Thursday, November 20, 2014

Losing your Cool over COOL. It is (insert any time of day)--Do you know where your food comes from?

Here is an excellent example of a "Non-Tariff Barrier"(overt, non-monetary tax or quota) a country can impose on a good (or class of goods) coming into a country to (1) increase the price of that good or (2) discourage the importation of it.

The "Country Of Origin Labeling ("COOL")" requirement, part of the 2008 Farm Bill, on various food items is one such barrier.   

People like to know where their food comes from in the supply chain.

This imposes a financial burden on certain importers of food items. In this case it is beef producers:

Country of origin label for meat cuts endangered

The U.S. is running out of options in its effort to tell consumers where fresh cuts of meat originated after a successful challenge to package labeling by Canada and Mexico. 
A 2008 farm law requires that packages of steaks, ribs and other cuts of meat identify where the animals were born, raised and slaughtered. A label might say the meat was "born in Canada, raised and slaughtered in the United States" or "born, raised and slaughtered in the United States." 
The World Trade Organization agreed more than once with Canada and Mexico that the labels give the U.S. livestock industry an advantage. In a ruling Oct. 20, the WTO said the labeling requirement forced meatpackers to segregate and keep detailed records on imported livestock, giving them an incentive to favor U.S. livestock. 
The trade organization ruled in 2011 that an earlier version of the labels was discriminatory. That ruling was upheld in 2012 after a U.S. appeal.
 Canada filed a compliant with the World Trade Organization (WTO) and they prevailed.

The US can either ignore it and face retaliation in the form of tariffs on US exports to Canada and Mexico or Congress can modifiy the requirement to meet standards.

Advocates for keeping  COOL as it is are a strong group and it is in the interest of the Public to know where their food supply comes from. Lobbying groups for the goods that will face tariffs will put up a fight as well.  Exports and jobs are at stake.

Who will prevail?

Nice map showing the devolution of farm dependency in the US.

This image is via Big Picture Agriculture from a report by the Kansas City Federal Reserve Bank.

It shows how the US economy has devolved from dependency on agriculture. The Blueish Green areas represent, at the county level, that dependency in 1950 and 2000 (that is the latest date).

Observation: In the earlier time period agricultural interests and affects spread to far more people in rural areas.  Lets say it was more democratic in nature. This served as a counter-weight to the shifting power bases to/in urban areas.

Fast-forward to today. The politics of agriculture affect fewer people (nominally) and corporate interests have replaced the democratic nature of rural politics.

Policies of the bygone era had to appeal to tens of thousands of small business owners (farmers) with varied interests.  Today they have to only appeal to a concentrated number of large corporate farms with homogeneous interests.

Image via Big Picture Agriculture from a report by the Kansas City Federal Reserve Bank

Thursday, November 13, 2014

The Lottery--How much does your State payout in Prizes and gain in Revenue for the State Budget?

Over at  Five-Thirty-Eight Mona Chalabi has a blog entry on how much States receive in Lottery money (year 2012 is the latest data availble). She also shows, on a per capita basis, how much of the money goes to prizes, administrative costs, and into the State budgets as general revenue.

I went to the data source and created the simple table below to show, in percentage terms, how much each State pays out in prizes and how much goes into the State budget to be spent on...You take a guess.

How does your State do in terms of using the lottery as a revenue generating acitivity?

One observation: If the Lottery is played, in general, by low(er) income people (I think that is what the research shows) then in States where there are high pay-outs in prizes seem to be just re-distributing money within that subset. The Lottery is promoted as a way to raise money to advance some social policy---usually that is education which presumably benefits everyone rich or poor.

I have not played the Lottery in 20 years. I think I am richer, literally and figuratively, for it.

(Note: Numbers do not round up to 100%.  The balance percentage is from "Administrative Costs" to run the Lottery (Salaries, advertising, etc).

Monday, November 10, 2014

Nice Real Life Example of "The Rental Rate of Capital". An important Micro Econ concept.

One of the more difficult (and frustrating, I think) concepts in the Microeconomics Unit on Firm structure is figuring out what is an implicit (opportunity) cost when calculating economic profit.

One determinant of implicit opportunity cost is "the Rental Rate of Capital". In short, the rental rate of capital is the dollar amount I could receive for a physical input (i.e. tools, machinery, land) if I rented it to someone else to use instead of using it myself.

This is important to economists because it helps to determine if resources are being employed in the most efficient way possible. If a piece of capital could be rented out to someone else for more than what it could produce for you, then this would (could) be considered a mis-allocation of resources.

Assume I can use a barn on my property and it contributes $1,000 to my income.  What if instead I could rent it out for some other purpose for $1,200?  An economist would suggest that is an inefficient allocation of resources to the tune of a net $200.00.

I know, that can be VERY subjective, but let's go with it.

Here is an excerpt from a very short article on an effort to help farmers put a dollar value on some "dead capital" they possess that could be employed in an alternative use.

Survey could help determine fair prices for farm-building rentals (HT:Morning AG Clips)

Farmers, producers and landowners who have agricultural buildings on their property they are no longer using can turn the vacant space into extra farm income, according to experts with Ohio State University’s College of Food, Agricultural, and Environmental Sciences. 
Whether it is a farm building or livestock facility, farmers who want to put unused space into service to generate additional farm income first need to know how to go about creating a leasing arrangement and how to determine an appropriate rental price, said David Marrison, an Ohio State University Extension educator. OSU Extension is the outreach arm of the college. 
Many farmers may want to rent out buildings on their properties, but sometimes it’s hard to put a number on that, so it’s good to know what the going rates are on buildings in the region,” Marrison said. “Farmers need to know how to utilize those old buildings, whether it be to rent them out to another farmer or producer for extra hay space or to milk dairy cows.” (emphasis mine)
Here is a link to the PDF that gives prices for a wide variety of physical capital that my be laying dormant down on the farm.

Putting a price of these things can help a farmer make more income but, more importantly for economists, see to it that there is a mechanism for a more optimal allocation of societal resources.

Tuesday, November 4, 2014

The price of oil relative to the cost of producing oil. Nice graphic to help with graphing!

This is a follow up to yesterdays posting on the Break-Even point for oil drillers in different geographic areas of the US.

The point of that post was to use a firms costs curves (AVC + AFC =ATC) to show how low the price would have to go in order for firms to exit the industry.

Today in Business Insider they had this bar graph that helps clarify the point.  I inserted a horizontal RED bar to show the current price drillers are receiving for each barrel of oil produced.

Together they give you an indication of how drillers, at the current price, are faring in terms of profitability.

I think teachers and students alike can use info to plot on a graph of the firm that is a "Price Taker" in the marketplace.  Small drillers are relatively numerous and they must take the given market price (for the most part) for each barrel of oil the bring up.

Monday, November 3, 2014

Ebola Update: Last week was not a good one in this fight.

The data-base for Ebola reporting (found HERE) is updated to Oct 27th.  You can see in the graph below that the week of October 21st to 27th (Circled in black) was not a good one in the fight against this virus.  HERE is the latest World Health Organization(Oct 31) report on the status of Ebola.

This is a record of "Reported,Suspected and Confirmed Cases".

A noticable jump in all three of the afffected courntries, but Liberia and Sierra Leon the most frightening.

PPT on Firm Cost Curves as it relates to the price of oil.

I love it when the media post(s) helpful resources.

The graphic below comes from a Wall Street Journal article:   Energy Boom Can Withstand Steeper Oil-Price Drop
Source: Wall Street Journal
It gives a range of "Break-Even" price points for barrels of oil from different shale formations throughout the US and compares it to the current price of a barrel of oil, $82.20 (Wednesday, Oct 29).

In AP Microeconomics, "Break-Even" is defined when the price the firm receives for a good equals the Average Total Cost (ATC) or producing that good.  ATC is the sum of the firms "Explicit" money costs (dollars paid out in expenses) and its "Implicit" Opportunity Costs.

The article has a couple of relevant quotes that help in the analysis I put together in the form of a PPT to helps students understand this concept.

"U.S. crude closed Wednesday at $82.20 a barrel, and far less in some parts of the country where few pipelines are available to move it to refineries. Lower oil prices mean drillers will have less cash to cover their borrowings, especially if crude prices tumble more."
"Borrowings would be considered "Fixed Costs" as they have to be paid back regardless of production.
 "To be sure, even small price drops could begin to affect production around the margins. “The clear losers in a low-price environment are going to be smaller companies that are overleveraged,” said Daniel Katzenberg, a Baird analyst. The downturn will be particularly toughon companies drilling in areas without much history of oil production. Costs tend to be high in these areas, which include the Tuscaloosa Marine Shale in Louisiana and Mississippi and some relatively unexplored shale formations in Oklahoma.
The current price environment is a bit like a stress test to determine which companies have their financial and operating houses in order. Those that spent too much to lease property to drill, or have high operating costs, are most likely to suffer."
 Keep these things in mind as you view the PPT.  Visual the price of oil you see in the graphic moving to the left (decreasing) and encroaching on the Break-Even points.  Hopefully it will help!  Let me know of anything I might have missed.  Thanks!

Friday, October 31, 2014

Prices of things the day I was born.

Looking though the archives of the New York Times today.  Thought I would see what happened on my birthday (April 6, 1960).

Saw this advertisement for a reconditioned calculator and typewriter.

In today's dollars $199.50 for the calculator would be $1,604.30 and the typewriter would be $956.95.

I think I will take today's technology, thank you.

This was a fun excercise, by the way.  The site has all the issues prior to 1980---no charge!

Do Danish Fast Food Workers REALLY earn $20 per hour? It depends on how you define $20

A popular article making the rounds in the Econ and Politics blogoshere is this one:

Living Wages, Rarity for U.S. Fast-Food Workers, Served Up in Denmark

COPENHAGEN — On a recent afternoon, Hampus Elofsson ended his 40-hour workweek at a Burger King and prepared for a movie and beer with friends. He had paid his rent and all his bills, stashed away some savings, yet still had money for nights out. is because he earns the equivalent of $20 an hour — the base wage for fast-food workers throughout Denmark and two and a half times what many fast-food workers earn in the United States. can make a decent living here working in fast food,” said Mr. Elofsson, 24. “You don’t have to struggle to get by.”With an eye to workers like Mr. Elofsson, some American labor activists and liberal scholars are posing a provocative question: If Danish chains can pay $20 an hour, why can’t those in the United States pay the $15 an hour that many fast-food workers have been clamoring for?
The quoted dollar amount of $20 is in current market exchange rates between the Danish Kroner and the US dollar.  However, people don't buy exchange rates with their earnings they buy "stuff" in their local economies.

Saying a Danish worker earns the equivalent of $20 US dollars per hour says nothing about the purchasing power of their earnings.

At this link you will find Comparable Price Levels among developed countries as measured by the OECD for August 2014.  If you locate Denmark and the US you will find an index of "149".  This means that comparable goods and services are 49% more expensive in Denmark than they are in the US.

I found some examples of minimum wages in the Restaurant and Hospitality sector that were negotiated between the unions and industry in Demark.

See graphic below.  Along with those minimum wages in Kroners I converted them to US dollars at the current exchange rate (middle column) AND deflated them by 49% to equalize purchasing power between Danish workers and US workers in US dollars (Yellow highlights).

Example.  An unskilled chef in Denmark earn an minimum of  114.47 Kroner per hour. When exchanged at the current exchange rate that comes to $19.23. Sounds like a lot, but remember we don't buy exchange rates we buy "stuff".

When we control for the price level difference of 49% that Danish workers wage has the same purchasing power as an unskilled chef in the US earning $12.91.

I am not judging this.  Just providing some perspective on the wage differential.

That is all...

Tuesday, October 28, 2014

Supply and Demand: Ebola Protective Gear edition.

The tragedy of Ebola has created issues in the supply chain for the protective gear we have come to know so well from watching the news.

This article from Bloomberg has two components to it that provide an opportunity to look at this situation from a basic supply and demand perspective. The portions in bold and underlined are my emphasis as this is what I would like to analyze in the graphs below:

The International Association of Fire Fighters said some local fire units are being forced to wait until next year to get the personal-protective gear that shields workers from being exposed to bodily fluids, the only way to contract Ebola. Dupont Co. and Medline Industries Inc., makers of the products, say demand has surged as health departments and hospitals respond to the threat. 
“The administration should put pressure on manufacturers to increase production to meet the growing demand,” Harold Schaitberger, president of the 300,000-member union, said in a letter to Obama. The group met in recent days with officials about the response to the deadly virus, and said supplemental funding from the federal government is needed to help local governments pay for the gear and training.
 This sudden increase in demand has ramifications for both the buyers and producers of this highly specialized protective gear.

In these graphs I created I want to illustrate both of the highlighted points---how the increase in demand affects producers and ultimately the price for the gear, and how the request for government funding might impact the market as well.

Monday, October 20, 2014

Ebola Update: Graphs of Cases and Deaths. Not a good trend.

Here is a graph of the Number of Cases of Ebola that have been identified in each of the 4 countries where there has been a significant outbreak.  You can see Nigeria has it under-control, but the other 3 are still on an upward trend. The data was last updated on Oct 14-17.

Here is the Data Set.  It is being compiled from data/reports provided by the affected countries.

Using the same data source, here is a graph of the Number of Deaths thus far in the most affected countries.

The trend is still upward.  Until we see a plateauing this will only get worse.

Saturday, October 18, 2014

Ebola: Latest WHO report suggests deterioration in affected areas in NW Africa

For any of my readers interested in the latest regarding the Ebloa situation in Northwest Africa, here is an excellent resource for you or your students.  It is from the World Health Organization (WHO) and is dated October 15, so it is very recent.

All you need to do is read the first page of the report (and only the 3rd paragraph) to get the idea that at this point the virus is not close to being contained in either Liberia, Sierra Leon or Guinea Bissau.

The international community is going to be playing "Whack-a-Mole" with this for the foreseeable future. Not a good situation.

Also, if you are a data hound, here is a link to a source that is doing yeomans work by combing through unorganized data provided by the respective host countries and putting it on Github.

Thursday, October 16, 2014

NYT column on water in CA. Nice graphic that I think I make more clear.

Eduardo Porter at the New York Times has an excellent column on water policy in California. I highly recommend it.  It discusses many economic concepts, with prices and opportunity costs most prominent.

He includes this first graph that shows water consumption at different prices for several different developed countries:

Notice the "Quantity" is on the vertical axis and "Price" is on the horizontal axis.  In economics (by tradition) when we plot demand (or supply) we do the reverse---Price on the vertical, Quantity on the Horizontal.

To put it terms that an introductory econ student can better visualize, I took the plotted points on the graph, reversed the axis, and replotted the points to derive a traditional demand curve as we would recognize from a textbook.  That is below.

The Demand Curve DOES slope downward!

PLEASE NOTE:  I did this by hand "eyeballing" the points so it is not absolutely correct but I hope relatively correct for the most part.  Also, the RED Demand curve I drew is not necessarily mathematically correct either---eyeballed as well.  I accept there is a margin of error! :)

Three countries are outliers compared to the rest: the US, Australia and Canada.

Side by side, both of these help me visualize the issue better.  I hope it does for you as well.

Netflix and Elasticity of Demand. Nice article for illustration.

Rarely do I come across an article or commentary (like the one below) that is a great help in giving life to relatively difficult introductory economics concepts.  This from Slate regarding Netflix is a gift for teaching Elasticity of Demand:

Netflix Says a $1 Price Increase Crushed Its Subscriber Growth

Netflix tacked on about 3 million new users across the globe over the last three months, undershooting its forecast of 3.7 million. But perhaps more worrisome, it’s growth in the U.S. fell year over year, reaching just 1 million net new signups, down from 1.3 million in the third quarter of 2013. The company is blaming its $1 price hike in May, which raised the cost of a subscription to $8.99 per month.(emphasis mine) “As best we can tell, the primary cause is the slightly higher prices we now have compared to a year ago," management said in its letter to shareholders. "Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher adoption markets such as the US.”  
What is happening here is that subscriber growth is increasing (1 million more) BUT it is increasing at a decreasing rate (1.3 million last year). This works out to a year-over-year decrease in quantity demanded, relative to the prior year, of 300,000 subscribers.  In percentage terms that is a decrease of 23% (1.3M-300,000 divided by 1.3 M X100).

Over that period of time the price increased from  $7.99 to $8.99, an increase of 12.5%.

Using the simple Elasticity of Demand formula:
%Change in Quantity Demanded divided by %Change in Price
Doing the math, we have 23%/12.5% = 1.84.

An elasticity greater than 1.00 suggests the demand for a good or service is relatively ELASTIC. The higher the number the MORE sensitive consumers are to changes in the price of the good/service.
"Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher adoption markets such as the US."
Elasticity measures changes along an EXISTING Demand curve.  In order to counter this movement up and along its Demand curve, Netflix will have to figure out a way to shift that Demand curve to the RIGHT (an increase in Demand):
"Slightly less growth" is a bit of an understatement. The slowdown suggests that streaming customers might be more cost-conscious than it previously seemed. When prices first went up in the spring, subscription growth didn't seem to take a hit. But now, the company thinks that may have been due to  "the large positive reception to Season Two of Orange is the New Black." 
But maybe that's the silver lining here: If it just manages to come up with a few more decent programs, investors might buck up." (emphasis mine)
This suggests if Netflix produced more programs that people as a whole wanted to view, then the quantity demanded will increase at the new price.  Demand curve shifts right and revenues, ceterus paribus, will recover.

At least Netflix hopes so. Creative Destruction with new streaming services are just around the corner.

Friday, October 10, 2014

The New UK Minimum Wage in current and PPP exchange rates compared to US Minimum Wage.

The UK has different minimum wages for different age groups and for those who are classified as "apprentices".

Th numbers below are from the website.

The wages are in current, nominal British Pounds Sterling.  I highlighted the 2014 rate that took affect this month (October).

For comparison to the US minimum wage of $7.25 here are the conversions in current market exchange rates and in the Purchasing Power Parity (PPP) exchange rate.  Go HERE for an excellent explanation of PPP, if you need it.

Economists, in general, prefer the PPP exchange rate because it more accurately measures the actual purchasing power of currencies and is less volitile than the market exchange rates that can flucuate for transient reasons.

Current Market Exchange Rates (1 British Pound Sterling exchanges for $1.61 US dollars).

   21 and over: 6.50 Pounds X $1.61 = $10.47
   18-20 : 5.13 Pounds X $1.61 = $8.26
   Under 18: 3.79 Pounds X $1.61 = $6.10
   Apprentice: 2.73 Pouns X $1.61 = $4.40

Purchasing Power Parity (PPP) (1 British Pound Sterling exchanges for $1.36--source OECD)

   21 and over: 6.50 Pounds X $1.36 = $8.84
   18-20 : 5.13 Pounds X $1.36 = $6.98
   Under 18: 3.79 Pounds X $1.36 = $5.15
   Apprentice: 2.73 Pounds X $1.36 = $3.71

In either measure, the minimum wage for those over 21 in the UK is higher than the US minimum wage.

However, below that level using PPP the effective minimum wage falls below that of the US. US teens are "better off" in terms of the wage (I am NOT factoring in other benefits or costs  that exist--just comparing the absolute wage rate).

When reading media accounts of the differences in Minimum Wages around the world it is important to know if they are reporting in actual exchange rates or in PPP.

As you can see, it makes a BIG difference.

NOTE: Here is a link to an entry I did like this for AUSTRALIA.