tag:blogger.com,1999:blog-49418834035693814042024-02-20T16:13:37.576-06:00Hawkonomics<center>Relating Economic Theory and the Real World</center>@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.comBlogger255125tag:blogger.com,1999:blog-4941883403569381404.post-91757091769905851962016-02-22T07:06:00.000-06:002019-06-20T12:41:06.114-05:00Chinese Price Ceilings and Prescription Drugs<a href="http://www.wsj.com/articles/china-plans-to-lift-price-controls-on-drugs-1425520528">The Wall Street Journal reports that China will be removing price controls on prescription drugs</a>. 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.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-49076400914241095822016-02-02T07:19:00.000-06:002019-10-19T18:20:00.186-05:00India's Diesel Pricing Policy Change<a href="http://www.wsj.com/articles/india-frees-diesel-prices-from-government-control-1413648469">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</a>. 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.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-70561316261202298332015-09-14T07:08:00.000-05:002019-06-20T12:48:42.676-05:00Web Price Discrimination<a href="http://www.wsj.com/articles/why-you-cant-trust-youre-getting-the-best-deal-online-1414036862">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</a>. 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.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-82429882826084745162015-08-04T15:46:00.000-05:002019-10-12T18:14:04.615-05:00Chinese Milk Market<a href="http://www.wsj.com/articles/chinese-dump-milk-as-prices-fall-1424385450">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</a>. 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.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-65032778158237124252015-05-26T13:44:00.000-05:002019-10-12T20:47:35.967-05:00Glass RecyclingIn 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. <a href="http://www.wsj.com/articles/high-costs-put-cracks-in-glass-recycling-programs-1429695003">The Wall Street Journal has a good article on the difficulties of making glass recycling economically feasible</a>.<br />
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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.<br />
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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.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-19104873350992349522015-04-06T08:03:00.000-05:002019-11-22T20:52:45.694-06:00Prison Communication Monopoly<a href="http://www.nytimes.com/2014/06/27/business/in-prisons-sky-high-phone-rates-and-money-transfer-fees.html">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</a>. 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.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-65402283856108258552015-04-02T08:09:00.000-05:002019-10-12T20:47:35.993-05:00Electricity Production<a href="http://online.wsj.com/news/articles/SB10001424127887323644904578272111885235812">Electricity producers are changing from nuclear power to natural gas powered due to the decline in the price of natural gas</a>. 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.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-33672061368377081812015-02-20T08:33:00.000-06:002019-10-12T15:45:36.033-05:00Willingness To Pay For Luxury Goods<a href="http://online.wsj.com/news/articles/SB10001424052702304585004579415110604829016">The Wall Street Journal reports that as the price of luxury goods have been rising, wealthy consumers have been less willing to pay for those goods</a>, which is the law of demand. We also can infer that consumer surplus is also falling since some consumers are dropping out the market completely.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-32060746640524058992015-02-02T07:22:00.000-06:002019-10-12T18:14:04.476-05:00Change in Demand and a Change in Quantity Supplied<a href="http://online.wsj.com/news/articles/SB10001424127887323798104578453174022015956">The demand for hummus (which uses chickpeas) is increasing, leading hummus producers to find new suppliers for chickpeas as reported in The Wall Street Journal</a>. Notice that from the demand and supply model, the demand for chickpeas is shifting out to the right resulting in an increase in the quantity supplied of chickpeas.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-11218033883683945392014-09-26T07:22:00.000-05:002019-06-20T13:01:08.841-05:00Channel Bundling<a href="http://rodsportseconomics.blogspot.com/2014/08/channel-bundling-and-those-bastard.html">Rod Fort gives an excellent argument for bundling cable channels</a>.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-88817854195512721582014-09-22T12:16:00.000-05:002019-10-19T19:34:41.561-05:00Two-Part Pricing for the San Francisco 49ers<a href="http://www.mercurynews.com/southbayfootball/ci_26064012/49ers-sell-out-levis-stadium-few-single-game">The San Francisco 49ers are using two-part pricing (aka two part tariffs) in their pricing of seats for football games at the new Levi stadium</a>.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-86532148608046387722014-09-20T07:43:00.000-05:002019-07-11T10:55:42.523-05:00Various Pricing StrategiesIn class I have been talking about various pricing strategies that firms use ultimately to increase their profits or to meet some other objective (such as entering a new market). <a href="http://socialnetworkinglab.com/2010/01/04/pricing-strategies/">Here is a (incomplete) list of pricing strategies and some additional details on some of them</a>.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-55454702232525372872014-09-08T07:21:00.000-05:002019-10-19T19:34:41.503-05:00Historical Perspective on the Reserve Clause<a href="http://theespnwatch.wordpress.com/2014/07/05/a-voice-from-the-grave/">Here is a blog on some of the discussion by then MLB Commissioner Bowie Kuhn on the removal of the reserve clause and the demise of MLB</a> along with the current comments about NCAA athletes pay.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-90276371177354529132014-08-26T07:23:00.000-05:002019-07-03T13:54:18.005-05:00Economics and Statistical AnalysisI have been teaching a course called Sports Economics for over 15 years, meaning that I am old. In the teaching of this course, I require the students to read a plethora of peer-reviewed economic research that employs statistical analysis. Each semester I take a full class period to review a topic called linear multivariate regression and then build on that as the semester moves forward, with the realization that my Sports Economics course is NOT a course on statistics but uses and analyzes a plethora of statistical concepts. As a help, I have decided to include some links on statistics that occur in Sports Economics.<br />
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First, the course is based on regression analysis using the subject called econometrics. Here is <a href="http://www.cbsnews.com/news/how-do-economists-figure-out-how-the-world-really-works/">a great piece by Thoma on in how economists use econometrics and why</a>. Once a statistical analysis has been performed, <a href="http://www.bloombergview.com/articles/2013-05-01/six-ways-to-separate-lies-from-statistics">Stevenson and Wolfers explain what should you be looking for in terms of the big picture as to whether this is important or even interesting</a>.<br />
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In terms of tying some of this statistical terminology to everyday thinking, here are some helps:<br />
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The <a href="http://marginalrevolution.com/marginalrevolution/2014/05/type-i-and-type-ii-errors-simplified.html">difference between Type I errors (false positive) and Type II errors (false negative)</a>.<br />
Examples of <a href="http://www.tylervigen.com/">spurious correlations</a> (i.e. variables that are correlated, but have nothing to do with each other).<br />
A nice <a href="http://www.nature.com/news/scientific-method-statistical-errors-1.14700">critique of only using p values in statistical analysis</a>.<br />
How some <a href="http://mchankins.wordpress.com/2013/04/21/still-not-significant-2/">state insignificant (p-value) results</a>.<br />
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Using <a href="https://www.youtube.com/playlist?list=PLCkLQOAPOtT1xqDNK8m6IC1bgYCxGZJb_">dance to explain some statistical concepts</a>.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-30357369065204141852014-07-18T07:18:00.000-05:002019-06-20T13:08:54.950-05:00The Economics of Plastic Bag<a href="http://online.wsj.com/news/articles/SB10001424127887324906304579037071126867890">The Wall Street Journal has a really good article on the economics of plastic bags</a>. Specifically, we have an industry where an input (polyethylene) is about 70% the costs of plastic bags and that the supply of polyethylene is increasing due to increases in the supply of US natural gas production, and yet the price of polyethylene is also rising. This could be due to differences in the price of producing natural gas from shale and fracking as opposed to traditional production - meaning that natural gas production costs are increasing as natural gas output increases. Likewise we could have limited competition on the production of polyethylene, and this result in higher prices, or there could be different demands between the US and international markets (say due to higher competition) resulting in higher prices. I do not have access to the data, but this does seem like a conundrum. @StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-80469194234487508792014-07-01T07:46:00.000-05:002019-10-19T17:31:48.445-05:00Movie Theater Demand and Revenue<a href="http://online.wsj.com/news/articles/SB10001424052702303949704579461813982237426">The Wall Street Journal reports that the price of movie theater tickets increased and the number of people that went to a movie decreased</a>, which is the law of demand. Movie theater owners are considering decreasing ticket prices (one day a week), which is also consistent with the law of demand. Yet at the same time movie theater revenues increased which would mean that movie theater consumers are price inelastic.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-13430252621344688652014-06-24T15:39:00.002-05:002019-12-10T21:27:33.075-06:00Airline Routes are Declining<a href="http://online.wsj.com/news/articles/SB10001424127887323687604578469160553588132">The Wall Street Journal has a good article on the decline in the number of routes (flights) here in the US from different sized airports</a>. Suffice it to say that smaller airports have had bigger drops in the number of departures than larger airports. Declining demand, increasing costs have lead to increased consolidation leading to higher prices.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-57291630973377383382014-06-16T08:31:00.000-05:002019-10-12T18:17:57.844-05:00Chinese Car Production Subsidies<a href="http://online.wsj.com/news/articles/SB10001424052702304422704579571863054872766">The Wall Street Journal reports that various branches of the Chinese government are subsidizing auto manufacturing</a>. One of the problems that we see in Prin. of Microeconomics of subsidies is that they give incentives to firms to "over-produce", meaning that the amount of output produced is more than can be sustained. As you can see in this article, that is exactly what is happening.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-45839046894197503162014-05-12T07:50:00.000-05:002019-07-04T09:39:28.212-05:00The Music Industry's Income InequalityOne of the topics covered in the Principles of Microeconomics text is income inequality. Unfortunately, I run out of time in the class to discuss this issue, but given it is finals weeks, <a href="http://blogs.wsj.com/economics/2013/06/12/winner-take-all-economy-mirrors-music-industry/">here is an article arguing that the US economy's income inequality is similar to the music industries income inequality</a>, where the top 1% of music performers take about 56% of concert revenues and the top 5% of music performers take about 90% of concert revenues. The US economy is not this distorted, but the top earners are taking more of the overall income "pie" over the last few years.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-51320683553093451662014-05-02T07:00:00.000-05:002019-07-03T12:27:49.906-05:00Automobile Insurance IncentivesIn terms of choosing to purchase or not purchase automobile insurance - even though it is required by state law, the rational criminal will weight the costs and benefits at the margin to determine if it is "worth it" to purchase the insurance. Typically, the cost is a fine and that may be less than the annual liability insurance policy. Thus the individual weights the probability of being caught and the fine plus court costs against the costs of the insurance. If the former is less than the latter, then the individual rationally chooses to not purchase automobile insurance. This is exactly what the rational choice crime model proposes, and what you will find in this <a href="http://online.wsj.com/news/articles/SB10001424052702303281504579221972801700610">Wall Street Journal article on uninsured drivers</a>.<br />
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The article goes forward with how to change the policies so that the costs of not purchasing insurance rise or the benefits of suing without automobile insurance fall, all designed to increase the number of individuals choosing automobile insurance.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-40593116782268727102014-04-28T07:09:00.000-05:002019-06-20T13:06:38.065-05:00Input Market Substitutes<a href="http://online.wsj.com/news/articles/SB10001424052702303983904579093252573814132">The Wall Street Journal has an interesting article on input market substitutes for health care patient sedation: using a machine to sedate patients instead of a anesthesiologist</a>. Economically we can address which is more cost efficient if we take a look at the marginal product of each per dollar spent on each input and choose the one that has a higher marginal product per dollar in cost.<br />
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In the article we see that anesthesiologist's cost between $600 to $2000 per procedure and the machine would cost $150. If the marginal product is similar, then the machines are substantially more cost-efficient.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-9537767134590488492014-04-23T08:06:00.000-05:002019-06-20T13:24:44.941-05:00Antitrust and Airline Merger<a href="http://online.wsj.com/news/articles/SB10001424127887324769704579010612415800106">The Wall Street Journal reported last year that the US government (i.e. the Justice Department) moved to block a proposed airline merger between US Airways and American Airlines</a> on the grounds that the merger would hurt consumers (increase prices and reduce consumer welfare).@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-24320559728594415682014-04-22T07:28:00.000-05:002019-06-20T13:24:44.781-05:00Entry in Ground Delivery Oligopoly<a href="http://online.wsj.com/news/articles/SB10001424052702304773104579266682206635994">The Wall Street Journal has a nice article looking at new regional ground package delivery as entry to the US ground package delivery oligopoly of UPS and FedEx</a>.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-72327217465768287262014-04-16T07:38:00.000-05:002019-10-19T18:17:34.539-05:00Product Differentiation & Craft Beer<a href="http://www.nytimes.com/2014/01/19/business/craft-beer-the-very-limited-edition.html">The New York Times has a good article on how one craft beer producer is restricting output as their business model</a>. Craft beer is a niche beer market that survives on product differentiation, which as you read the article linked above you will find that Hill Farmstead Brewery has in abundance. Thus, the decision to only sell locally will reduce the ability to make more profits, but continue to keep the perceived value of the product high. This trade off between high quality and high output is a classic component of a firm in a monopolistically competitive market. To be profitable the firm's output has to be very different (typically produce something that customers value different from others) or the firm has to produce enough of the product to make it slim margins on the product.@StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0tag:blogger.com,1999:blog-4941883403569381404.post-75943151127321309092014-04-14T07:17:00.000-05:002019-10-19T18:24:28.281-05:00Starbucks Pricing in China<a href="http://online.wsj.com/news/articles/SB20001424052702303902404579148871471212170">The Wall Street Journal has a story on Starbuck and latte pricing in China</a>. Basically, Chinese customers feel that the price is too high. Unfortunately, the article linked above does not have the price breakdown graphic that was in the print edition, so I will put that information here.<br />
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Other Operating Expenses = 0.23<br />
Equipment Costs = 0.17<br />
Tax = 0.24<br />
General & Administrative = 0.28<br />
Labor = 0.41<br />
Raw Materials = 0.64<br />
Store Operating Expenses = 0.72<br />
Rent = 1.25<br />
Profit = 0.85<br />
Price = 4.80 (does not add up to 4.79 due to rounding)<br />
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So given the information above, we can see that Starbucks has market power in that they are able to charge a price above their marginal costs. Some of the costs above are fixed (Rent, General & Administrative are two good examples) and some are variable costs (Raw Materials, Tax are two good examples). Thus since the price is greater than marginal cost, this product is profitable to Starbucks. @StaceyLBrookhttp://www.blogger.com/profile/11129892039482068498noreply@blogger.com0