Wednesday, September 17, 2014

How much is "50 Cent" the rapper worth in Foreign Currencies? Economics is FUN!

On David Wessel's Twitter feed he retweeted this:

I thought it funny as well.

Using my meager Excel skills, I cobbled together the latest exchange rates from the Wall Street Journal (Sept 17th, 2014).

In order to give it a little more perspective, I determined what it would take in US currency for 50 Cent the rapper to be the equivalent of 50% (half) of the foreign currency.  Sometimes he needs to be a little more but for the most part he can be a less than himself.

Example: Look at the BLUE column for and the first entry for the Kuwaiti Dinar.

It shows that 50 Cent would actually have to be "174 Cent" ($1.74) in order to exchange for half a Kuwaiti Dinar.  I got $1.74 by dividing the "US Dollar per Foreign Currency" (3rd column--the actual exchange rate) by $.50 cents.  In other words "If it takes $3.49 to "buy" one Kuwaiti Dinar then it will take $1.74 (rounded) to buy half a Kuwaiti Dinar".

From the Kuwaiti Dinar on down the list, 50 Cent would have to be MORE than himself to be the equivalent in the particular foreign currency...until you get to Ecuador.  Ecuador uses the dollar so 50 Cent would be $.50 in Ecuador.

In any country below Ecuador, 50 Cent can be LESS than himself and still have some left over!

For example, in Canada he would only have to be 46 Cent (rounded) and enjoy a 4 Cent surplus. :)

NOTE: To find the calculation consistent with what is highlighted in the newspaper clipping, take the RECIPROCAL of the numbers you see in the RIGHT hand column below.

Basic Supply and Demand illustration. Hope it helps.

The corn crop for this year (2014) is scheduled to be the most productive ever, with per acre yields in the 162 bushel range (a bushel is 70 pounds for Corn).

For farmers this is a blessing and a curse at the same time. For the individual farmer a bumper crop is good--more corn to sell at the anticipated market price.  However, if ALL farmers experience a bumper crop then that will increase the supply of corn and lower the expect price of corn (per bushel).  It is a catch 22 situation:

Farmers worry good corn crop could mean low prices

"Agricultural officials are projecting an 11 percent increase in the size of Wisconsin's corn harvest this year, a prediction that has farmers worried prices will drop too low for them to make a profit.
State projections call for corn yields of 162 bushels per acre, an increase of 16 bushels per acre from last year....
Richard Halopka, an agriculture agent in Clark County, noted that if prices are too low, farmers don't have to sell right away.
"One unique thing in this county is that we do have a fair amount of storage locally, which could get stretched if we have a bumper crop," he said....
I put together some slides to illustrate this excerpt from the article.  

If you are teaching or learning the basics of Supply and Demand you may find it useful. 

Distinguishing the difference between a change is Supply vs a change in Quantity Supplied (the same for Demand) is one of the most diffcult things to intuitively understand in an economics principles class. I hope it helps.

Monday, September 15, 2014

Literally and figuratively the butter spread is getting wider. See how that affects trade flows.

The price of butter has surged in recent days as well as recent months. Here is a graph I created showing the price of butter in the US and in world markets.  The prices are per pound based on a  metric ton (2204.62 lbs) so this is the price at production for wholesale sale, NOT RETAIL (the price you see at the store).

The world prices since 2/19/2013 are in RED and the US price is in BLUE.

Notice, of the most part, world prices are consisently above the US price but a crossover occurs between March 19th and April 19 of 2014.  Then there is a significant diverence where the US price quickly outpaces the world price.

As of today (9/15/2015) the US price is at $3.00 lbs and the world price is about $1.25 (Source) so on the graph the RED world price line end point is the same but the US red line extends up to the $3.00 mark.  The spread is even wider than what appears on the graph!

Source: Haywardeconblog. Using historical data from HERE and HERE
This gives me an opportunity to do a lesson on international trade to show what happens in markets when the world price of a good is differnt from the domestic price and how trade flows might be affected.

"Mainstream media" article that extensively uses elasticity to describe a market. What a pleasant surprise!

A terrific article that explains the current market for corn using many micro and a few macroeconomic concepts.

Bumper crop is bummer for some (Edward Lotterman)

The main ones are  Elasticity of Demand and of Supply. Rare it is to find an article in mainstream media that uses correct terminology to describe economic events.  Warms my heart!

Check it out.  Offers MANY opportunities to practice drawing and analyzing basic supple and demand graphs.

Here is a quick "sketch" of what it looks like after all is said and done:

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