Monday, February 22, 2016

Chinese Price Ceilings and Prescription Drugs

The Wall Street Journal reports that China will be removing price controls on prescription drugs.  As demonstrated in Prin. of Microeconomics, price controls (price ceilings) result in a decrease in output produced by firms and while they may increase consumer welfare (depending on the impact of the difference between the gains consumers receive from lower prices and the losses consumers face from less consumption); price ceilings are welfare (i.e. economic well-being to society) reducing.  The article above points this out as competition will likely increase due to the removal of price ceilings and thus put downward pressure on drug prices.

Tuesday, February 2, 2016

India's Diesel Pricing Policy Change

The Wall Street Journal reports that India has changed their diesel fuel pricing policy and moved from a pricing policy that is essentially a per unit subsidy to letting diesel prices being determined by market forces.  In Principles of Microeconomics I examine the economic welfare of a per unit subsidy and show that while producers and consumers are better off in terms of surplus that the government is worse off, and that the loss to the government is greater than the aggregate gains to the consumers and the producers.  Given the substantial expenditures that the government of India is incurring, the policy is changing from government administered pricing to market driven pricing.

Monday, September 14, 2015

Web Price Discrimination

The Wall Street Journal reports on research showing that firms charge people different prices depending on operating system and whether they used a mobile device.  In Industry Analysis we talk exactly about this type of potentially profit maximizing behavior, which in economics is called price discrimination or variable pricing.  In this case here we have group pricing, where firms have a profit maximizing incentive to charge customers in more price inelastic groups higher prices than customer who are more price elastic.

Tuesday, August 4, 2015

Chinese Milk Market

The Wall Street Journal has a good article on how changes in demand and supply have been impacting the import prices of milk over the last few years.  As you can see in the article increases in demand lead to higher milk import prices and then lead to an increase in the supply of milk by domestic and foreign producers - such as in New Zealand.  As supply increased the amount of milk imported into China fell dramatically - as did milk import prices.  With Russia banning European food products prices decreased again.  As a result domestic milk producers are culling dairy cows in order to reduce losses from the lower prices.  Additionally, notice that domestic producers are also trying to diversify their cattle for meat as opposed to only for milk.

Tuesday, May 26, 2015

Glass Recycling

In my Environmental Economics course I have a section of the class on the economics of recycling and part of that covers the economics of recycled glass.  The Wall Street Journal has a good article on the difficulties of making glass recycling economically feasible.

As the article states, there is definitely demand for recycled glass from glass manufacturers and there is plenty of supply from consumers, the problem is in the collecting, sorting and transportation of recycled glass.  Since much glass is mixed with other recyclable products or debris causing the cost of providing recycled glass to glass manufacturers to dramatically increase.

From the theory of the firm, we know that as marginal costs shift upwards, firms have a profit maximizing incentive to decrease production; and that is exactly what the article linked above is showing.  Some areas are refusing to allow glass to be collected as a recyclable or asking residents to bring the glass to a central location or just throw the glass in the trash.

Monday, April 6, 2015

Prison Communication Monopoly

The New York Times reports that prices for cell phones, emails and wire money transfers are "sky-high" and the reason is a lack of competition.  In fact in some cases, the private firms that are providing these services are the prisoner's only options, meaning for that list of customers, they are monopolist's, and as I demonstrate in Prin. of Microeconomics, firms that are monopolists have a profit maximizing incentive to charge higher prices than firms in more competitive markets.

Thursday, April 2, 2015

Electricity Production

Electricity producers are changing from nuclear power to natural gas powered due to the decline in the price of natural gas.  Notice that as natural gas prices decrease so does the marginal cost of producing electricity.  When marginal cost's decline this can shift the supply of electricity to the right which results in a decrease in the electricity prices.  As electricity prices fall some electric producers are choosing to shut-down higher operating costs plants.