Friday, January 30, 2015

Normal Good: Farm Machinery

The Wall Street Journal reports that farm incomes are expected to fall in 2014.  As a result the demand for new farm machinery is also expected to fall, which means that farm machinery is a normal good.

Friday, January 23, 2015

Resources and Scarcity

Today in Principles of Microeconomics I introduce the first economic model of the course called the production possibilities frontier.  It is a very simple model of economic activity to mainly demonstrate the idea of an opportunity cost from making a production choice.

One of the implications of the production possibility frontier is scarcity, given the assumption of fixed resources.  Over time if resources are fixed, then production must fall due to the decline in resources available to produce goods and services.  Here is an excellent article questioning why using more resources may not cause scarcity from an economic perspective.

Wednesday, January 21, 2015

Does an Inexpensive Wedding lead to a Longer Marriage?

In Principles of Microeconomics, one of the topics I talk about on the first day in class is the difference between correlation and causation.  Correlation is a measure of how close two variables move together and causation is a way to saying that a change in one variable results in a change in another variable.  Here is an interesting application of this correlation vs. causation distinction:  wedding costs and length of marriage.

Monday, November 10, 2014

Media Merger Wave

In class, I mention that using the Stackelberg leader model that there is an incentive for leaders to keep merging, which helps explain merger waves.  Here The New York Times gives us an example of a merger wave in the media industry, and if the merged firms can keep their market share then this fits with the Stackelberg leader solution to the horizontal merger paradox.

Monday, November 3, 2014

Food Distribution Merger

The Wall Street Journal reports that the two largest US food distribution firms (Sysco and US Foods) are merging.  In economics when firms in the same industry merge, we refer to this as a horizontal merger, and there are specific criteria that the US government antitrust authorities look at with horizontal mergers.  The big question to be answered is whether the merger will increase or decrease consumer welfare.  In this case the consumer is a firm such as a restaurant or hotel.  Thus what is the economic impact of the merger on the prices that restaurant's or hotel's have to pay for the food they purchase from this merged firm (or other competitors).

Monday, October 13, 2014

Jean Tirole Nobel Laurautte

Jean Tirole is the newest Noble Laureate in Economics.  Much of his work revolves around Industry Analysis and there are a number of articles from the Economist you can read at the end of the link above.