Im going off tangent for this short piece, unusally huh, but i wanted to soak in some of creative responses you guys have shown me for this assignment, and I will hopefully stay on line with the economic peculiarities discussed in these two books. I found a book at the thrift store i work at, which is basically a cross-section of the languages of the world and how ours evolved from other Indo-European branches. Mario Pei, in his book The Story of Language, sheds light onto some of the topics that you have brought to the surface, including economics. Part of his research focuses on many different aspects of the culture of business throughout time, however being written in 1949, it was almost a premonition of how much language would impact the consumers world in a world of advertising. Namely, that products and services which capture the consumers delight through something so simple as its name and the reputation it builds through marketing would be the decider of who rises to the top of fortune 500's.
In an excerpt from his book, he states that "several theories are current among linguists today, but with the distinct understanding that they are as yet unproved and, in the nature of things, probably unprovable. They have been given picturesque names, which proves that linguists, too, can be imaginative on occasion. The "bow-wow" theory holds that language arose in imitation of the sounds occurring in nature. A dog barks; his bark sounds like bow-wow to a human hearer. Therefore he designates the dog as bow-wow. The "ding-dong" theory is to the effect that language at first consisted of spurts of surprise, fear, pleasure, pain, etc. It is often paired with the "yo-he-ho" theory to the effect that language arose from grunts of physical exertion, and even with the "sing-song" theory, that language arose from primitive inarticulate chants. The "ta-ta theory that lanaguage comes from imitation of bodily movements is further exemplified in the Darwinian belief described above.
In Pei's approach to language, it becomes more clear to me anyway, that some of the most successful companies of the internet boom reached their apex because of their name, not so much as the goods they offered. Upon reaching their initial gold vein, they were then able to focus their capital on truly improving their products or services. Google.com would be an example of the sound of a baby makes, on the cusp of forming words, yet very new to the world and trying to make sense of a God-given ability, also the symbolic sound of 0's and 1's, which to the average mind- is, well, mindblowing. Amazon.com - this name just sounds looooonnnnngggg, full of just about every sound it seems, every creepy critter crawler, which gives the consumer an idea of what the company might offer before spending sleepless nights browsing the sight building a massive shopping cart knowing full well theres only pennies in the pockets. There are many more out there, but just as people carefully choose the names of their kids, sometimes even changing it after birth after deep pondering, companies that can find the name that appeals to their target audience are more able to ignite a trend and build a lasting reputation and profitable business.
To me a new product, even if innovative and unheard of, is only half the challenge. Finding a name for it, one that like Pei says, symbolically brings some sense of satisfaction and a feeling for the customer of being "involved" in the inventors revolution, "involution" i guess, is only half the adventure. Doctors and medical workers i've noticed are surfing the Croc craze, as their job requires extreme comfort for their feet and standing long hours in their work, and if we haven't learned yet, crocs are about the toughest, sometimes cranky, creatures on earth. Names, in all actuality, breathe life into creation. Could you imagine it any other way? I can't.
May 16, 2008
May 15, 2008
gas prices: upward sloping supply curve?
as fuel prices are endlessly racheted higher and higher, I sometimes have trouble seeing any drop in usage. I can only assume that gas in extremely inelastic.
I wonder if perhaps we have come to a developmental plateau as a society. I wonder if in the ensuing couple of months and years and decades, if we will see a back-slide in our economy's technological advancement.
A lot of economic models assume that cost will merely rise as the something (say gas) i more greatly used and with this increasing price, more people will enter the supply side of the market.
A lot of Economic models do not assume a vericle supply in both short and long term. I would hypothesys that that is what is happening. The demand curve is moving ever to the right and intersecting an ever high part on the verticle S curve. Eventually this will diminish an found supplies dwindle and are stockpiled by fearful hoarders wanting for themselves. They will be reluctant to sell because they know they can get an ever-higher price. They never see it falling in price so they won't sell.
As these supplies dwindle and are hoarded, wonder if we will backslide as a world, national and local economy to more local and isolated areas of activity, less specialization across countries and less sprawl as people will want to bike and walk (and maybe horseback ride) to work.
I wonder if perhaps we have come to a developmental plateau as a society. I wonder if in the ensuing couple of months and years and decades, if we will see a back-slide in our economy's technological advancement.
A lot of economic models assume that cost will merely rise as the something (say gas) i more greatly used and with this increasing price, more people will enter the supply side of the market.
A lot of Economic models do not assume a vericle supply in both short and long term. I would hypothesys that that is what is happening. The demand curve is moving ever to the right and intersecting an ever high part on the verticle S curve. Eventually this will diminish an found supplies dwindle and are stockpiled by fearful hoarders wanting for themselves. They will be reluctant to sell because they know they can get an ever-higher price. They never see it falling in price so they won't sell.
As these supplies dwindle and are hoarded, wonder if we will backslide as a world, national and local economy to more local and isolated areas of activity, less specialization across countries and less sprawl as people will want to bike and walk (and maybe horseback ride) to work.
economics naturalist: Relationships
Why does the "Nice guys finish last Axiom hold?
In College dating and relationships hold a lot of importance among students. For many people it is really their first chance to be out and away from a lot of parental super vision. It is their first chance for many to date whomever they wish without parental judgment.
The problem plaguing many, myself included at times. is that I am aften among many female friends who complain to me about those they date but do not consider me a dateable option. Assuming a desire to be self-improving I do not know what to make of females actions which seem to be self-harming.
My hypothesis is that in a sense it is self improving. before people can acheive rationality and a better grasp of how to improve welfare in dating, women need to "improve" themself in the sense that they need to prove to themselves as a "babysitter." They see a benefit of appearing as a good guy in such a relationship. It is greater than putting up with the cost of being with someone they cannot stand.
Beyond this, there is the assymetric information failure. They see someone they like and either irrationality or decption causes them to ignore or be "oblivious" to the faults. This is assymetric information because the guy has no intention of changing but puts forth the fallacy that he will.
In College dating and relationships hold a lot of importance among students. For many people it is really their first chance to be out and away from a lot of parental super vision. It is their first chance for many to date whomever they wish without parental judgment.
The problem plaguing many, myself included at times. is that I am aften among many female friends who complain to me about those they date but do not consider me a dateable option. Assuming a desire to be self-improving I do not know what to make of females actions which seem to be self-harming.
My hypothesis is that in a sense it is self improving. before people can acheive rationality and a better grasp of how to improve welfare in dating, women need to "improve" themself in the sense that they need to prove to themselves as a "babysitter." They see a benefit of appearing as a good guy in such a relationship. It is greater than putting up with the cost of being with someone they cannot stand.
Beyond this, there is the assymetric information failure. They see someone they like and either irrationality or decption causes them to ignore or be "oblivious" to the faults. This is assymetric information because the guy has no intention of changing but puts forth the fallacy that he will.
April 29, 2008
Why do American car companies change the name of their car models so much?
With only a few exceptions, it is very noticeable that the names for American cars change rather consistently. Call it American ideology and lust for something “new” or whatever, the reality is that a name or even an entire model of a car lasts for minuscule amounts of time among the “big 3” auto makers in this nation. Whereas foreign companies will keep a model around for decades, (i.e. Corolla, Civic, Accord, Tacoma, Legacy, Forester, etc.) American companies have this consistent tendency to change a model name of a car about every 6 years. This seems strange at first because it negates the opportunity for brand recognition within a manufacturer reputation. So for the foreign companies that keep car names around the longest, they are creating cult followings for not only their company as a whole but also for vehicles within their fleet. One example of this is Subaru. Recently, Subaru completely redesigned the Forester. A car that once was a boxier version of the Outback wagon and gave a sort of sporty SUV feel to the station wagon genre has now become similar to a Ford Explorer. And despite a complete overhaul it maintained the same name as previous. Why? Because people identify quality, safety and economy with the Forester name so there is no reason for Subaru to give that away and have to spend tons of money convincing people that this car should have the reputation of the Forester. Rather they can avoid all of that with simply keeping the Forester name.
However, you just don’t typically see this inside of American auto sales. A mirror change and some rounded bumpers constitute a name change for a number of vehicles in America. Why? Because most of those vehicles that have constant name changes aren’t worthy of name brand recognition and if they did carry a long lived legacy, it would be a bad one. In other words, those cars gain a reputation for sucking. So rather than actually make a good vehicle what do the genius American car companies do? Change the name!!!!! “Discover the all new _______” they say, as if to try and convince you that this vehicle with a different name is much better than its predecessor. To put it plainly, nothing bad is worth keeping. When a car develops a bad name, Ford, GM and Dodge just change the bad name and start over with a fresh one. Same car, new name, and six years later their stock is right back where it was.
However, you just don’t typically see this inside of American auto sales. A mirror change and some rounded bumpers constitute a name change for a number of vehicles in America. Why? Because most of those vehicles that have constant name changes aren’t worthy of name brand recognition and if they did carry a long lived legacy, it would be a bad one. In other words, those cars gain a reputation for sucking. So rather than actually make a good vehicle what do the genius American car companies do? Change the name!!!!! “Discover the all new _______” they say, as if to try and convince you that this vehicle with a different name is much better than its predecessor. To put it plainly, nothing bad is worth keeping. When a car develops a bad name, Ford, GM and Dodge just change the bad name and start over with a fresh one. Same car, new name, and six years later their stock is right back where it was.
Why do fast food restaurants not allow “walk throughs”?
Many times I have found myself on my bike riding around town in the late evening and craving a burrito or a large fry. Yet as I saunter on up to the door of Taco Bell, I find that the dining room is closed. But wait… the drive through allows me to “eat great, even late.” Oh but actually, that is only for those with cars. Even though my bike is classified for law purposes as a street vehicle, I’m classified as a walk up at Taco Bell. And thus I am turned away with the response that due to corporate rule they cannot accept my business without me being in a vehicle. So why is this? Why would fast food restaurants turn away business just because I am not within the confines of a motor vehicle?
One reasoning I was given via a plastic sign at Wendy’s drive through window is “for the safety of the drive through employees, no walk ups are allowed in the drive through.” So evidently I’m more likely to shoot and rob an employee standing there on foot and be able to get away if I’m outside of a vehicle?! Yeah right, I don’t buy that for a second.
The conclusion I was able to come to is that it all surrounds control of the premises. Taco Bell doesn’t mind if you get food outside the store in a car because you are most likely going to take it off of their premises and eat and dispose of your garbage somewhere else so they don't have to deal with it. Likewise, when you sit down at the restaurant indoors, there are very convenient garbage receptacles that accommodate an easy clean up for the restaurant. The system then works very well as long as they can for the most part control how garbage is disposed within a limited area. However, for someone that comes walking up to the drive through… the likelihood is high that they will simply sit down on the curb in front of the store or in the grass in the median and eat right there. What does this mean? Even if the store were to put a garbage receptacle outside the store, the environment is much less controlled outside because of the unlimited space and additional factors like wind. Now the store has to deal with not only cleaning garbage on their own property but they have to deal with complaints from the gym across the street that ketchup packets were left on their lawn, etc. So in the name of cleanliness… drive your car! I bet that’s one you won’t hear very often.
One reasoning I was given via a plastic sign at Wendy’s drive through window is “for the safety of the drive through employees, no walk ups are allowed in the drive through.” So evidently I’m more likely to shoot and rob an employee standing there on foot and be able to get away if I’m outside of a vehicle?! Yeah right, I don’t buy that for a second.
The conclusion I was able to come to is that it all surrounds control of the premises. Taco Bell doesn’t mind if you get food outside the store in a car because you are most likely going to take it off of their premises and eat and dispose of your garbage somewhere else so they don't have to deal with it. Likewise, when you sit down at the restaurant indoors, there are very convenient garbage receptacles that accommodate an easy clean up for the restaurant. The system then works very well as long as they can for the most part control how garbage is disposed within a limited area. However, for someone that comes walking up to the drive through… the likelihood is high that they will simply sit down on the curb in front of the store or in the grass in the median and eat right there. What does this mean? Even if the store were to put a garbage receptacle outside the store, the environment is much less controlled outside because of the unlimited space and additional factors like wind. Now the store has to deal with not only cleaning garbage on their own property but they have to deal with complaints from the gym across the street that ketchup packets were left on their lawn, etc. So in the name of cleanliness… drive your car! I bet that’s one you won’t hear very often.
April 27, 2008
Car buying: new or used?
Car buying: new or used?
What is the difference between buying a new car and a used car? The obvious answer if that one has been owned and used by other drivers and the other has not been owned before. The other difference is the price; a new car will be much more expensive than a used car. The difference that holds value for many people is that most new cars have a manufacturers’ warranty whereas a used car most likely will not come with a warranty. A warranty can be bought for new cars, give the condition at the time of sale, but will be expensive and not have the same coverage as the manufacturer’s warranty.
Obviously a new car is a new car and will most likely be free of any mechanical or other problems. A new car is a bit of a mystery because the previous owner might have taken great care of it, horrible care, or mediocre care of the vehicle. They amount of care a car is provided will determine how well it will work down the line. We all know that oil changes are recommended every 3,000 miles, and some of us are very diligent in having the oil changed, and some of us are very lazy or might not have enough money to have the oil changed regularly. This is just one way a car can be taken care of or not taken care of. New cars are also a mystery because it is hard to know at the time of purchase how many times the car has had mechanical problems or been in an accident, or flood, etc. You might even say that buying a new car is a crapshoot.
New cars are more expensive than used cars and there are two main reasons for this: one of course is that it is brand new, and second is that there is no history of damage or misuse. Many people prefer to buy a new car over a used car for the peace of mind that it should work like brand new and other people just like having a new car for the sake of having a new car. There are many of us that are somewhere in the middle, and therefore have a difficult time deciding whether to buy new or used. A used car will initially save a lot of money, and the insurance will be less expensive etc. The question that leaves many of us on the fence is: Will this car break down; is the transmission good, etc.? You can certainly as the same questions about a new car, because it is entirely possible that there is a manufacturer problem and the minute you are off of the car lot it breaks down.
The warranty is the deciding factor for many because new opposed to used will not only provide a new car that no one has ever owned but will also provide the peace of mind that even if there is some manufacturer problem and the car breaks down the minute you buy it is will be repaired for free. Warranties have many different time frames and mileage limits on the coverage but the minimum will usually cover you for four years or more and up to 50,000 miles. This all means that as long as the car is serviced according to the manufacturers’ specifications, most all parts of the car are replaceable for free, providing you have not done something to damage them. Warranties available for used cars are usually not as extensive and will only cover certain parts. There may also be a deductible for any repairs.
So which is better, the new more expensive car or the used car? What if we suppose that the price difference can be at least $5,000? How do we decide? The decision can be dependent on how much money a person has to spend, but that doesn’t always hold true.
Why do people choose to use illegal drugs when they are expensive and dangerous?
Why do people choose to use illegal drugs when they are expensive and dangerous?
It is common knowledge that illegal drugs like cocaine, heroin and methamphetamines are extremely expensive, yet so many people fall prey to this addiction even if they cannot afford to. From a cost benefit perspective drug addicts feel that the benefit of getting high is more than the cost. Many times the drugs become the most important purchase, and they find themselves in debt and are forced to start selling their belongings just to make ends meet.
Drug addicts also choose the benefit of getting high over good health. They do not consider the consequences of later health problems or even death when they decide to use drugs. Drug use is very dangerous and harmful on the brain, heart, and many other organs of the body. There is also an increased risk of contracting a disease like Hepatitis B or HIV/Aids from sharing needles and unsafe behavior practices.
Trying to make a drug addict understand the affects of their behaviors is extremely difficult and rehabilitation services are almost always needed. Rehabilitation services are also very expensive and are also not thought of as possible consequences when first deciding to take the drugs. It is hard to imagine why some people become drug addicts when it seems like common sense to stay away from drugs. Is education enough to prevent drug use, or will people always let their curiosity lead them down a dangerous path that they know they should not be on. Is the cost of the consequences less than the high? The answer is no.
It is common knowledge that illegal drugs like cocaine, heroin and methamphetamines are extremely expensive, yet so many people fall prey to this addiction even if they cannot afford to. From a cost benefit perspective drug addicts feel that the benefit of getting high is more than the cost. Many times the drugs become the most important purchase, and they find themselves in debt and are forced to start selling their belongings just to make ends meet.
Drug addicts also choose the benefit of getting high over good health. They do not consider the consequences of later health problems or even death when they decide to use drugs. Drug use is very dangerous and harmful on the brain, heart, and many other organs of the body. There is also an increased risk of contracting a disease like Hepatitis B or HIV/Aids from sharing needles and unsafe behavior practices.
Trying to make a drug addict understand the affects of their behaviors is extremely difficult and rehabilitation services are almost always needed. Rehabilitation services are also very expensive and are also not thought of as possible consequences when first deciding to take the drugs. It is hard to imagine why some people become drug addicts when it seems like common sense to stay away from drugs. Is education enough to prevent drug use, or will people always let their curiosity lead them down a dangerous path that they know they should not be on. Is the cost of the consequences less than the high? The answer is no.
April 25, 2008
Why would people purchase used items on ebay, but choose to shop in second hand stores?
I know quite a few people who purchase things online and do not think anything of it, but when you ask them if they shop in a store like Goodwill, their faces tend to say it all. So, why are we willing to purchase items online having never actually physically held them, versus looking and holding them in person? One very simple answer could be that if certain items go to Goodwill, then they might not have even been worth the person’s time to try to sell. They are just not good enough. If you’re willing to just donate it, then why would someone take the time to go in and purchase the item?
Another simple answer could be that since many people donate items to places like Goodwill so they are less likely to go in there because they know that they donated “junk.” I know that one man’s junk is another man’s treasure, but what makes the items online so much more worthy of our dollars? People’s preferences are given, and in that sense it is hard to change the way that people think about shopping second hand or shopping online for that matter.
There is also the issue of convenience. If you can just do a simple search online to find what you are looking for you have almost instant results but you have to wait for shipping, whereas if you are shopping in stores to find the items it may take a little bit more effort. Maybe the comparison of shopping online versus shopping in secondhand stores is too limited. In fact many people opt to just shop online over shopping in physical stores for a lot of different items, not just used ones.
One of the biggest drawbacks to shopping online is not knowing what kind of quality you will get when you actually receive the items. When you are in a store, you can very often easily tell if the quality is good or bad. When purchasing items online there is the issue of asymmetric information so there is very little certainty about the condition of the goods, and people often end up paying somewhat more money to try to help guarantee that they will be satisfied in the end. In dealing online people face the issue of adverse selection and moral hazard. If there are two items that appear to be completely identical online, and have very similar descriptions, some people who are risk averse will pay more merely because they think that they have a better chance at getting just what they were looking for. It seems that if you can buy any item in person whether it is at a second hand store or brand new, you will likely be better off in the end. But for those looking for the possibility of a better deal and a small gamble there is always eBay.
Another simple answer could be that since many people donate items to places like Goodwill so they are less likely to go in there because they know that they donated “junk.” I know that one man’s junk is another man’s treasure, but what makes the items online so much more worthy of our dollars? People’s preferences are given, and in that sense it is hard to change the way that people think about shopping second hand or shopping online for that matter.
There is also the issue of convenience. If you can just do a simple search online to find what you are looking for you have almost instant results but you have to wait for shipping, whereas if you are shopping in stores to find the items it may take a little bit more effort. Maybe the comparison of shopping online versus shopping in secondhand stores is too limited. In fact many people opt to just shop online over shopping in physical stores for a lot of different items, not just used ones.
One of the biggest drawbacks to shopping online is not knowing what kind of quality you will get when you actually receive the items. When you are in a store, you can very often easily tell if the quality is good or bad. When purchasing items online there is the issue of asymmetric information so there is very little certainty about the condition of the goods, and people often end up paying somewhat more money to try to help guarantee that they will be satisfied in the end. In dealing online people face the issue of adverse selection and moral hazard. If there are two items that appear to be completely identical online, and have very similar descriptions, some people who are risk averse will pay more merely because they think that they have a better chance at getting just what they were looking for. It seems that if you can buy any item in person whether it is at a second hand store or brand new, you will likely be better off in the end. But for those looking for the possibility of a better deal and a small gamble there is always eBay.
Why is a glass of water, at a restaurant, ‘free’?
Why is a glass of water, at a restaurant, ‘free’?
When ones goes to a restaurant (except during a drought) one gets a glass of water with ice on the table, much like the silverware and napkins. Yet, if a glass of ice tea or soda is ordered then bill increases. However, the cost difference, to the restaurant, is only cents different. Why doesn’t the restaurant give free tea or soda? Why does it give the water?
Waters ‘free’ in my house. The is no usage charge when I drink for a public fountain or a private firms water. Yet there is a real cost to water: however many cents per gallon. A small fee, but a fee none the less. This then begs the question; is every item on the menu already built with the cost of water into it? Each item does have the cost to produce the item, clean the dish and serve that ‘free’ glass of water. But, if I walk into the restaurant and order a muffin, does the muffin have the whole cost of the glass of water served to me? If so then what if I order a muffin and a sandwich. Each item has the cost of the ‘free’ glass of water built into the price, but if I only drink one glass of water I am paying not to drink another glass of water.
Instead of allowing me to decide if I want to pay for my glass of water they are already charging me for it. I don’t get my money back if I refuse the glass of water either. This would set up an incentive for each person to then drink as much water as possible because the cost of consumption is already in the price of the meal (until saturation point). Why stop at water?
Why don’t restaurants hand out ‘free’ soda or tea to the customers? This, as far as I can tell, is only because of rational ignorance and perceived value/savings. Well waters ‘free’ so it must not be as good as soda or tea, therefore the restaurant can charge a much higher differentiated price for the two items.
Next time you enter a restaurant remember that everything you order has another product attached to it, that ‘free’ glass of water.
When ones goes to a restaurant (except during a drought) one gets a glass of water with ice on the table, much like the silverware and napkins. Yet, if a glass of ice tea or soda is ordered then bill increases. However, the cost difference, to the restaurant, is only cents different. Why doesn’t the restaurant give free tea or soda? Why does it give the water?
Waters ‘free’ in my house. The is no usage charge when I drink for a public fountain or a private firms water. Yet there is a real cost to water: however many cents per gallon. A small fee, but a fee none the less. This then begs the question; is every item on the menu already built with the cost of water into it? Each item does have the cost to produce the item, clean the dish and serve that ‘free’ glass of water. But, if I walk into the restaurant and order a muffin, does the muffin have the whole cost of the glass of water served to me? If so then what if I order a muffin and a sandwich. Each item has the cost of the ‘free’ glass of water built into the price, but if I only drink one glass of water I am paying not to drink another glass of water.
Instead of allowing me to decide if I want to pay for my glass of water they are already charging me for it. I don’t get my money back if I refuse the glass of water either. This would set up an incentive for each person to then drink as much water as possible because the cost of consumption is already in the price of the meal (until saturation point). Why stop at water?
Why don’t restaurants hand out ‘free’ soda or tea to the customers? This, as far as I can tell, is only because of rational ignorance and perceived value/savings. Well waters ‘free’ so it must not be as good as soda or tea, therefore the restaurant can charge a much higher differentiated price for the two items.
Next time you enter a restaurant remember that everything you order has another product attached to it, that ‘free’ glass of water.
Why do banks give out new cars loans so easily and used car loans so strictly?
Why do banks give out new cars loans so easily and used car loans so strictly?
I see at least 10 finance deals a day on new or used cars. A car that has been previously titled is considered used. Every time a used car comes up our bank raises its interest rates and requires more income and a higher credit score to process (also the length of the loan is shorter). Further, if the car is too old then the bank will not finance. Why?
What is the incentives for the bank to process newer car loans better? One reason is the incentives. The bank knows that if it keeps the rates for new cars low the new car dealers will continue to bank with it. Yet from the banks perspective if the income from used transactions matched new transactions wouldn’t it just be a wash for the bank? A clear advantage is seen then by the new car dealer: the rates and requirements are lower and therefore they are more likely to seem more attractive to customers.
I think this comes to one of the reasons that banks do these deals and setup the incentives for consumers: rational ignorance. When the person goes out to purchase the vehicle they focus on interest rates and monthly payments. What if instead they focused on the amount of interest paid. The rate may then not be as important and the length and amount of loans may be smaller. Since people are convinced that rate is important and focus on rate and it is viewed as a smart buying decision to focus on rate the total finance charge is ignored (largely).
This shows why banks are going to offer lower rates on the new cars because typically they are going to be more expensive and therefore make the bank a larger total finance charge. The requirements being higher are related to this system. If the bank makes the loans further unattractive for the customers then it will push them into a new car loan. I think one final issue is present here as well.
The bank is acting on moral hazard assumptions. An older car maybe close to the end of its warranty (or already past it). The bank looks at this situation and figures that if the car fails then the person may have a certain interest in simply stop paying. So the bank guards against this default by setting the incentive structure as such; however, credit scores do illustrate a slight problem. Even if the person does default they are effected in everything else they do including trying to buy a replacement car. So this doesn’t appear as quite as big of a reason.
Until there is some incentive for the banks to change their structure, very unlikely, the incentives for the people is to buy new.
I see at least 10 finance deals a day on new or used cars. A car that has been previously titled is considered used. Every time a used car comes up our bank raises its interest rates and requires more income and a higher credit score to process (also the length of the loan is shorter). Further, if the car is too old then the bank will not finance. Why?
What is the incentives for the bank to process newer car loans better? One reason is the incentives. The bank knows that if it keeps the rates for new cars low the new car dealers will continue to bank with it. Yet from the banks perspective if the income from used transactions matched new transactions wouldn’t it just be a wash for the bank? A clear advantage is seen then by the new car dealer: the rates and requirements are lower and therefore they are more likely to seem more attractive to customers.
I think this comes to one of the reasons that banks do these deals and setup the incentives for consumers: rational ignorance. When the person goes out to purchase the vehicle they focus on interest rates and monthly payments. What if instead they focused on the amount of interest paid. The rate may then not be as important and the length and amount of loans may be smaller. Since people are convinced that rate is important and focus on rate and it is viewed as a smart buying decision to focus on rate the total finance charge is ignored (largely).
This shows why banks are going to offer lower rates on the new cars because typically they are going to be more expensive and therefore make the bank a larger total finance charge. The requirements being higher are related to this system. If the bank makes the loans further unattractive for the customers then it will push them into a new car loan. I think one final issue is present here as well.
The bank is acting on moral hazard assumptions. An older car maybe close to the end of its warranty (or already past it). The bank looks at this situation and figures that if the car fails then the person may have a certain interest in simply stop paying. So the bank guards against this default by setting the incentive structure as such; however, credit scores do illustrate a slight problem. Even if the person does default they are effected in everything else they do including trying to buy a replacement car. So this doesn’t appear as quite as big of a reason.
Until there is some incentive for the banks to change their structure, very unlikely, the incentives for the people is to buy new.
Why do some products only become popular when attached to a new movement?
Around 6 or 8 years ago compact florescent light bulbs were introduced on the American market. The ad campaign for these bulbs billed them as long lasting bulbs. These light bulbs were something that you could buy and not have to replace for about 5 years. Since our house has 10 foot ceilings and a light fixture expertly placed above the 2nd stair form the top, my Dad went out and bought some compact fluorescents so that he would have to bring the later up and try to lean it against the wall while on the top and 2nd stairs and hope he didn’t fall every year.
Recently, compact florescent light bulbs have been on the market billed as energy efficient and environmentally friendly. Their popularity has flourished. Hybrid cars have experienced the same type of thing though theirs is swinging between cost efficient and environmentally friendly. The hybrid car came on the market as the environmentally friendly way to drive. They were first only popular with certain groups of people, as parodied on South Park, but have since become exceedingly popular due to the rise in fuel costs. What I want to know is why do some perfectly cost effective products only become popular when social sentiment changes?
The compact florescent bulb is a perfect product. It saves energy, and it rarely needs to be replaced, so it is not a time consuming product to have. I have one in a lamp and it has been there for years and works just the same as it always did. As far as cost saving, I don’t really care. But I love that I never have to think about my light bulb. As for fuel efficient cars, I really don’t understand how anyone could not want one. I’m not going to rally against big cars, but everyone is always looking for little ways to save money and that is a huge one.
Hybrid cars came out in groups. The Toyota prius was most popular with yuppie types and as gas prices and Al Gore’s influence rose, they became more popular with the general public. What is interesting is that not all hybrid and fuel efficient cars took off in quite the same way. Lexus had a hybrid that came out several years ago and has recently been remarketed because of rising fuel costs. This particular hybrid was not popular for its cost effectiveness. It has only become popular because of the craze to save the environment and money at the same time.
Why is happening? The reason, I think, is that people often do not want their outside image to reflect something other than popular sentiment. I light bulb that lasts 5 years is great, but unless you are like my Dad and bought a house where the light fixtures were not well thought out, why spend the money. But when energy costs go up and it becomes popular to save the environment again, you feel like you have to be seen with compact fluorescents. The same thing happens to cars. When gas is cheap, nobody cares about the cost to fill up. But as public perception of global climate changed again, and gas prices went quickly skyward, everybody wants a more fuel efficient car. And they complain about damage to the environment by emissions and drilling for oil, however, if asked most people would not vote for or use public transportation. We only car about the environment as long as it is convenient. But at least now I can get a car that doesn’t require so much time wasted at the gas pump. I guess really, it isn’t about cost at all, just convenience.
Around 6 or 8 years ago compact florescent light bulbs were introduced on the American market. The ad campaign for these bulbs billed them as long lasting bulbs. These light bulbs were something that you could buy and not have to replace for about 5 years. Since our house has 10 foot ceilings and a light fixture expertly placed above the 2nd stair form the top, my Dad went out and bought some compact fluorescents so that he would have to bring the later up and try to lean it against the wall while on the top and 2nd stairs and hope he didn’t fall every year.
Recently, compact florescent light bulbs have been on the market billed as energy efficient and environmentally friendly. Their popularity has flourished. Hybrid cars have experienced the same type of thing though theirs is swinging between cost efficient and environmentally friendly. The hybrid car came on the market as the environmentally friendly way to drive. They were first only popular with certain groups of people, as parodied on South Park, but have since become exceedingly popular due to the rise in fuel costs. What I want to know is why do some perfectly cost effective products only become popular when social sentiment changes?
The compact florescent bulb is a perfect product. It saves energy, and it rarely needs to be replaced, so it is not a time consuming product to have. I have one in a lamp and it has been there for years and works just the same as it always did. As far as cost saving, I don’t really care. But I love that I never have to think about my light bulb. As for fuel efficient cars, I really don’t understand how anyone could not want one. I’m not going to rally against big cars, but everyone is always looking for little ways to save money and that is a huge one.
Hybrid cars came out in groups. The Toyota prius was most popular with yuppie types and as gas prices and Al Gore’s influence rose, they became more popular with the general public. What is interesting is that not all hybrid and fuel efficient cars took off in quite the same way. Lexus had a hybrid that came out several years ago and has recently been remarketed because of rising fuel costs. This particular hybrid was not popular for its cost effectiveness. It has only become popular because of the craze to save the environment and money at the same time.
Why is happening? The reason, I think, is that people often do not want their outside image to reflect something other than popular sentiment. I light bulb that lasts 5 years is great, but unless you are like my Dad and bought a house where the light fixtures were not well thought out, why spend the money. But when energy costs go up and it becomes popular to save the environment again, you feel like you have to be seen with compact fluorescents. The same thing happens to cars. When gas is cheap, nobody cares about the cost to fill up. But as public perception of global climate changed again, and gas prices went quickly skyward, everybody wants a more fuel efficient car. And they complain about damage to the environment by emissions and drilling for oil, however, if asked most people would not vote for or use public transportation. We only car about the environment as long as it is convenient. But at least now I can get a car that doesn’t require so much time wasted at the gas pump. I guess really, it isn’t about cost at all, just convenience.
Paper Please!
I have never understood why “plastic” is so much better than “paper” in the check-out line. The two most common justifications I have heard are “plastic is recyclable” to “plastic doesn’t kill trees.” Well, let’s use some economic reasoning to rip apart these justifications.The most obvious point is that paper bags are just as recyclable as plastic bags are, but very few bags, paper or plastic, are actually recycled. What happens to the “recyclable” bags that aren’t recycled? They end up in a landfill. Paper bags are better there, because they are also biodegradable, which gets to the economic argument of this point.
Landfills cost money. Plastic bags last forever. I know that one plastic bag takes up very little space, but the 100 billion plastic bags tossed away each year add up, and huge amounts of economic resources go into maintaining those plastic bags, forever (at least for the 1,000 years it takes for a plastic bag to break down).
But what happens to the plastic bags that are blown away or littered? National Geographic and PBS have recently reported that many of those bags make their ways to rivers, lakes, and oceans and end up in the bellies of wild animals, taking away space for food and leading to malnutrition and sometimes even death. Out in the Pacific Ocean, there is a huge toilet bowl-like water system twice the size of Texas that draws discarded plastic into a huge pool, and some animals in that region have even begun recognizing plastic as viable food sources.
As terrible as this all sounds from a sympathy perspective, from an economic perspective, it is just as troubling. Wildlife funds and environmental clean-up programs must now pump millions of dollars toward cleaning up areas in which the plastic bag pulp, made up of tiny pieces of plastic bags that often outnumber plankton, is depleting fish populations. The decrease in fish then has a ripple effect on the global fish market, a huge source of revenue for many developing coastal nations. Instead of all those millions of dollars going toward other earth-friendly programs, like helping to develop viable fuel alternatives or helping to limit desertification of potential farmland in Africa, it goes toward cleaning up “recyclable” plastic bags.
So, let’s all use paper bags, because even if we don’t recycle them, we won’t contribute to the decline of developing countries’ primary source of revenue. Okay, so farmed forests aren’t as ecologically friendly as wild forests, but this problem seems much less significant on a global scale than dumping BILLIONS of plastic bags, that last forever and have to go somewhere, into landfills and bird bellies. I'm not saying that deforesting the Amazon Rain Forest is the way to go, but recycling paper bags and replanting farmed forests seems like the more sustainable option.
http://www.salon.com/news/feature/2007/08/10/plastic_bags/
Why don't people consistently clip coupons and use them to save money?
It's hard to believe that such a large population of people would pass up the chance to keep even just a small portion of money. Why don't people just take a small amount of time to clip out coupons from the newspaper for items they know that they will need to purchase?
For some people the answer could be as simple as laziness, but is it just that? Many people who don't clip coupons might contend that their time is more valuable than the potential savings. Why wouldn't someone take the time to flip through the sale paper for maybe twenty or thirty minutes to save a total of around say five or ten dollars? Often times the best coupons can be found in the Sunday morning paper so then the question could be whether to save money at some time in the future or to relax and take a nap now. The opportunity cost of clipping coupons and losing a nap is too high, and those who are unwilling seem to be somewhat less sensitive to prices.
So some people may feel that their time is better spent napping than it is cutting coupons. What about the rest of the people, what are their reasons? If the potential money that shoppers can get back is not enough to give them the incentive to cut the coupons, then maybe they feel it is a wast of time and effort. They know that in the end when they go shopping they won't even have all the coupons they clipped when they go to purchase their items. Some shoppers may also chose not to cut coupons because they may then just purchase new items that they don't ordinarily use or need, but they will still get them at a discounted rate. The coupons are merely a signal to buy.
Some people might not clip coupons because they also have rules or stipulations that make them somewhat less easy to use. Most coupons have expiration dates, or offers that are only valid when more items are purchased. The phrase, "buy one items, and get a second item of equal or lesser value free," is common and familiar to many shoppers. The buy one get one free or half off idea is a great way to market to consumers who are looking for that good deal, but it may once again lead to excess spending. These types of coupons encourage overbuying or unnecessary purchases. Good for the seller, bad for the buyer. Some people may just take advantage of the savings on their own and share the wealth by bargaining with a friend. "I'll buy this shirt and get another one for half off in your size and then we'll split the total cost between us." It is in a sense a type of savings trade which benefits both parties and leaves everyone potentially better off than they were before the transaction.
With all the coupons out there, one can only guess why many consumers choose not to take advantage of the savings. For people who have the patience, time, or need there are a multitude of opportunities to find and use coupons for substantial savings.
For some people the answer could be as simple as laziness, but is it just that? Many people who don't clip coupons might contend that their time is more valuable than the potential savings. Why wouldn't someone take the time to flip through the sale paper for maybe twenty or thirty minutes to save a total of around say five or ten dollars? Often times the best coupons can be found in the Sunday morning paper so then the question could be whether to save money at some time in the future or to relax and take a nap now. The opportunity cost of clipping coupons and losing a nap is too high, and those who are unwilling seem to be somewhat less sensitive to prices.
So some people may feel that their time is better spent napping than it is cutting coupons. What about the rest of the people, what are their reasons? If the potential money that shoppers can get back is not enough to give them the incentive to cut the coupons, then maybe they feel it is a wast of time and effort. They know that in the end when they go shopping they won't even have all the coupons they clipped when they go to purchase their items. Some shoppers may also chose not to cut coupons because they may then just purchase new items that they don't ordinarily use or need, but they will still get them at a discounted rate. The coupons are merely a signal to buy.
Some people might not clip coupons because they also have rules or stipulations that make them somewhat less easy to use. Most coupons have expiration dates, or offers that are only valid when more items are purchased. The phrase, "buy one items, and get a second item of equal or lesser value free," is common and familiar to many shoppers. The buy one get one free or half off idea is a great way to market to consumers who are looking for that good deal, but it may once again lead to excess spending. These types of coupons encourage overbuying or unnecessary purchases. Good for the seller, bad for the buyer. Some people may just take advantage of the savings on their own and share the wealth by bargaining with a friend. "I'll buy this shirt and get another one for half off in your size and then we'll split the total cost between us." It is in a sense a type of savings trade which benefits both parties and leaves everyone potentially better off than they were before the transaction.
With all the coupons out there, one can only guess why many consumers choose not to take advantage of the savings. For people who have the patience, time, or need there are a multitude of opportunities to find and use coupons for substantial savings.
The Cursed National Debt
In the United States today there is a struggling economy. Many economists call upon the U.S. debt as a leading factor. What we need to focus on is the cost-benefit of having a deficit in the United States.
Many economists argue about getting rid of the national debt, or letting it be. Across the board, there is little debate over the fact that the debt is increasing at a rapid rate. However the National debt does serve some purposes that are generlly overlooked. The Federal debt is an economic asset. The economy is the creditor, and for a creditor, debt is an asset. The federal deficit is an economic surplus. This means the economy receives more money from the government than it sends to the government. This can be seen through tax cuts and refunds such as the 2008 economic stimulus plan.
The second thing that the national debt does for our economy is that it relys on the purchase and sale of a government bond. This is how the Fed adds or removes money in our economy, so it can be said that the Fed requires this type of "transaction." On the other side of this "transaction," we have those who would like to buy or sell bonds, such as U.S. citizens, businesses, or even other third party countries. Many are dependant on this relasionship with the Fed.
So to say that we should completely pay off the U.S. debt would be going a little far. We must make this cost-benefit choice of whether to or not to have the U.S. debt. One thing is for certain, and that is the rate that it is rizing. We do not want to be too hasty with paying it completely off, however aside from sarcasm, we don't want to get over our heads with debt. One thing is for certain, we have really put our country in a bind with a cursed national debt.
Many economists argue about getting rid of the national debt, or letting it be. Across the board, there is little debate over the fact that the debt is increasing at a rapid rate. However the National debt does serve some purposes that are generlly overlooked. The Federal debt is an economic asset. The economy is the creditor, and for a creditor, debt is an asset. The federal deficit is an economic surplus. This means the economy receives more money from the government than it sends to the government. This can be seen through tax cuts and refunds such as the 2008 economic stimulus plan.
The second thing that the national debt does for our economy is that it relys on the purchase and sale of a government bond. This is how the Fed adds or removes money in our economy, so it can be said that the Fed requires this type of "transaction." On the other side of this "transaction," we have those who would like to buy or sell bonds, such as U.S. citizens, businesses, or even other third party countries. Many are dependant on this relasionship with the Fed.
So to say that we should completely pay off the U.S. debt would be going a little far. We must make this cost-benefit choice of whether to or not to have the U.S. debt. One thing is for certain, and that is the rate that it is rizing. We do not want to be too hasty with paying it completely off, however aside from sarcasm, we don't want to get over our heads with debt. One thing is for certain, we have really put our country in a bind with a cursed national debt.
I government
| I manage a baseball team. I suppose that an adult-league baseball team could pretty much figure out how to operate without a manager, but there are a few things that might transpire. For one, other teams as roving bandits would in a sense rob and pillage the unmanaged team. Without organization or strategy, a team wouldn't operate as a single unit. Another occurance is that the team without a manager may not see the incentive in acquiring uniforms. If a team does want uniforms, then they'd probably have to each be responsible for purchasing their own which could mean that they may NOT be uniform, OR it would incur some transaction costs of higher per-item price with whatever purveyor of uniforms than if they were bought in a group. Also, there is implied that one or few people would have the burden of ordering/purchasing/collecting funds... which is what a manager does! As manager, I am able to plan ahead and bring $60 per game for umpires and then collect whatever appropriate amount is necessary of each player. As well, I can organize a line-up that utilizes strategy for game play. It might be assumed that batting order may have positional value by different players and thus arguments may ensue taking away from focus that can otherwise be channeled to playing ball. As manager, I could exercise my strength to sit some players on the bench while playing other players. As long as I maintain an empirical interest in the team's welfare, I won't be suseptible to influence by the best 9 players to exclude the worst 5 players... in other words, I government could fight against the tyranny of the majority and thus prevent scoliosis from occurring on my team. There could be an incentive for me to be a stationary bandit which would spread the cost of the team/players fees across every player (other than myself) so as to have MY portion of the fees be absorbed, but that would be borderline predatory. Other issues of good management by I government would include encouraging prosperity. I personally see an incentive in the prosperity of my players because in turn, I as a manager of a WINNING ball club reap the benefits of prosperity. A problem may come into play when players may attempt to use me against other players; knowing that allowing this to occur would tear my team apart, I exercise my power, my authority with the prosperity of the team in mind. Therefore, I maintain as unbiased as possible, yet, I establish and maintain authority while offering incentives that are in line with my agenda. An agenda that is shared by every member of the team, including myself: win games! |
This application of "undercover economics" is at the back of my mind whenever I am in a position to use my power as a manager, as a governor, of our baseball team. Perhaps I'm a little influenced by Mancur Olson, but what do you expect when I am left to my own devices regarding economics and we happen to be reading with in-depth comprehensive analysis material that questions power and prosperity in terms of economics, incentives and governance?!
Baby Boomers - Why on Earth do They Exist?
Whenever people talk about the future of social security, the subject of baby boomers comes up. Many people believe that they will deplete social security, leaving our generation with no source of government-funded retirement income. I keep hearing people say that us young people should begin saving as much as possible towards retirement because we will have no source of income other that what we are able to save through 401(k)s, IRAs, and annuities. I cannot answer whether or not social security will be depleted, but I cannot help but wonder why on earth baby boomers even exist?
Between World War I and World War II the United States’ economy was not doing very well. In fact it was miserable. People lost their life savings in the stock market, there was very high unemployment, and no confidence whatsoever in the economy. However, WWII helped end all that. While many of the younger men were off fighting, the women took their jobs on the home front, causing the economy to grow rapidly. After the war, because of the massive stimulus caused by the war, many job opportunities existed for the men, thus giving women the option of being homemakers. Because the women did not have to work as much, the opportunity cost of raising large amounts of children was relatively low, because they did not have to give up a lot in terms of wages etc. I guess we can thank them for causing all of the uncertainty surrounding our retirement income.
Between World War I and World War II the United States’ economy was not doing very well. In fact it was miserable. People lost their life savings in the stock market, there was very high unemployment, and no confidence whatsoever in the economy. However, WWII helped end all that. While many of the younger men were off fighting, the women took their jobs on the home front, causing the economy to grow rapidly. After the war, because of the massive stimulus caused by the war, many job opportunities existed for the men, thus giving women the option of being homemakers. Because the women did not have to work as much, the opportunity cost of raising large amounts of children was relatively low, because they did not have to give up a lot in terms of wages etc. I guess we can thank them for causing all of the uncertainty surrounding our retirement income.
Cost-Benefit of the Emmissions Program
Why are 25-year (and older) automobiles exempt from emissions programs, while newer vehicles are still held “emissions accountable?”
All vehicles produce emissions, whether they are new, old, small or big. However, new vehicles that have new technology are continuously improved making them run more efficient, while producing less carbon dioxide and sulfur. Older models generally produce more, and yet they are not held accountable, so why does the state government system disregard these vehicles?
One possibility is that new automobiles are held at a level of “higher accountability” by the state governments, because there are more of them on the road? It could also be said that environmental groups are putting more pressure upon the automotive manufactures to improve upon the emissions control?
Rumors circulate that state government has little control over there emissions control program. Many emissions control facilities have become outdated or are non-functioning. Some control stations have been caught taking bribes to make their customers vehicles pass.
Today we all face a cost-benefit decision that suggests that we can buy new automobiles that are economically beneficent and are constantly being held accountable, or we can choose to keep our older vehicles that produce vastly larger amounts or carbon and sulfur. In today’s society a “green outlook” comes with a choice, whether to serve the environment or our own needs.
By Brandon weber
Why Major Retailers Ignore the FCC
As many of us have heard, next February the nation-wide transition to digital TV will begin. This means that if you own a TV that receives analog-only signals, you are out of luck. In order for it to work, you will need to purchase some sort of converter box.
Currently, the FCC has placed a ban on importing and manufacturing analog TV sets. The purpose behind this is that the transition to digital will be easier if all new TV sets sold on the market are capable of receiving digital signals. However, analog TVs that retailer currently have, in stock, can still be sold. The catch is that retailers are required to place a warning sign next to them that says they won't work next year without the purchase of a special converter box.
Major retailers including Target, Sears, Circuit City, and Wal-Mart have all chosen not to comply with this rule. This seems unusual, as large retailers seem like the ones most likely to comply with federal rules and regulations. However, when looking at the costs and benefits associated with this situation it is easy to see why they don’t comply.
If a person was considering buying an analog television and saw a sign next to it saying it would not work in a year unless they were to buy another piece of equipment, they are more likely to just buy a digital TV. In that case, the large retailers would be stuck with large quantities of outdated TVs. Also, the penalties they receive for failing to comply with the FCC are not that severe. For example, Wal-Mart received a fine of about $900,000. $900,000 to the largest retailer in the world is nothing more than pocket change. They probably made more than that just from selling the analog TVs. Here, the benefits of getting rid of old TVs, and freeing up warehouse and shelf space, far outweigh the $900,000 fine. If the FCC does not want these retailers to deceive consumers, they need to up the penalty for doing so.
Currently, the FCC has placed a ban on importing and manufacturing analog TV sets. The purpose behind this is that the transition to digital will be easier if all new TV sets sold on the market are capable of receiving digital signals. However, analog TVs that retailer currently have, in stock, can still be sold. The catch is that retailers are required to place a warning sign next to them that says they won't work next year without the purchase of a special converter box.
Major retailers including Target, Sears, Circuit City, and Wal-Mart have all chosen not to comply with this rule. This seems unusual, as large retailers seem like the ones most likely to comply with federal rules and regulations. However, when looking at the costs and benefits associated with this situation it is easy to see why they don’t comply.
If a person was considering buying an analog television and saw a sign next to it saying it would not work in a year unless they were to buy another piece of equipment, they are more likely to just buy a digital TV. In that case, the large retailers would be stuck with large quantities of outdated TVs. Also, the penalties they receive for failing to comply with the FCC are not that severe. For example, Wal-Mart received a fine of about $900,000. $900,000 to the largest retailer in the world is nothing more than pocket change. They probably made more than that just from selling the analog TVs. Here, the benefits of getting rid of old TVs, and freeing up warehouse and shelf space, far outweigh the $900,000 fine. If the FCC does not want these retailers to deceive consumers, they need to up the penalty for doing so.
Back to the barter system?
Do people driving into a big city notice the pollution, the smog, the dark brown cloud that hovers over the city top? Is it a concern to the people that live in the city, that are breathing that smog in for air? In the recent years there have been movements to clean up the air, but has it been done? The major problem I see is that companies are making a profit off of selling their certificate, to be able to pollute to other companies. This profit is probably just a segment of their business and not really in business for that segment, but at the end of the year they get to report a profit on their income statement from this type of business. So how is air traded or sold when air mixes and mingles; clean air with dirty air; and no one owns it? There is a financial market growing around the trading of polluted air, where brokers match those who need pollution allowances with those who have extra. Pollution traders just measure the pollution coming out of the smokestacks, so how does this work? Each polluter is allotted a certain number of pollution certificates, when all the certificates are used up the polluter must buy more certificates. Currently the goal of any emission market is to clean the air at the lowest possible cost to society. But is this going to work in the future or are we moving into finding a technology that polluters must use to control and be able to administer and enforce.
Economic Stimulus leading Americans to Economic growth?
Could this really be true….yes, but not so fast! What is this and what is all the rage about? The main question is how bad is this going to be for the economy in the long run? The economic stimulus payment will be received by more than 130 million households; and this money won’t be taxable and won’t have an effect on your 2008 return. The stimulus package will send critical relief to millions of lower to middle income families whose economic situation dictates that they spend the rebate check and purchase goods and services to spur our economy. So who is eligible? The majority of people that filed a 2007 tax return; you just have to have a social security number and made at least 3,000.00 dollars in 2007 and not more than 75,0000.00 filing single and 150,000.00 filing jointly.
So where is all this money coming from? Option 1; if it comes from taxes, the value of a person’s stimulus check is offset by the greater taxes paid by another person or business, who will then have less money to reinvest or spend. Option 2; if the money is borrowed by Uncle Sam to pay for all the stimulus checks the borrowing takes money out of the private sector. Option 3; for the Federal Reserve to create money, well we all know that outcome will lead to inflation. None of these option seem like a good way to go…Spending power is not so much the meat of economic growth, but the key to economic growth is investment that raises workers productivity.
So where is all this money coming from? Option 1; if it comes from taxes, the value of a person’s stimulus check is offset by the greater taxes paid by another person or business, who will then have less money to reinvest or spend. Option 2; if the money is borrowed by Uncle Sam to pay for all the stimulus checks the borrowing takes money out of the private sector. Option 3; for the Federal Reserve to create money, well we all know that outcome will lead to inflation. None of these option seem like a good way to go…Spending power is not so much the meat of economic growth, but the key to economic growth is investment that raises workers productivity.
April 24, 2008
Got Rice?
Many top retailers, notably Sam's Club, announced yesterday that they will be limiting the amount of rice individual shoppers can buy and said that this was due to "supply and demand trends."
And Costco (we now have one in Colorado Springs off Powers) announced that it might be following in similar fashion.
Customers might be clearing out shelves of rice but is there really a shortage? The answer is: No.
The truth is that Sam's Club has not limited the purchase of rice.
I can buy a maximum of 4 bags of rice at Sam's Club at a time and then go right back into the store and purchase another 4 bags from a different cashier because there's nothing preventing me (or you) from doing this.
But the question is, "Why should I do this?" I don't have a reason so that's why I'm not hoarding rice.
Retail experts see little evidence of "panic" hoarding by the public and Richard Galanti, Costco's CFO, said yesterday "We don't think there is a shortage, it is just increased shopping by customers who think there is."
Mr. Galanti is correct and that's exactly what this is.
The media is trying to scare us into thinking there's a shortage of rice and this is causing people who normally don't buy rice to buy it anyways because of our innate human survival instinct.
If we take a quick look at some statistics, here in the U.S. 8.3 million tons will be produced this year alone and Americans consume only 10-15% of what people in Asian countries eat. This means there's plenty of rice for domestic consumption.
So here's the bottom line and Tim Harford would agree:
1. Don't change your diet or shopping habits just because everyone else is buying rice out of fear. Buy rice because you like rice and you want to eat it.
2. If there truly were a shortage in rice, then the price of rice at the grocery store would increase and in this case, the increase in price would reduce the quantity demanded. This is true unlike the price of gasoline because rice is not an inelastic good and there are many substitutes for rice.
3. If you can't find rice at Sam's or Costco, then go to an Asian Supermarket.
4. If you buy rice, make sure you also buy a rice cooker (a complementary good) as well unless you plan on selling your rice to your neighbors at a higher price than you purchased it for.
April 23, 2008
oh, crikey, a Sanders rookie? Gimme more...
In Harfords book I learned the story of Bruges, a bustling town that sprang up as a point of commerce for east and west Europe and the little island across the channel during the middle ages. As it was located by a river, trade could take place with swiftness, lending vibrance to its character as an opportunistic hearth for merchants and traders alike. Deeply in love with the river that breathed life into Bruges, we see the dynamics of human exchange from the pinnacle of its success to the silt of its exhaustion. Prior to reading Harford's book i was not familiar with the tale of Bruges, however i was aware of the economic term "bourse" and the far-reaching effect we can see that it has in the global marketplace today. The fine similarities are strikingly eerie in their meaning, as we approach the port of a worlwide economy marked by many nuances of currency exchange, resource control and inflation, and the human endeavor to break old habits and look for new innovative, less dependent & peaceful ways of adapting to changing environments.
I compared and contrasted the modern challenges facing us to those that were presented to our relatives in the mideivel period, i sought to recreate a simple model by which to understand what constitutes a bourse, if not sardonic and myopic, maybe even childish.
If little Sammy is the walking encyclopedic son of a reputable playing card dealer, who has amassed countless priceless editions to his collection, then we could say that the sentimental value of a single playing card could quite well be diminished in Sammy's case, though he fully understands the net worth of each card he gets a hold of, and of course, depending on his interest in sports. Meanwhile, as the chemistry between Sammy and Janji grows by the day in the passing period, Sammy learns that Janji has a beautiful voice and a passion for becoming a singer. Sammy finds out that Janji's parents struggle financially, so he decides to bring in Dan, who loves sports, has a entrepeneurial spirit exactly opposite of Sammy, (literally, Sammy is incapable of being a salesman) and of course is obsessed with the hottest cards in the game.
So, if Sammy contracts Dan to sell expensive playing cards, which were acquired illicitly (Sammy is dedicated to Janji), then an intermediary has been formed that will allow the interests of all parties involved to be met (Janji can take voice lessons, Sammy is closer to true love, and future jock Dan is high as a kite.) This allows Dan access to limited supplies of valuable cards that only he has claim to. Well, as with the story of Bruges, all goods things only last for so long. Though there is limited stock of rare cards in circulation within Dans proximity, he becomes impatient and unknowingly starts to demonstrate game theory. Dan starts to demand more money for each card he sells, more leverage in what cards he can have access to, depending on its value, and of course demands respect for markets that he has staked or "opened," but because he has now learned knowledge of Sammy's motivation for earning revenue he now feels he has more power. He knows that Sammy has an intrinsic motivation to find love and basically no business common sense and he leverages this against him. Sammy fears that his resources will begin to reflect Dan's selfishness and greed, and spoil his attempts for good at winning his love's heart.
Therefore, what can be done in this web of intrinsic interests and motivations? Does Sammy still believe that the only way to show his affection for Janji is to provide her the means to become a singer, using every asset at his disposal to do so? What about Dan, is he setting himself up for dissapointment and loss of access to a major market supplier out of blind self-interest and want of more? Sammy must make a decision to learn the ropes of business negotation in order to keep the river of exchange flowing, albeit at the expense of the sources loss, if he wants to sustain the relationships and protect his status of power over limited resources without showing weakness.
In searching for the meaning of a bourse, it becomes clear that the motivation to secure the highest motivation involved, for those who wield the most influence ( scarcity of resources and ability to do business) will decide the future strength of the fabric that holds together exchange. When attempts are made to jeopardize the interests of the entity who has the most influence or is comparable in competetive advantage, Harfords idea of game theory demonstrates that it can be self-defeating and hugely self-detrimental to act out of self-interest if there is no power to back up a specific action. Dan, in all his glory, could very well lose the largest opportunity to find his gold in his desire to obtain the most. Sammy, on the other hand, is entering a valuable experience of learning, to be more assertive in his business affairs.
I compared and contrasted the modern challenges facing us to those that were presented to our relatives in the mideivel period, i sought to recreate a simple model by which to understand what constitutes a bourse, if not sardonic and myopic, maybe even childish.
If little Sammy is the walking encyclopedic son of a reputable playing card dealer, who has amassed countless priceless editions to his collection, then we could say that the sentimental value of a single playing card could quite well be diminished in Sammy's case, though he fully understands the net worth of each card he gets a hold of, and of course, depending on his interest in sports. Meanwhile, as the chemistry between Sammy and Janji grows by the day in the passing period, Sammy learns that Janji has a beautiful voice and a passion for becoming a singer. Sammy finds out that Janji's parents struggle financially, so he decides to bring in Dan, who loves sports, has a entrepeneurial spirit exactly opposite of Sammy, (literally, Sammy is incapable of being a salesman) and of course is obsessed with the hottest cards in the game.
So, if Sammy contracts Dan to sell expensive playing cards, which were acquired illicitly (Sammy is dedicated to Janji), then an intermediary has been formed that will allow the interests of all parties involved to be met (Janji can take voice lessons, Sammy is closer to true love, and future jock Dan is high as a kite.) This allows Dan access to limited supplies of valuable cards that only he has claim to. Well, as with the story of Bruges, all goods things only last for so long. Though there is limited stock of rare cards in circulation within Dans proximity, he becomes impatient and unknowingly starts to demonstrate game theory. Dan starts to demand more money for each card he sells, more leverage in what cards he can have access to, depending on its value, and of course demands respect for markets that he has staked or "opened," but because he has now learned knowledge of Sammy's motivation for earning revenue he now feels he has more power. He knows that Sammy has an intrinsic motivation to find love and basically no business common sense and he leverages this against him. Sammy fears that his resources will begin to reflect Dan's selfishness and greed, and spoil his attempts for good at winning his love's heart.
Therefore, what can be done in this web of intrinsic interests and motivations? Does Sammy still believe that the only way to show his affection for Janji is to provide her the means to become a singer, using every asset at his disposal to do so? What about Dan, is he setting himself up for dissapointment and loss of access to a major market supplier out of blind self-interest and want of more? Sammy must make a decision to learn the ropes of business negotation in order to keep the river of exchange flowing, albeit at the expense of the sources loss, if he wants to sustain the relationships and protect his status of power over limited resources without showing weakness.
In searching for the meaning of a bourse, it becomes clear that the motivation to secure the highest motivation involved, for those who wield the most influence ( scarcity of resources and ability to do business) will decide the future strength of the fabric that holds together exchange. When attempts are made to jeopardize the interests of the entity who has the most influence or is comparable in competetive advantage, Harfords idea of game theory demonstrates that it can be self-defeating and hugely self-detrimental to act out of self-interest if there is no power to back up a specific action. Dan, in all his glory, could very well lose the largest opportunity to find his gold in his desire to obtain the most. Sammy, on the other hand, is entering a valuable experience of learning, to be more assertive in his business affairs.
Can I offer you something else instead?
Ever notice that big discounts, like the ones buried in the 7th page of one of the massive circulars stuffed inside the Sunday paper, are actually just dirty tricks to get customers into the store? I have. Twice. The first time was when I found out about a mini-DVD video camera at, let us say, “Sam’s Mart” for $400 off the original price of $599.99. I brought the ad with me, walked right up to a clerk, pointed right to the picture, and said, “I want that. Where can I get it?”
To my utter amazement, he said, “Oh, those. Yeah, we’re out of stock.”
“But,” I said, “the sale just started today, and the store only opened ½ an hour ago.”
“Yeah, I know. We only had 2 in stock, and someone just came in and bought them both.”
“Why did you only have 2 in stock, when this is a brand new video camera? It’s not like you guys were trying to get rid of it to bring in something new. This is the new thing.”
“Well, it wasn’t my decision, but can I show you our other video cameras?”
BINGO! This sale really was too good to be true. I thought that maybe something was weird at that particular store, so I called another “Sam’s Mart” from my cell phone right away. Sure enough, they were sold out of the video camera too. It seemed that they only had one in stock to begin with. This has become another reason that I don’t shop at “Sam’s Mart” anymore, but that is beside the point. (A similar situation happened to me at “Circuit Buy” with a laptop computer about a year ago.)
The point is that “Sam’s Mart” is a huge company with a lot of people getting paid to sit around and figure out how to get more people to walk through those doors. One way to do this is to offer an unbelievable sale that really is, well, unbelievable, because they have no intention of actually selling the product that is so deeply discounted. They want customers who normally were not interested in buying a video recorder to start thinking about how great it would be to have one, and now would be a great time to buy one, because they are so cheap. Once they get to the store, they have their hearts set on finally recording little Jimmy’s tee ball games and little Suzy’s tea parties. So once they find out that the video recorder they came there to buy isn’t there, they buy another one, even though 4 hours ago, they would not even have considered buying the thing.
Even if they don’t buy another video recorder, they can probably think of other things they need at the store, like food, clothes, batteries, etc., since “Sam’s Mart” sells just about everything. Shoppers who haven’t stepped foot in a “Sam’s Mart” in years were lured there by a false sale and ended up helping to pay the salaries of those people getting paid to sit around all day trying to figure out how to get them back into the store in a few months.
To my utter amazement, he said, “Oh, those. Yeah, we’re out of stock.”
“But,” I said, “the sale just started today, and the store only opened ½ an hour ago.”
“Yeah, I know. We only had 2 in stock, and someone just came in and bought them both.”
“Why did you only have 2 in stock, when this is a brand new video camera? It’s not like you guys were trying to get rid of it to bring in something new. This is the new thing.”
“Well, it wasn’t my decision, but can I show you our other video cameras?”
BINGO! This sale really was too good to be true. I thought that maybe something was weird at that particular store, so I called another “Sam’s Mart” from my cell phone right away. Sure enough, they were sold out of the video camera too. It seemed that they only had one in stock to begin with. This has become another reason that I don’t shop at “Sam’s Mart” anymore, but that is beside the point. (A similar situation happened to me at “Circuit Buy” with a laptop computer about a year ago.)
The point is that “Sam’s Mart” is a huge company with a lot of people getting paid to sit around and figure out how to get more people to walk through those doors. One way to do this is to offer an unbelievable sale that really is, well, unbelievable, because they have no intention of actually selling the product that is so deeply discounted. They want customers who normally were not interested in buying a video recorder to start thinking about how great it would be to have one, and now would be a great time to buy one, because they are so cheap. Once they get to the store, they have their hearts set on finally recording little Jimmy’s tee ball games and little Suzy’s tea parties. So once they find out that the video recorder they came there to buy isn’t there, they buy another one, even though 4 hours ago, they would not even have considered buying the thing.
Even if they don’t buy another video recorder, they can probably think of other things they need at the store, like food, clothes, batteries, etc., since “Sam’s Mart” sells just about everything. Shoppers who haven’t stepped foot in a “Sam’s Mart” in years were lured there by a false sale and ended up helping to pay the salaries of those people getting paid to sit around all day trying to figure out how to get them back into the store in a few months.
Oil Hits $120...How High Will It Go?
One thing that has certainly affected my personal economy as of late has been the increasing cost on my budget for filling up with a tank of gas. More money spent on gas means I have less money for everything else because my income is a fixed and I'm subject to the budget-contstraint curve.
Yesterday I filled up at the Albertsons on Research Parkway (the same gas station that recently sold the $600,000 Powerball ticket) and was instantly out $60. I COULD have bought 60 Powerball tickets!
By buying gas, the friend I was with said that I should be proud of myself because I'm pumping money into the economy especially in our current market condition and then went onto explain how a car is a necessity and paying for gas is just "one of the things we have to do."
Well, I went home and thought about this a little more. Economics 101 says that an increase in price corresponds to decreased demand. But if my friend is correct and a car is indeed a necessity, then the car is a necessity because you're using it to accomplish pertinent day-to-day activities like going to and from work (You need to make money to live, right?).
Therefore, an increase in the price at the pump won't decrease the amount of miles driven because the number of miles you drive is fixed (sure, you might not go to the mall on the weekends anymore and might cancel that summer road trip). But you will drive to places you MUST drive to.
So the point of this posting is to point out that this "law" of economics which says that an increase in price leads to a decrease in quantity demanded may not be entirely true.
And this is certainly the case with inelastic goods such as gasoline! Am I right or am I right?
April 22, 2008
So that's why Europe is wrong!
Another question that always has nagged at me was why the Brits always drive on the left side of the road (for the record, even though I said "Europe" in the title, the fact is most of Europe drives on the right like us), but we Americans drive on the right.
Now, I'm really not sure about the Brits. I had to do a little research on this one because it was so perplexing, and all I really got for them was something about knights and swords. Needless to say, no conclusions reached.
I had luck with America, though. As British colonies, we started out driving our buggies on the left just like the motherland. However, in the 1790's things started to change, with the establishment of right-side driving on the Lancaster and Philadelphia turnpike. Many say that America simply wanted to cut all ties with the British and drive on the opposite side. I say similarities in traffic direction is not much of a tie, and I therefore declare BS on that theory.
After research, however, I did find that the Lancaster and Philadelphia turnpike was a privately owned and constructed road. This coupled with the road's distinction as making the first direction change hardly seemed a coincidence to me, so I looked up traveling modes in that time period and found that most agricultural goods (which was the majority of travel on the turnpike) were transported via large wagons with no drivers seat. The driver would sit on the left rear horse in order to keep his right arm free to lash the team (since most people were and are righties), and thus found it useful to drive on the right side of the road.
So what does this have to do with economics? Well, I'm willing to bet that people putting down the kind of bucks required to build a turnpike weren't stupid. And I bet they knew the majority of their customers would be farmers, or transporters of farmers' goods. Put simply, they wanted to cater to their customers, as all good businessmen do-especially the customers who keep using the service over and over again-sometimes called repeat customers-very valuable to any operation.
Thus, the turnpike owners decided it would be best to have people drive on the right side of the road. And I would also surmise that other builders of roads found the same advantages discovered on the L & P turnpike and followed suit (including gov't). Realistically speaking, most of the travel done at that time was for commercial purposes anyway. People simply didn't travel, so most of the road traffic was agricultural of some sort.
Why do we still drive on the right? Beats me. Probably because of good old Henry Ford, who declared early on that his famous Model-T's would only have steering wheels on the left, for which it makes more sense to drive on the right. Either that or changing direction nationally might be a tad difficult. I mean, you'd probably have to ask Congress first. And then all the local governments would have to tear down all traffic signs and traffic lights. Plus, with all of our fancy steering-wheel-on-the-left cars, it could make for tough passing. I guess we could, theoretically, change. Your choice. Ha. Just kidding.
Now, I'm really not sure about the Brits. I had to do a little research on this one because it was so perplexing, and all I really got for them was something about knights and swords. Needless to say, no conclusions reached.
I had luck with America, though. As British colonies, we started out driving our buggies on the left just like the motherland. However, in the 1790's things started to change, with the establishment of right-side driving on the Lancaster and Philadelphia turnpike. Many say that America simply wanted to cut all ties with the British and drive on the opposite side. I say similarities in traffic direction is not much of a tie, and I therefore declare BS on that theory.
After research, however, I did find that the Lancaster and Philadelphia turnpike was a privately owned and constructed road. This coupled with the road's distinction as making the first direction change hardly seemed a coincidence to me, so I looked up traveling modes in that time period and found that most agricultural goods (which was the majority of travel on the turnpike) were transported via large wagons with no drivers seat. The driver would sit on the left rear horse in order to keep his right arm free to lash the team (since most people were and are righties), and thus found it useful to drive on the right side of the road.
So what does this have to do with economics? Well, I'm willing to bet that people putting down the kind of bucks required to build a turnpike weren't stupid. And I bet they knew the majority of their customers would be farmers, or transporters of farmers' goods. Put simply, they wanted to cater to their customers, as all good businessmen do-especially the customers who keep using the service over and over again-sometimes called repeat customers-very valuable to any operation.
Thus, the turnpike owners decided it would be best to have people drive on the right side of the road. And I would also surmise that other builders of roads found the same advantages discovered on the L & P turnpike and followed suit (including gov't). Realistically speaking, most of the travel done at that time was for commercial purposes anyway. People simply didn't travel, so most of the road traffic was agricultural of some sort.
Why do we still drive on the right? Beats me. Probably because of good old Henry Ford, who declared early on that his famous Model-T's would only have steering wheels on the left, for which it makes more sense to drive on the right. Either that or changing direction nationally might be a tad difficult. I mean, you'd probably have to ask Congress first. And then all the local governments would have to tear down all traffic signs and traffic lights. Plus, with all of our fancy steering-wheel-on-the-left cars, it could make for tough passing. I guess we could, theoretically, change. Your choice. Ha. Just kidding.
Why Do People Get Back Together With Their Exes? Naturalist Essay #2
I think most of us have gotten back together with one of their exes at one time, possibly many times, or at least know someone who has gotten back together with their ex. I myself have gotten back together with an ex and I have also contemplated getting back with other exes multiple times. The question I have is why do I feel this way when I was the one who ended the relationship in the first place?
I think I could use a little economic welfare analysis to help me out. To start out, me ending the relationship shows that there was a benefit to getting away from the other person. Then why after some period of time do I find myself reevaluating the costs and benefits of getting back together with them again, and finding that there is a benefit to getting back with them? Alright, to sum all this up to make it easy to understand is; I find a benefit to breaking up with someone and I also find a benefit to getting back together with the same person. This is so simple to understand, correct? Well I would like to call this the “circle of hell” because it usually ends up being a circle of, well, hell. I thought people’s preferences were given and that they are transitive? Why can I want two different things that are completely opposite from one another?
I think that there might be a problem with perfect information. When I weigh the cost of staying in a relationship and benefit of ending it, I don’t see the full benefits from those choices. I cannot see the costs involved with finding someone else, the costs of going to movies alone and having everyone stare at me, I cannot see the costs involved with my family asking why I’m still alone and the constant nagging me to ask the funny looking “nice” girl down the street out. All these cost are hidden or at least not estimated properly. When these costs have to be paid for after the relationship has ended, that is where the cost of getting back with the ex becomes lower. It is easier to get back with someone that you know, rather than taking a chance with someone that could turn out to be even crazier. You can skip all the awkward silences during the first few weeks if you go back to your ex. You don’t have to wait a long time to find someone that will hold your attention for more than a few seconds in a conversation. It just seems that the cost of finding someone else is higher than the cost of dealing with the same crap from your ex.
How can the “circle of hell” be stopped. Well, having something lower the cost of finding someone new to be your future ex can help straighten out that circle a bit. One such thing is online dating. Online dating lowers all these costs. My prediction is that in a few years when more and more people try meeting people online there will be less of an occurrence of people getting back with their exes.
I think I could use a little economic welfare analysis to help me out. To start out, me ending the relationship shows that there was a benefit to getting away from the other person. Then why after some period of time do I find myself reevaluating the costs and benefits of getting back together with them again, and finding that there is a benefit to getting back with them? Alright, to sum all this up to make it easy to understand is; I find a benefit to breaking up with someone and I also find a benefit to getting back together with the same person. This is so simple to understand, correct? Well I would like to call this the “circle of hell” because it usually ends up being a circle of, well, hell. I thought people’s preferences were given and that they are transitive? Why can I want two different things that are completely opposite from one another?
I think that there might be a problem with perfect information. When I weigh the cost of staying in a relationship and benefit of ending it, I don’t see the full benefits from those choices. I cannot see the costs involved with finding someone else, the costs of going to movies alone and having everyone stare at me, I cannot see the costs involved with my family asking why I’m still alone and the constant nagging me to ask the funny looking “nice” girl down the street out. All these cost are hidden or at least not estimated properly. When these costs have to be paid for after the relationship has ended, that is where the cost of getting back with the ex becomes lower. It is easier to get back with someone that you know, rather than taking a chance with someone that could turn out to be even crazier. You can skip all the awkward silences during the first few weeks if you go back to your ex. You don’t have to wait a long time to find someone that will hold your attention for more than a few seconds in a conversation. It just seems that the cost of finding someone else is higher than the cost of dealing with the same crap from your ex.
How can the “circle of hell” be stopped. Well, having something lower the cost of finding someone new to be your future ex can help straighten out that circle a bit. One such thing is online dating. Online dating lowers all these costs. My prediction is that in a few years when more and more people try meeting people online there will be less of an occurrence of people getting back with their exes.
Discounts at the Doctor’s Office Naturalist Essay #1
Recently I had the wonderful opportunity to have my wisdom teeth yanked from my skull by an oral surgeon and had the annoying puff of air directed at my eye by the optometrist. So I have had some work done that is usually covered by extra coverage in normal benefits offered by an employer. I had opted to not take the extra dental and eye coverage seeing that they only covered up to $125 a year for visits and the price I paid for coverage for the year was $150. So going into these doctors offices I was ready to pay the full bill. However, when I asked how much everything was going to cost, they gave me a 35% discount for not having insurance. Well I thought to myself “shoot dang! I just worked the system!” but later my inner-economist started to think about the whole situation.
I know I saved myself the money on the dental and eye coverage because I would pay more than I would get out of it. But did I really work the system over and save even more money by getting a discount at both the dentist and optometrist’s offices? After some thought about it and putting a bit of economic analysis to work I don’t think I work the system over at all but both the dentist and optometrist made out like bank robbers.
From what I can gather about economics I feel that doctors’ offices are practicing third degree price discrimination and are doing a very good job of it. Third degree price discrimination is where the seller can differentiate between customer classes to capture more of the market surplus. The doctor’s office can differentiate between the people who really care about the price of service (people without insurance) and the people who do not have as much at stake with how much it costs (people with insurance). The doctors ‘ offices can do this because the insurance company has no big say in what the costs are when the person that is insured goes to a network doctor. There is a disconnect between what the people perceive that they are paying and what the total cost of everything is.
The doctors’ offices are capturing this disconnect in two ways. First, they are charging their full price (which I think might be higher than average) to people who have insurance and don’t have to pay the full price. Second, they are giving big discounts to people who do not have insurance because these people are more sensitive to the total cost. When they give the discount to these people they are capturing business that they might otherwise lose out on because of their high prices. And the profits that they lose from giving the discount might be offset by the higher profits they receive from charging people with insurance.
My theory on how the pricing works in a doctors’ office is, that the true cost of service lies somewhere between the price charge to people with insurance and the price charged to people without insurance. This would make doctors try to become part of every insurance network that they could. Being a part of more insurance networks means more people are able to come to their offices that have insurance so they can charge the highest price possible to increase revenue. So did I work the system, no, I just saved $25 by not going with insurance. Did I save money at the doctor’s office, probably not; I think I would have paid the about the same with insurance as I did without. For me, it all depends on how much the insurance costs and how much I am going to need; it doesn’t really depend too much on how expensive the doctors visit is.
I know I saved myself the money on the dental and eye coverage because I would pay more than I would get out of it. But did I really work the system over and save even more money by getting a discount at both the dentist and optometrist’s offices? After some thought about it and putting a bit of economic analysis to work I don’t think I work the system over at all but both the dentist and optometrist made out like bank robbers.
From what I can gather about economics I feel that doctors’ offices are practicing third degree price discrimination and are doing a very good job of it. Third degree price discrimination is where the seller can differentiate between customer classes to capture more of the market surplus. The doctor’s office can differentiate between the people who really care about the price of service (people without insurance) and the people who do not have as much at stake with how much it costs (people with insurance). The doctors ‘ offices can do this because the insurance company has no big say in what the costs are when the person that is insured goes to a network doctor. There is a disconnect between what the people perceive that they are paying and what the total cost of everything is.
The doctors’ offices are capturing this disconnect in two ways. First, they are charging their full price (which I think might be higher than average) to people who have insurance and don’t have to pay the full price. Second, they are giving big discounts to people who do not have insurance because these people are more sensitive to the total cost. When they give the discount to these people they are capturing business that they might otherwise lose out on because of their high prices. And the profits that they lose from giving the discount might be offset by the higher profits they receive from charging people with insurance.
My theory on how the pricing works in a doctors’ office is, that the true cost of service lies somewhere between the price charge to people with insurance and the price charged to people without insurance. This would make doctors try to become part of every insurance network that they could. Being a part of more insurance networks means more people are able to come to their offices that have insurance so they can charge the highest price possible to increase revenue. So did I work the system, no, I just saved $25 by not going with insurance. Did I save money at the doctor’s office, probably not; I think I would have paid the about the same with insurance as I did without. For me, it all depends on how much the insurance costs and how much I am going to need; it doesn’t really depend too much on how expensive the doctors visit is.
April 20, 2008
The gas pumps don't work
Why does the credit card machine on the gas pump only work during the day?
At most gas stations in the metro area, the credit card machine only works during the day. After a certain time of night, the pre-pay with your card is removed and everyone that pulls up is required to go inside the gas station to pay the attendant in person. Why would the gas stations turn off the pre-pay machines at the time when both they and their customers are at the most risk for robbery?
I have noticed, with increasing annoyance, that between certain hour’s gas stations stop allowing customers to use the credit card pre-pay that was built into the machine. At these times, all the customers to the gas station must go into the gas station to pay the attendant. In some cases this time of day can be the evening rush hour when the credit card machines mysteriously stop working for all of the stations female customers, yet continue to work as usual for the male customers. However, in most cases, gas stations require all customers to walk into the station and pay the attendant late at night.
This practice would make sense if the gas stations were trying to keep people from stealing the gasoline; however, the pumps that are being used now require the attendant to turn them on for the customer. This means that until you have either paid inside or has your credit card approved you cannot pump gasoline, and therefore cannot steal it either.
What is really strange is that the night time hours when the gas stations are not allowing to credit card machines to work is the time of day when gas stations and their patrons are most susceptible to robbery. It would seem to me that a customer who has to leave their vehicle unattended and walk into the station at night to pay is leaving space not only for someone to steal their car, but also to steal their wallet. The person between their car and the gas station is susceptible to theft from their person mostly because should they be held up in the gas station parking lot the chances of the station attendant are largely non-existent.
Additionally, this is the time when there are fewest people at gas stations. Typically, at night the only people that want to wander around empty gas stations are there to try to steal from the gas station. Asking every customer to walk up into the station means that the doors must be left unlocked at all times, increasing the risk of robbery.
It seems, then, that not allowing customers to use the credit card machines on gas pumps is a practice that should no longer be put in place as the technology increases in favor of the gas stations. Hopefully, this very annoying occurrence will be increasingly rare in major cities, as it already is in smaller ones.
At most gas stations in the metro area, the credit card machine only works during the day. After a certain time of night, the pre-pay with your card is removed and everyone that pulls up is required to go inside the gas station to pay the attendant in person. Why would the gas stations turn off the pre-pay machines at the time when both they and their customers are at the most risk for robbery?
I have noticed, with increasing annoyance, that between certain hour’s gas stations stop allowing customers to use the credit card pre-pay that was built into the machine. At these times, all the customers to the gas station must go into the gas station to pay the attendant. In some cases this time of day can be the evening rush hour when the credit card machines mysteriously stop working for all of the stations female customers, yet continue to work as usual for the male customers. However, in most cases, gas stations require all customers to walk into the station and pay the attendant late at night.
This practice would make sense if the gas stations were trying to keep people from stealing the gasoline; however, the pumps that are being used now require the attendant to turn them on for the customer. This means that until you have either paid inside or has your credit card approved you cannot pump gasoline, and therefore cannot steal it either.
What is really strange is that the night time hours when the gas stations are not allowing to credit card machines to work is the time of day when gas stations and their patrons are most susceptible to robbery. It would seem to me that a customer who has to leave their vehicle unattended and walk into the station at night to pay is leaving space not only for someone to steal their car, but also to steal their wallet. The person between their car and the gas station is susceptible to theft from their person mostly because should they be held up in the gas station parking lot the chances of the station attendant are largely non-existent.
Additionally, this is the time when there are fewest people at gas stations. Typically, at night the only people that want to wander around empty gas stations are there to try to steal from the gas station. Asking every customer to walk up into the station means that the doors must be left unlocked at all times, increasing the risk of robbery.
It seems, then, that not allowing customers to use the credit card machines on gas pumps is a practice that should no longer be put in place as the technology increases in favor of the gas stations. Hopefully, this very annoying occurrence will be increasingly rare in major cities, as it already is in smaller ones.
April 16, 2008
Hockey Fights
I love hockey. I love the combination of speed, strength, and finesse it takes to play it well. I love how the game is so fluid yet so physical. And, like any other red-blooded male, I love the fights. A question I have been having is why fighting developed in hockey and became such an integral part of the sport but not in any other major sport.
Fighting in hockey is generally a retaliatory action. Player A generally starts a fight with Player B because of a perceived dirty or excessive hit on a star player from Player A's team who is generally regarded as off-limits. The thought is a heavy hitter on a team that is playing the Avalanche will think twice about laying out Paul Stastny for fear of having to fight Ian Lapperierre.
Other sports probably didn't develop fighting as a legitimate means of retaliation because there are different costs and benefits associated with different actions. Most other sports have systems in place that raise the cost of dirty or especially rough hits. In basketball, football, and soccer, the team that gets hit can gain field position, have the possibility of more points (i.e. foul shots) or have the offending player taken off the field entirely. In basketball or soccer it even makes sense for a team to invite rough play because the cost to the other team for fouling is so great, thus equaling a high benefit for receiving a foul. Baseball is probably closer to hockey in that a pitcher who intentionally hits a batter is likely to be met with a fastball to the arm or midsection. In addition, there is the distinct possibility of ejection for throwing at a batter.
Hockey is different because of the nature of its hits. A hit doesn't have to be illegal to warrant a fight. It simply has to be unwanted, as is the case for many stars who are supposed to be protected due to their high value to the team and the risk of injury from a hit. There is no assigned penalty for hitting someone who is "off-limits" so the players must police themselves. Rather than play a game of escalating hits, an enforcer will square off with the hitter and settle the issue right then and there, and then get back to playing hockey.
Fighting in hockey is generally a retaliatory action. Player A generally starts a fight with Player B because of a perceived dirty or excessive hit on a star player from Player A's team who is generally regarded as off-limits. The thought is a heavy hitter on a team that is playing the Avalanche will think twice about laying out Paul Stastny for fear of having to fight Ian Lapperierre.
Other sports probably didn't develop fighting as a legitimate means of retaliation because there are different costs and benefits associated with different actions. Most other sports have systems in place that raise the cost of dirty or especially rough hits. In basketball, football, and soccer, the team that gets hit can gain field position, have the possibility of more points (i.e. foul shots) or have the offending player taken off the field entirely. In basketball or soccer it even makes sense for a team to invite rough play because the cost to the other team for fouling is so great, thus equaling a high benefit for receiving a foul. Baseball is probably closer to hockey in that a pitcher who intentionally hits a batter is likely to be met with a fastball to the arm or midsection. In addition, there is the distinct possibility of ejection for throwing at a batter.
Hockey is different because of the nature of its hits. A hit doesn't have to be illegal to warrant a fight. It simply has to be unwanted, as is the case for many stars who are supposed to be protected due to their high value to the team and the risk of injury from a hit. There is no assigned penalty for hitting someone who is "off-limits" so the players must police themselves. Rather than play a game of escalating hits, an enforcer will square off with the hitter and settle the issue right then and there, and then get back to playing hockey.
April 15, 2008
Buzzzzzzzz *click* (Naturalist Essay #2)
Why do people set their clocks early with the intention of leaving themselves enough leeway to repeatedly hit the snooze button when their alarm goes off? The exact mechanism they choose to manifest this is set by the personal rules of each given individual. One possibility is that an individual sets their alarm 15 minutes earlier then they need to wake-up. Likewise the same effect can be achieved by setting the alarm clock forward 15 minutes, making it read 6:45 when it’s actually 6:30. This second option could be an urban legend or just a commonly passed around anecdote however I for one can personally attest to setting my clock forward, knowing full well that the time isn’t really accurate. Now some schools of thought might argue that it’s some sort of faux social mechanism however those of us schooled in the ways of economic perception say no!
The first thing to realize is that it is a conscious decision for each individual to participate in this act. The action creates a system where an option of ‘extra time’ exists in the morning. By doing this the individual is establishing a personalized set of rules for how the morning transaction of time will take place. The actual transaction of time occurs when the alarm goes off. The individual is able to assess the opportunity costs of how to utilize this ‘extra time’ at that moment. Some possible options include hitting the snooze button, waking up and having extra time to get ready for the day or possibly being early to an appointment. Each one of these alternate options the individual measures against the value of sleeping for however long was allotted. Options are weighted against the level of preparedness to wake up or however valuable the next best option is.
In addition to the moment that this transaction of time takes place, earlier, when the individual sets the alarm early or set the clock forward in advance, a decision is being made. That decision is that the ability to assess the opportunity at a future moment is more valuable then the ability to make a future determination (a guess) about it in the present. The alarm owner understands that the assessment of reward in this case is a dynamic feature. It’s these micro assessments of benefits and opportunity costs that I believe form the basis for the intentional and planned use of the snooze button.
The first thing to realize is that it is a conscious decision for each individual to participate in this act. The action creates a system where an option of ‘extra time’ exists in the morning. By doing this the individual is establishing a personalized set of rules for how the morning transaction of time will take place. The actual transaction of time occurs when the alarm goes off. The individual is able to assess the opportunity costs of how to utilize this ‘extra time’ at that moment. Some possible options include hitting the snooze button, waking up and having extra time to get ready for the day or possibly being early to an appointment. Each one of these alternate options the individual measures against the value of sleeping for however long was allotted. Options are weighted against the level of preparedness to wake up or however valuable the next best option is.
In addition to the moment that this transaction of time takes place, earlier, when the individual sets the alarm early or set the clock forward in advance, a decision is being made. That decision is that the ability to assess the opportunity at a future moment is more valuable then the ability to make a future determination (a guess) about it in the present. The alarm owner understands that the assessment of reward in this case is a dynamic feature. It’s these micro assessments of benefits and opportunity costs that I believe form the basis for the intentional and planned use of the snooze button.
April 11, 2008
Athletics the Focus of Higher Education?
I've always wondered why colleges pay so much attention to athletes. I am not against collegiate athletics in any way, but it has puzzled me why there is so much focus on the sports and not the academics. I e-mailed this assignment to all of my family (well, those with internet anyway) and one of their questions was this one, so here it goes.
The entertainment industry is huge, and sports are very entertaining. Academic competitions are arguably not so much (I'm not sure who would argue, but there has got to be someone out there). In order for any school to make money, they need high enrollment and other funding. Enrollment increases when people become more aware of its existance, as well as other sponsers. Sports bring a lot of needed attention to otherwise unknown schools. And the high school athletes are thinking, "If that famous quaterback went to school here, it must be good."
People will chose what they think is best for them. Going to a school that is more well known could result in better jobs post graduation. Recognized schools can become more prestigous because there is more competition to get in; and therefore can have higher standards and more stringent enrollment policies. Companies will look for graduates from these schools because they know that the students are getting a good education and students know that the employers will be looking for them (great incentive to go to a good school!).
Peoples choices have costs and have future consequences. High school students (and of course their parents) look for the best option for college career that have the fewest opportunity costs. I can go to a little community college and save money, but if I go to the more expensive university my degree will get me further later on. So is the extra money in tuition worth the potential future payoff?
So here it is summed up, there is more emphasis put on sporting events in colleges because the attention it brings allows the schools to survive.
The entertainment industry is huge, and sports are very entertaining. Academic competitions are arguably not so much (I'm not sure who would argue, but there has got to be someone out there). In order for any school to make money, they need high enrollment and other funding. Enrollment increases when people become more aware of its existance, as well as other sponsers. Sports bring a lot of needed attention to otherwise unknown schools. And the high school athletes are thinking, "If that famous quaterback went to school here, it must be good."
People will chose what they think is best for them. Going to a school that is more well known could result in better jobs post graduation. Recognized schools can become more prestigous because there is more competition to get in; and therefore can have higher standards and more stringent enrollment policies. Companies will look for graduates from these schools because they know that the students are getting a good education and students know that the employers will be looking for them (great incentive to go to a good school!).
Peoples choices have costs and have future consequences. High school students (and of course their parents) look for the best option for college career that have the fewest opportunity costs. I can go to a little community college and save money, but if I go to the more expensive university my degree will get me further later on. So is the extra money in tuition worth the potential future payoff?
So here it is summed up, there is more emphasis put on sporting events in colleges because the attention it brings allows the schools to survive.
April 10, 2008
Bad Southern Beer
Though I grew up in the South, it wasn't until driving through that region of the country this spring break after living in Colorado for a few years that I realized that the South has pretty crappy beer. Now, we can all argue at length as to what constitutes "crappy" beer. But, aside from the nationally distributed beer that you can buy for $5 a pitcher at rundown bowling alleys and shoddy saloons, their is no high-quality beer that you can immediately associate with the South. Other parts of the country have region specific quality microbreweries. What I want to know is why the South has never developed its own distinctive beer.
One reason might have to do with the temperature in the South. Most people enjoy their beer cold. Before refrigeration and electricity it was probably hard to keep beer cold in the South. With limited space in iceboxes given up to food that needed to be kept cold, beer was an afterthought. However, whiskey tends to taste roughly the same cold or not (I even like it better warmer) and was also easier to cool down with an ice cube or two whereas beer would taste disgusting with ice in it. This fact might lend itself to higher specialization in whiskey distillation in the South rather than beer brewing. Indeed the top whiskey distilleries are in the South today and Kentucky bourbon is the most popular type of whiskey in the country. Not to mention the fact that in many parts of the South private, illegal distilling is still a profitable business with recipes for moonshine handed down from before prohibition.
Even with the advent of electricity and modern techniques for keeping things cold, beer has not developed much. Of course Southerners today like beer as much (or maybe more) than others in the country, but they are also big on tradition. With high quality whiskey being such an ingrained part of their culture, they might be more willing to spend money on high quality whiskey than high quality beer. While both whiskey and beer will get you drunk, Southerners like beer but take great pride in their whiskey.
One reason might have to do with the temperature in the South. Most people enjoy their beer cold. Before refrigeration and electricity it was probably hard to keep beer cold in the South. With limited space in iceboxes given up to food that needed to be kept cold, beer was an afterthought. However, whiskey tends to taste roughly the same cold or not (I even like it better warmer) and was also easier to cool down with an ice cube or two whereas beer would taste disgusting with ice in it. This fact might lend itself to higher specialization in whiskey distillation in the South rather than beer brewing. Indeed the top whiskey distilleries are in the South today and Kentucky bourbon is the most popular type of whiskey in the country. Not to mention the fact that in many parts of the South private, illegal distilling is still a profitable business with recipes for moonshine handed down from before prohibition.
Even with the advent of electricity and modern techniques for keeping things cold, beer has not developed much. Of course Southerners today like beer as much (or maybe more) than others in the country, but they are also big on tradition. With high quality whiskey being such an ingrained part of their culture, they might be more willing to spend money on high quality whiskey than high quality beer. While both whiskey and beer will get you drunk, Southerners like beer but take great pride in their whiskey.
April 5, 2008
The Great Hot Dog Mystery
Something that's never really bothered me but seems to irk everyone else is the fact that it's slightly difficult to find a hot dog package that matches in number of links the number of buns in a bun package. Why this is, nobody really seems to know. Apart from the multiple conspiracy theories I've heard (related to government or no), I've never really heard a substantive answer. So what gives?
A lot of people think the bun company is trying to screw everyone. As if a corporate manager is hiding behind the donettes just across the bakery area, snickering and laughing as he watches helpless customers struggle to find a package of ten buns, give up, and purchase two packages instead. I can just imagine him: "Ha! Now that customer had to buy two packages! My profits will really soar now!" Folks, let's be frank: This is a stupid strategy for any company to undertake. First of all, it's wasteful and inefficient. Second, I know a lot of people who just use bread to make up for the lack of extra buns, and the hot dog tastes just as quickly-made and crappy as before, so no loss. No, this answer doesn't really work, and neither do the conventional ones you hear.
And since nobody had a good answer, I just took a stroll down the hot dog isle at Safeway over Spring Break (not to buy anything, of course-I hate hot dogs...) and took a look at things. What I found, upon inspecting both the packs of tens and the packs of 8 (like Hebrew Nationals), was that most of the packages weighed 16 oz. This seemed an odd coincidence, until my common sense side caught up with everything else. 16 oz is a pound people. Last time you went to the butcher, or looked at the meat isle, what did you notice about how every single package was labeled? Not by the chicken breast, or the number of stringies in the ground meat package-no, it all came in pounds. Well, there's one part of the answer out of the way.
But when I looked at the bakery section, I had little luck. What I found, after inspecting first the hot dog buns, which as usual came in packages of eight, had nothing to with the weight. Indeed, the bakery section seemed to have no rhyme or reason at all. But, once again, my common sense kicked in, and I noticed that most packages that weren't straight loaves of bread came in multiples of two (besides ten). That's why you have packages of six rolls, eight hot dog buns, or a good old dozen doughnuts. I'm not sure if that's the exact answer, but it made sense to me. Maybe bakers don't like ten. Also, I think ten buns wouldn't be as nicely square and compact as eight are, so perhaps bakers are concerned about efficiency of space as well.
Whatever the case, I think we can all agree that there is no conspiracy here-the hot dog and bun CEO's do not meet once a year and discuss how next best to screw the customer. Companies that try to do that generally go out of business (except auto repair shops-why I can never get an honest repair is beyond me). Perhaps I don't have the exact rational reason for this, but at least I've shown that if you think really really hard, you might be able to get past fanciful conspiracies and gladly purchase a second package of buns (the others can be used for something else, right?).
A lot of people think the bun company is trying to screw everyone. As if a corporate manager is hiding behind the donettes just across the bakery area, snickering and laughing as he watches helpless customers struggle to find a package of ten buns, give up, and purchase two packages instead. I can just imagine him: "Ha! Now that customer had to buy two packages! My profits will really soar now!" Folks, let's be frank: This is a stupid strategy for any company to undertake. First of all, it's wasteful and inefficient. Second, I know a lot of people who just use bread to make up for the lack of extra buns, and the hot dog tastes just as quickly-made and crappy as before, so no loss. No, this answer doesn't really work, and neither do the conventional ones you hear.
And since nobody had a good answer, I just took a stroll down the hot dog isle at Safeway over Spring Break (not to buy anything, of course-I hate hot dogs...) and took a look at things. What I found, upon inspecting both the packs of tens and the packs of 8 (like Hebrew Nationals), was that most of the packages weighed 16 oz. This seemed an odd coincidence, until my common sense side caught up with everything else. 16 oz is a pound people. Last time you went to the butcher, or looked at the meat isle, what did you notice about how every single package was labeled? Not by the chicken breast, or the number of stringies in the ground meat package-no, it all came in pounds. Well, there's one part of the answer out of the way.
But when I looked at the bakery section, I had little luck. What I found, after inspecting first the hot dog buns, which as usual came in packages of eight, had nothing to with the weight. Indeed, the bakery section seemed to have no rhyme or reason at all. But, once again, my common sense kicked in, and I noticed that most packages that weren't straight loaves of bread came in multiples of two (besides ten). That's why you have packages of six rolls, eight hot dog buns, or a good old dozen doughnuts. I'm not sure if that's the exact answer, but it made sense to me. Maybe bakers don't like ten. Also, I think ten buns wouldn't be as nicely square and compact as eight are, so perhaps bakers are concerned about efficiency of space as well.
Whatever the case, I think we can all agree that there is no conspiracy here-the hot dog and bun CEO's do not meet once a year and discuss how next best to screw the customer. Companies that try to do that generally go out of business (except auto repair shops-why I can never get an honest repair is beyond me). Perhaps I don't have the exact rational reason for this, but at least I've shown that if you think really really hard, you might be able to get past fanciful conspiracies and gladly purchase a second package of buns (the others can be used for something else, right?).
March 2, 2008
Naturalist Essay #1
Because there are people who are just bad tippers, the market for exchange between server and patron may evolve to decrease bad tips because servers will recognize who are bad tippers and refuse to engage in the market with them. This may drive bad tippers out of the market or convert them to better tippers. This is good for food service employees, but not necessarily for customers and certainly not for restaurant-owners who’re concerned with maximized revenue. Unfortunately for the servers, they are employees of the restaurants they represent, and the restaurant is interested more in the bottom line of people consuming food, than they are in the quality of tips their employees are earning. This desire to stimulate market share and to increase revenue may be the cause of such policies as “the customer is always right.”
The dynamic of good service occurs despite the unilateral nature of the market, but along with managements imposition of policy to restrict the strength of servers, government interferes with things by lowering the minimum wage of tipped employees in relation to the minimum wage the rest of the country sees. Perhaps government is interested in fairness and sees a market failure in tipped employees being able to make a viable income irrespective to the level of education and training they have. Perhaps by choosing to side with the customers instead of the servers, restaurant management sees what they’re doing as a way of catering to the customer. But, do these interventions by management and government actually do anything to correct market failure, or do they actually serve to lower quality of employment and service; the sclerosis of the food service industry because of interventionism?
Because of government involvement, less talented and fewer ‘good’ servers will choose food service as a means of employment. Because of managerial policies that state "the customer is always right," servers have even less power in relation to the customers and give bad tippers an incentive to complain or haggle over prices. The restaurant may adjust to lost revenue by lowering food costs and in turn lower quality of the food they offer. This harms not only servers, but also restaurant companies' reputations.
So, does tipping badly make sense? Perhaps in the short run, or to people who don’t value quality service and quality food. Perhaps more differentiated products in the form of food service will occur: thus higher priced, higher quality restaurants. Or, perhaps this dynamic occurs in those higher scaled restaurants, too. Maybe the dynamics of power and prosperity can be applied to the food service industry and not just to nations!
February 4, 2008
How can ski resorts charge so much for F&B
How can Ski Resorts charge so much for Food and Beverages?
If you have ever spent a day skiing at a resort like Breckenridge or Winter Park you probably stopped in at one of the many lodges for lunch or maybe just a beer. The food found in the lodges is usually of pretty good quality but is extremely over priced. I recently saw 24oz cans of Coors at Winter Park going for $7.50 each. The hamburgers were around $8.00. So, why can resorts charge a price for a good that is often more than double what the good would cost elsewhere? It does not seem like a rational person would pay these high prices yet, every time I step into one of these lodges I cannot even find a table to sit at because there are so many people eating and drinking the lodges’ food and drinks.
The first thing an Economist would examine is that people make choices based on their preferences, what is best for them. People do not pay $7.50 for a 240z can of Coors because Coors is the best beer in the world. The consumer chooses to pay the price because the cost of going somewhere else to buy the beer outweighs the benefits. The cost of buying the same 24oz can of Coors somewhere else would include the time it takes to get to the car, drive somewhere, buy the beer and then come back; giving up the next best thing he/she could be doing (Opportunity costs). Another thing to examine is that people make rules. Some people choose not to pay the high price for beer so they bring their own but the ski resorts will not let you bring your own alcohol into the lodges. Even those who bring their own beer must go back to their car to get it and incur the opportunity costs of whatever else they could be doing, skiing or socializing with people in the lodge. Many people simply pay the price for beer because they feel that sense they paid $80 for a lift ticket they are going to get their money’s worth of skiing and do not want to waste anytime going somewhere else to get beer. Of course, an Economist would see the price of the lift ticket as a sunk cost and would not consider it when deciding where to buy lunch or a beer.
An Economist would also note that choices made now will have an effect on us in the future. Personally, I am not willing to pay the high price for food but I am willing to pay for beer. I choose to buy burritos at Safeway (2 for $1) before I go up to the mountain. The choice to buy these burritos ahead of time means that I will either have to put them in my pockets while I am on the slopes or I will have to make a trip back to my car when I decide to eat (future costs). Bringing outside food into a lodge is frowned upon but there is no stated rule against it like with alcohol. I am willing to incur the cost of going back to my car so I bring my own food, but I prefer to sit in the lodge so I buy my beer at the lodge.
One last thing to remember is that opportunity costs are faced even if you decide to eat in the lodge and not go back out to your car. I can buy the 24oz can for $7.50 or I can wait to get the bartenders attention and give up whatever else I could be doing at that time and get a 16oz draft beer for $3.75 (and it usually takes a few minutes to get their attention on a busy day).
If you have ever spent a day skiing at a resort like Breckenridge or Winter Park you probably stopped in at one of the many lodges for lunch or maybe just a beer. The food found in the lodges is usually of pretty good quality but is extremely over priced. I recently saw 24oz cans of Coors at Winter Park going for $7.50 each. The hamburgers were around $8.00. So, why can resorts charge a price for a good that is often more than double what the good would cost elsewhere? It does not seem like a rational person would pay these high prices yet, every time I step into one of these lodges I cannot even find a table to sit at because there are so many people eating and drinking the lodges’ food and drinks.
The first thing an Economist would examine is that people make choices based on their preferences, what is best for them. People do not pay $7.50 for a 240z can of Coors because Coors is the best beer in the world. The consumer chooses to pay the price because the cost of going somewhere else to buy the beer outweighs the benefits. The cost of buying the same 24oz can of Coors somewhere else would include the time it takes to get to the car, drive somewhere, buy the beer and then come back; giving up the next best thing he/she could be doing (Opportunity costs). Another thing to examine is that people make rules. Some people choose not to pay the high price for beer so they bring their own but the ski resorts will not let you bring your own alcohol into the lodges. Even those who bring their own beer must go back to their car to get it and incur the opportunity costs of whatever else they could be doing, skiing or socializing with people in the lodge. Many people simply pay the price for beer because they feel that sense they paid $80 for a lift ticket they are going to get their money’s worth of skiing and do not want to waste anytime going somewhere else to get beer. Of course, an Economist would see the price of the lift ticket as a sunk cost and would not consider it when deciding where to buy lunch or a beer.
An Economist would also note that choices made now will have an effect on us in the future. Personally, I am not willing to pay the high price for food but I am willing to pay for beer. I choose to buy burritos at Safeway (2 for $1) before I go up to the mountain. The choice to buy these burritos ahead of time means that I will either have to put them in my pockets while I am on the slopes or I will have to make a trip back to my car when I decide to eat (future costs). Bringing outside food into a lodge is frowned upon but there is no stated rule against it like with alcohol. I am willing to incur the cost of going back to my car so I bring my own food, but I prefer to sit in the lodge so I buy my beer at the lodge.
One last thing to remember is that opportunity costs are faced even if you decide to eat in the lodge and not go back out to your car. I can buy the 24oz can for $7.50 or I can wait to get the bartenders attention and give up whatever else I could be doing at that time and get a 16oz draft beer for $3.75 (and it usually takes a few minutes to get their attention on a busy day).
February 1, 2008
It's eight degrees below outside, let's get some ice cream!
I've mentioned before that I work at a grocery store, so inherently there are many things that baffle me about people's spending habits. One of which is why ice cream sells better during the colder, winter months than it does say in July.
Here's what I have come up with to explain this oddity. During the summer people are generally busier with outdoor activities, sports, travel and so on. There are fewer sit down family dinners, fewer movie nights and less game nights. During the winter when there seems to be more of a routine and school is in session people tend to be at home with each other more. This lends itself to more ice cream consumption. When it's cold outside families spend more time doing indoor activities like playing board games and watching more movies and spend less time doing things outside of the home. Having a bowl of ice cream is much easier to do while sitting at home.
Another factor that I think plays a big role in the increase of sales is that ice cream is a comfort food. Seasonality comes into play with the affect it has on people's moods. In general people are more likely to be depressed during the winter when it is gloomy and cold and around the holiday season. What better way to feel better than to have a nice big bowl of ice cream?
And last, people wear bigger, heavier clothes during the winter making a few extra pounds easier to hide. When summer starts approaching people become fully aware of how they look in their swimwear, tanks tops and daisy dukes. The thought of a big bowl of ice cream is a lot less comforting now.
Regardless the reason, it will always make me laugh when it is a blizzard outside and 10 people in line to buy their favorite flavor of Ben and Jerry's.
Here's what I have come up with to explain this oddity. During the summer people are generally busier with outdoor activities, sports, travel and so on. There are fewer sit down family dinners, fewer movie nights and less game nights. During the winter when there seems to be more of a routine and school is in session people tend to be at home with each other more. This lends itself to more ice cream consumption. When it's cold outside families spend more time doing indoor activities like playing board games and watching more movies and spend less time doing things outside of the home. Having a bowl of ice cream is much easier to do while sitting at home.
Another factor that I think plays a big role in the increase of sales is that ice cream is a comfort food. Seasonality comes into play with the affect it has on people's moods. In general people are more likely to be depressed during the winter when it is gloomy and cold and around the holiday season. What better way to feel better than to have a nice big bowl of ice cream?
And last, people wear bigger, heavier clothes during the winter making a few extra pounds easier to hide. When summer starts approaching people become fully aware of how they look in their swimwear, tanks tops and daisy dukes. The thought of a big bowl of ice cream is a lot less comforting now.
Regardless the reason, it will always make me laugh when it is a blizzard outside and 10 people in line to buy their favorite flavor of Ben and Jerry's.
January 27, 2008
Why do video game retailers buy/sell used video games instead of just selling new titles at full price? (Naturalist Essay #1)
Many video game retailers who specialize in video game sales offer trade-in programs. Wouldn’t they be cannibalizing their business for new titles?
When the market for video game rentals appeared, retailers had to compete with a product (rented games) which had a high degree of substitution for what they sold new. The only real difference between the retailer and the renter was a level of ownership and selection.
Video games have a rapid decline in play value (marginal benefit) after a certain point. Once this happens the consumer will look to purchase a new game. With a trade-in system the marginal cost of buying a new video game becomes reduced as the consumer now has the option of trading in a game which no longer gives them marginal benefit (enjoyment of play) that exceeds their marginal cost (time to play it). The retailer is giving the option of turning part of the buyer’s sunk cost (purchase price of the old game) into a reduction of marginal cost for their next purchase.
It extends even further because the retailer is now buying from one consumer and selling to another consumer directly instead utilizing a third party producer. This allows the retailer to realize a greater overall profit. A buyer who has $100 to spend on video games could buy 2 new games for $50 each which the retailer has purchased from the producer of the games for $30 each. The retailer nets $40 profit and the consumer is able to play two video games.
With a trade-in program the buyer purchases the first video game for $50, then trades it back in for $10 of store-only credit. Store-only credit encourages buyers to return to utilize unused store credit and ensure maximum profit since it can only be spent with the retailer. The consumer then purchases another used game for $20 (which the retailer purchased from another game consumer for $10), the marginal cost for a new (used) game is now $10. The buyer can now repeat the process a total of 5 times. Each time the retailer buys and then sells a used video game they net $10 for a total of $50 from the five used game transactions (the game they buy they sell to another buyer). Now the retailer has netted $20 on the original game and $50 from the used game transactions for a total of $70 profit and the consumer gets to play 6 video games. The only one who has lost anything is the original producer of the game.
This also allows the retailer to provide a supply at a lower price and capture more of the buyers in the marketplace. For example, they will now attract the consumer that will pay $49 or below for a video game but not $50 per game. This also allows the video game retailer to offer a wider selection at a range of pricing, including older titles that may no longer be in current production. Here, the retailer is price targeting the individual consumer.
When the market for video game rentals appeared, retailers had to compete with a product (rented games) which had a high degree of substitution for what they sold new. The only real difference between the retailer and the renter was a level of ownership and selection.
Video games have a rapid decline in play value (marginal benefit) after a certain point. Once this happens the consumer will look to purchase a new game. With a trade-in system the marginal cost of buying a new video game becomes reduced as the consumer now has the option of trading in a game which no longer gives them marginal benefit (enjoyment of play) that exceeds their marginal cost (time to play it). The retailer is giving the option of turning part of the buyer’s sunk cost (purchase price of the old game) into a reduction of marginal cost for their next purchase.
It extends even further because the retailer is now buying from one consumer and selling to another consumer directly instead utilizing a third party producer. This allows the retailer to realize a greater overall profit. A buyer who has $100 to spend on video games could buy 2 new games for $50 each which the retailer has purchased from the producer of the games for $30 each. The retailer nets $40 profit and the consumer is able to play two video games.
With a trade-in program the buyer purchases the first video game for $50, then trades it back in for $10 of store-only credit. Store-only credit encourages buyers to return to utilize unused store credit and ensure maximum profit since it can only be spent with the retailer. The consumer then purchases another used game for $20 (which the retailer purchased from another game consumer for $10), the marginal cost for a new (used) game is now $10. The buyer can now repeat the process a total of 5 times. Each time the retailer buys and then sells a used video game they net $10 for a total of $50 from the five used game transactions (the game they buy they sell to another buyer). Now the retailer has netted $20 on the original game and $50 from the used game transactions for a total of $70 profit and the consumer gets to play 6 video games. The only one who has lost anything is the original producer of the game.
This also allows the retailer to provide a supply at a lower price and capture more of the buyers in the marketplace. For example, they will now attract the consumer that will pay $49 or below for a video game but not $50 per game. This also allows the video game retailer to offer a wider selection at a range of pricing, including older titles that may no longer be in current production. Here, the retailer is price targeting the individual consumer.
January 23, 2008
California gas price fluctuations (Naturalist Essay 1)
Why do California gas prices fluctuate so much?
Gas prices have been increasing all over the united states for a variety of reasons. More and more people are demanding oil, including new demand from China and India. Production decreases as a result of hurricane Katrina and other events have also played a roll in increasing gas prices. But why is it that California seems to always have the highest gas prices and the most fluctuation of prices? The majority of domestic oil produced for the U.S comes from the Gulf of Mexico and so we could expect that prices would be higher the further you are from there.
I believe the reason California has gas prices higher than the rest of the U.S is because the large number of people who live in the state. Pollution in California is a big problem and the state has set standards on gasoline that are higher than the federal standards. The higher standards within California restrict the trade of gasoline. The result is a trade off between price increase and a decrease in pollution. The state of California operates its own refineries to produce this gasoline so additional taxes are placed upon the fuel.
California operates its own refineries so there are a smaller number of suppliers. The refineries in the state usually operate at maximum capacity to fill the states demand so when a refinery shuts down, the others within the state cannot produce more to keep the same level of supply. If one plant shuts down and the supply is cut, prices will be pushed up. California cannot easily replace the supply because of its restrictions on gasoline and its proximity to the gulf. As plants in California shutdown and reopen, the supply will be greatly reduced and increased. The result is a large fluctuation in prices. Many other states in the United States do not have gasoline restrictions above those set by the federal government. If a refinery is shut down in one of those states, the state can then buy gasoline elsewhere to keep the level of supply relatively similar to its previous level.
Proximity to resources and restrictions are causes for price fluctuations in California that are not experienced in other parts of the country. There could be other reasons for high prices and fluctuations in California. The cost of living in California is higher that some parts of the country and income levels will reflect that. Higher income levels may result in consumers being less price sensitive to fluctuations in gasoline. California may also not have as many gas stations that are close together so the individual stations have more power and can charge a higher amount. Other areas, such as Garden of the Gods road in Colorado Springs are full of gas stations. The gas stations on Garden of the Gods face a large amount of competition and will price their lower in order to stay competitive.
Gas prices have been increasing all over the united states for a variety of reasons. More and more people are demanding oil, including new demand from China and India. Production decreases as a result of hurricane Katrina and other events have also played a roll in increasing gas prices. But why is it that California seems to always have the highest gas prices and the most fluctuation of prices? The majority of domestic oil produced for the U.S comes from the Gulf of Mexico and so we could expect that prices would be higher the further you are from there.
I believe the reason California has gas prices higher than the rest of the U.S is because the large number of people who live in the state. Pollution in California is a big problem and the state has set standards on gasoline that are higher than the federal standards. The higher standards within California restrict the trade of gasoline. The result is a trade off between price increase and a decrease in pollution. The state of California operates its own refineries to produce this gasoline so additional taxes are placed upon the fuel.
California operates its own refineries so there are a smaller number of suppliers. The refineries in the state usually operate at maximum capacity to fill the states demand so when a refinery shuts down, the others within the state cannot produce more to keep the same level of supply. If one plant shuts down and the supply is cut, prices will be pushed up. California cannot easily replace the supply because of its restrictions on gasoline and its proximity to the gulf. As plants in California shutdown and reopen, the supply will be greatly reduced and increased. The result is a large fluctuation in prices. Many other states in the United States do not have gasoline restrictions above those set by the federal government. If a refinery is shut down in one of those states, the state can then buy gasoline elsewhere to keep the level of supply relatively similar to its previous level.
Proximity to resources and restrictions are causes for price fluctuations in California that are not experienced in other parts of the country. There could be other reasons for high prices and fluctuations in California. The cost of living in California is higher that some parts of the country and income levels will reflect that. Higher income levels may result in consumers being less price sensitive to fluctuations in gasoline. California may also not have as many gas stations that are close together so the individual stations have more power and can charge a higher amount. Other areas, such as Garden of the Gods road in Colorado Springs are full of gas stations. The gas stations on Garden of the Gods face a large amount of competition and will price their lower in order to stay competitive.
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