hoping that sanctions on individuals like this will move the supply of illegal music sharing back, but I do not think that it will. As long as there is a demand, there will be a supply.

A-Rod Economics

While I don't follow baseball a lot nor do I particularly care for A-Rod I found this blog covering the economic costs of A-Rod to his team. Scott Boras states that his client is worth $30 million a year for the next ten years. His reasoning is that A-Rod brings more people to the stadium to watch the games, and that he increases the viewers on Yankee's YES network. Boras is stating that A-Rod increases the demand for the Yankee's, overall increasing total revenue.

The blog also calculates the economic cost of A-Rod's salary to the Yankee's revenue. Stating that his economic costs are 2.3% of the value of the team. Compared to Barry Bonds (and does not play everyday) who's economic cost to the Giant's is 3.4% of the teams value. In the end A-Rod's economic cost is lower than other high profile player on other teams, and for the Yankee's the new deal would be a bargain.

Sector Snap: Solar-Power Stocks Drop

After reading this article I was reminded of when fellow classmates would ask our teacher back in middle and high school, "When will we ever use this in real life"? Well, here is a real life case I can now say has helped to save me some money in the stock market.

It turns out that surging demand has bid up the price of polysilicon which is used in the solar wafers, which are in turn used in semiconductors. This in turn has caused the solar panel producing companies (which have been a good investment recently) to report bad quarters and to estimate poor quarters in the future. This in turn has caused the demand of solar stocks to fall, because the stock price has fallen.

It is good to finally be able to find a real life scenario for those topics that I learn in class. It makes me want to listen better so that I don't miss out on other opportunities and/or events that will have an effect not only on my life, but on my wallet as well.

The Economics of Gold-Digging

This is a fun article that presents many economics principles in an extremely entertaining way. It all begins when a New York woman posts a profile on a singles dating website simply stating that she is a beautiful woman and wants to marry any man that makes a large amount of money. A man writes her back and gives her the most interesting response. He points out that this trade of beauty for money is a losing deal for him in a free market, and thus he should be justly compensated if he enters into this deal. This is because while income is, on average, an appreciating asset, beauty is an accelerated depreciating asset. Thus, he would only consider entering this trade if he was able to lease, “date,” not buy, “marry,” this woman. I think that if all relationship could be dealt with in such a logical manner, the dating world would be a lot easier to deal with. Unfortunately though, this is not how it works. Maybe some day!

Random Thought

Illegal immigration is an issue that our government is not quite sure of how to handle. If this is such a serious problem though, you think that our government would stop subsidizing one of the largest industries that harbors and employees these illegal immigrants then. Yes, I am talking about the agricultural industry. I think the government should stop subsidizing agricultural goods. It would not only do a great deal of good for that particular industry, but it would also result in less demand for the labor of illegal immigrants. Therefore, such a policy could end up killing two birds with one stone.

Competition within Europe

Since the creation of the European Union, citizens of this partnership have been allowed to work and live in any country that is a part of the Union. Recently though, countries in the European Union have had to start competing for citizens by lowering their individual countries’ tax rates. This has been a great thing for those countries that have been able to lower their rates enough to compete for citizens. For those countries that are not capable of lowering taxes, this has been a nightmare. I wonder though, are the tax savings that one receives from a country the largest determining factor in what country one chooses to live in, or are there other factors, like freedom, that could change this?

If God Were an Accountant…Whose Life is Worth more, a Drug Dealer of a Prostitute?

What is the value of a human life? Many economists in the past have put a dollar value on a human life based on the amount of lost wages that would arise if one died earlier than expected, but this article disagrees with this type of measurement. Lost wages only shows the value that an employer places upon the life of an individual, but it does not show what the individual personally values his/her life at. Therefore, this article states that the true value of a human life should be measured based upon the amount of risk a person is willing to accept in exchange for a certain amount of money. I think this is a great way to determine the amount of money that an individual life is worth, because it is the best way to measure the exact amount that the person valued his/her life at. Risk versus return, it makes sense to me.

Are Husbands Really Like Potatoes?

Women today are making more of their own money and are relying less on men for financial support than at any other time in history. With this large increase in women’s income, economists are now trying to figure out whether or not the demand has increased or decreased for husbands. Thus, they are trying to figure out whether husbands are normal or inferior goods. Though most women would state that they think that husbands, and men in general, are inferior goods, this article states that they are actually normal goods. Who would have thought?

Next Stop: $100 Oil?

I don't know why I watch the price of oil so closely. Perhaps it is because I'm the owner of a gas guzzling pickup truck and I have become more aware of the rise as the gas pump prices and total price of a tank of gas increase. As I've watched this run up in oil prices, I've wondered if we would ever get there...you know, $100 per barrel oil. In this article, several explanations are provided that show why we will likely get there and why our demand may not really support a price for oil that high.

Some analysts suggest that it is simply a matter of global demand increasing, and supplies throughout the world tightening, but I don't think that is the case because the article states that "the Energy Dept. reported Oct. 17 that inventories of crude and gasoline rose more than analysts had expected."

Some analysts suggest that the price is spiking in anticipation of future events that may disrupt supplies, tightening the supply. Perhaps....

Others feel that hedge funds and other institutional investors are simply chasing profits by buying oil futures in hopes that the price would shoot through the roof.

Whatever the reason, I feel deep down that we will probably see a cutback in the demand for oil and gas in the future and hopefully that will bring our prices back to a more reasonable level.

Whatever happens, Kade is looking a lot smarter driving the moped to school and work as the price looks as if it will increase to new record levels.

The consumer buying binge is over

This article shares the author's view that consumers are out of money, and that creditors are less likely to give them more. He is predicting that consumers will now buy less and that the economy will suffer for it. Although he is not predicting a recession, he states that 'one wouldn't surprise me.'

Are American consumers really out of money? Will the gluttonous spending habits of the recent past subside and 'practical budgeting' among consumers take over?

Personally, I feel that American consumers will justify a short extension to their gluttony through the holidays in order to maintain the perception that they are not in financial trouble. I am reminded of the television commercial where the guy is smiling much bigger than a person normally would, and states under his breath, 'look at my huge house and nice car...I am in debt up to my eyeballs...someone please help me.'

Our ambition to have more than the next guy will push us farther into consumer debt through the holidays. This will make 1st quarter 2008 an even greater dilemma as all of the credit card bills come due and American consumers finally realize that they don't have enough money to pay for it.

So I agree with the author that market indicators point to the consumer being out of money, I just don't think that the consumer is ready to admit it to themselves yet. The demand curve will artificially be maintained close to its current position, at least until 1st quarter 2008. Then I would agree that it will shift backward as consumers will be less willing to pay for the same level of supplied goods/services. Suppliers are forecasting this as well and will produce less since the demand will be for a lower quantity. The price may stay relatively the same; there will just be less available.

Housing decline expected to last to 2009

This article really hit home for me because it directly affects my livelihood because of the slowing of the housing market it discusses. Several factors have contributed to the slowing of the housing market which has created a glut in the supply of homes, moving prices downward. The article suggests that the current trend is expected to continue through 2009 and possibly through 2010.

I see this as a classic example of the effects of supply and demand in our market. Demand was created when the Fed cut interest rates making housing more affordable. People and lenders reacted by buying up the available supply of inventory quickly causing a shortage of homes. Builders (and everyone that owned a truck) responded by bringing huge numbers of homes to the market to satisfy the demand that was created. I actually think a good portion of the demand was artificially created by out of town speculators hoping to flip the homes for a quick profit; and the early movers did make a profit. Soon, supply outpaced demand as the prices increased and the interest rates were raised by the Fed, causing a glut of homes and causing the prices to fall.

I hope that the government lets some of these speculators and sub-prime lenders fall on their financial faces. I feel much the same as the test question on our last iClicker quiz suggested about bankruptcy not being a totally bad thing. It will weed out the weak suppliers and will help our market get back to basics and help turn our market around. It may be painful, but I feel it is a necessary step in the circle of our economic lives.

A Burst of Speed at Lamborghini

This article shows how Lamborghini has created brand loyalty for their cars and increased demand for them. Audi bought them out and poured in money to increase production and reliability on Lamborghini’s line up. This has made a more favorable reputation for the cars. They have also doubled the number of showrooms since 1998. The result is increased demand for their cars that has helped them create a desired shortage. This helps keep the price up on their specialty cars.

What To Do With A Wine Surplus?

These two articles explains that there is a surplus of wine in Europe. Over the past few decades consumers have decreased their drinking habits and new competitors have entered the market from the US and Australia. Currently European governments are subsidizing grape farmers to help them get through a difficult period as wine sales get harder. Now they are suggesting that they distill the wine surplus into an alcohol that can be sold at 1/10 of the normal price, and they want to destroy many of the grape vines to get rid of the future surplus. Why don’t the winemakers just sell the wine surplus for less money? Why do they have to distill it into alcohol in order to get rid of it? It seems to me that in most situations when you have a surplus, you can cut your prices and get rid of it. I am sure that Americans will buy the French wine if it is half the price of the US for the same or better quality. Also, it does not make any sense to me why they would rip out perfectly good grape vines. That is just stupid. Why don’t they either just stop harvesting the grapes, or still harvest them, but not for wine? Why would you waste money and man-power to actually rip out the vines unless you were going to use that soil for something more profitable? I think that it is ridiculous to pay/subsidize farmers to produce something that no one wants just to keep the farmers going. That may help the farmers transition into a different job, but it is only a short term solution. Hello! The world is going through a change. Let nature do its thing. They are just going to have to sell their product for less and get out of the business, or try to find a special niche.

Inflation and the Minimum Wage

This article here states that a new minimum wage has been set and will increase to $7.25/hour by 2009. These articles here and here discuss how, contrary to some opinions, inflation is not affected by minimum wage increases. So how what is the relationship between the two?

"In the past decade, inflation has depleted the value of the minimum wage to the lowest level in more than 50 years," according to the first article. It seems that minimum wage increases are actually symptoms of inflation, not the other way around.

The other two articles discuss how inflation is affected by monetary policy enacted by the FED, and that the real pain of minimum wage increases are the workers that are the least employable. If an employee was barely worth the previous minimum wage, they do not 'magically' produce all of a sudden in a manner worthy to be compensated at the new wage level. Many of that group will loose their jobs if their employer cannot afford to pay the new wage.

Hence, the law that was passed to 'help the poor and less fortunate' may actually be hurting them, especially since the indicated inflation is already devaluing the few dollars they had before they were unemployed.

Universal health care or alternatives

This seems to be a big topic right now, especially in the political ring. The Salt Lake Tribune recently ran an article about an idea along these lines. The article says that the insurance would actually be purchased from the private market but at affordable prices. The idea is to create a "stock exchange" where individuals would use pretax money and employer premiums to purchase their coverage. The exchange would not be a government entity but a non profit entity. The plans would also follow the individual and not change with job changes. The backers of this idea claim that it would increase competition between insurance companies which would drive the cost down. The article goes on to discuss more details and how the plan would be funded.

This was a new idea that I thought was interesting and I am curious to learn more about it. I think that the traditional idea of universal health care in theory is a good idea, but the execution is tough because it decreases the incentive for the actual health care providers. I had a friend who lived in Canada for a few years who had some pretty negative experiences with their health care system. His roommate had his scrotum bitten by a dog (this is a true story) and they had to visit 3 hospitals and wait almost 5 hours for treatment because none of the doctors knew what they were doing.

Our health care system definitely has problems and needs to be fixed. How to fix it is the real question.

Inelasticity of Potatoes

After I reviewed the research conducted by the United States Potato Board, I was surprised by the results. However, after review of the research, I agree with the Board that potatoes can be fairly inelastic. The consumption of potatoes in the United States is very high and substitutes for potatoes may be easy to find, but substitutes like instant potatoes are not good.

Since many consumers of potatoes think they pay more for potatoes than they actually pay, the increase in price of potatoes would not significantly decrease the demand for potatoes to a certain point. According to the research, prices could increase by a significant amount with little decline in demand. Yet, I am not sure if I agree with the article on significant changes in price. Although potatoes may be fairly inelastic with small increases in potato prices, I also believe that if the price is increased significantly that demand will become very elastic. I can also see how significant price changes in potatoes would not decrease demand since most consumers are willing to pay more for potatoes without a decrease in demand. Are potatoes really as inelastic as the article claims? I think that the article is very convincing, but I am not completely convinced.

A recent CNN article discussed the market for pork in China. Declining numbers of pig farmers, higher costs of feed, and a disease that killed thousands of pigs dramatically decreased the supply of pigs in China. The price of pork has risen significantly and is being blamed in a large part for the rising inflation rate. The government has decided to release pigs from its reserves to help combat these high prices and the rapidly increasing inflation.
With these abnormally high prices for pork, you would think that there would be plenty of incentives to being raising pork or importing it from elsewhere. The problem is that the government has frozen prices and is trying to enforce those price ceilings. Essentially they are hurting the market by not allowing it to adjust itself. If they were to allow the price to rise high enough, either demand for pork would decrease because no one would want to pay that high of a price, or the supply will increase as new and existing suppliers raise more pigs to sell as the rewards will be great with the current prices.
The government needs to quit intervening and allow the supply and demand to adjust and fix themselves.

Ticket Scalping Law in Missouri

The state of Missouri is trying to get a bill passed to legalize the scalping of sporting event tickets. Ticket scalping is a type of free market where suppliers, ticket scalpers, that have extra supply, tickets, are trying to sell to buyers who have a demand for the tickets that these suppliers have. The buyer and seller negotiate on the price of each ticket purchased. This results in each transaction that takes place maximizing the amount of buyer and supplier surplus that occurs. Therefore, all that Missouri is really trying to do is to allow the free market to rein without regulation.

There’s No Such Thing as a Free Pretzel

Airlines have recently started to charge for the amenities that they use to offer their passengers for free. These amenities include snacks, drinks, pillows, etc. The company has found that the typical airline traveler would rather have a less expensive ticket price than a twenty cent bag of crackers. There are some airlines though, Continental, that have not followed this industry trend. Therefore, many people think that with flying with a company like Continental that they are getting not only cheap air travel but also a free snack. Is that snack really free though? Most of the airlines that are still offering these complimentary snacks are not making as direct of flights as the companies that are eliminating the snacks. Thus, an airline traveler spends a great deal more time traveling for that twenty cent bag of crackers. Even though people are not paying for the crackers with their ticket prices, they are paying for them with their time. For me, I say keep your crackers, just get me to my destination faster.