Wednesday, December 20, 2017

"The Sisterhood of the Traveling Pants" is not just a movie title---it is a story of International Trade. Those pants REALLY DO travel

Saw this graphic on Twitter HERE. It nicely illustrates the complexity of international trade. Trade is the sum of the supply chain that is necessary for the production of any good, from the simple to the complex. Regardless of the complexity of the good being produced, the supply chain is itself an eco-system that must be nurtured and respected.

Also, it serves as a reminder to me as to how deceptive trade numbers can be---not intentionally, mind you. However, they way exports and imports, hence the trade balance, are calculated and accounted for does not present the whole story.  Trade is a story of the travels of inputs that go into the making of outputs---the final good that will be purchased by the end-user.

Example: If we ship $80 in inputs to Mexico (not counted as US Exports!). Those inputs are assembled with $20 in Mexican labor (now value is $100) and exported to the US, then Mex is credited with $100 in exports and the US with $100 in imports. See the distortion?

Source: HERE

Do we buy stuff from Countries OR do we buy stuff from people? Here is a different look at US trade numbers.

Trade numbers are published on a national level---comparing country to country. No problem with that, but here is another way to frame the numbers.

We trade with the actual, real live citizens of the respective country. They buy our stuff and we buy theirs.

So, how do the national trade numbers look when we quantify them on a per person basis?

Below is a graphic I created to show the US trade balance with the Top 10 (plus the EU Area) trade partners as a balance nationally (yellow) and on a per person (capita) basis.

I took the value of US exports to the respective country and divided it by the population of that country. This gives the dollar value of US goods on per person basis the person bought. I then took the value of imports from a country and divided it by the US population. This gives the dollar value of the foreign goods US citizens bought. The difference between the two numbers gives a per person SURPLUS of DEFICIT in trade between the countries.

Notice nationally the US has trade DEFICITS with all trading partners, except the UK.  But if we look at it on a per person basis, we have trade deficits with only 3 countries (the EU as a whole, China, and India).

In other words, for the most part, in trade the US citizens buy less from foreigners than they buy from us---we run person to person trade SURPLUSES.  Only with the relatively poor countries of China and India do we buy more from them then they buy from us.

Wednesday, November 22, 2017

Thanksgiving Day meal adjusted for historical minimum and average wage. Are we better off?

The American Farm Bureau does an annual pricing of a Thanksgiving Day meal to illustrate the changes in prices over time. They use the following methodology:
 ""A total of 141 volunteer shoppers checked prices at grocery stores in 39 states for this year’s survey. Farm Bureau volunteer shoppers are asked to look for the best possible prices, without taking advantage of special promotional coupons or purchase deals, such as spending $50 and receiving a free turkey"" (American Farm Bureau)
Here is the graphic they post to show the nominal price of the meal and the inflation adjusted "real" price of the meal.  As you can see, the nominal price (current dollars spent) rises consistently while the "real" price (inflation adjusted) has been relatively flat for the given time span (1986-2017).

People buy stuff with the money they earn from wages--hourly wages, for the most part. While the Farm Bureau measures this market basket of food using current and adjusted prices, I would like to quickly show how the value of two measures of wages have retained their purchasing power over time: The minimum wage and the "average hourly salary of non-supervisory and production workers", which gives an idea of how much the typical worker earned per hour.

In 1986 (November) the average hourly pay for non-supervisory and production workers (source) was $9.00 per hour and the cost of the meal in nominal 1986 dollars was $28.74 (source).

So in 1986, it took a worker earning this wage 3 hours and 11 minutes ($28.74/$9.00 then converted the remainder to minutes) to make enough to pay for the meal.

In 2017. the hourly wage for the same category of worker was $22.22 (for October, the latest info available) and meal cost $49.12. It took this worker 2 hours and 13 minutes ($49.12/$22.22) to make enough for the meal, or one hour LESS in labor.

Now lets look at the other end of the labor/earnings market---minimum wage workers.

In 1986 the minimum wage was $3.35 (source) and the meal cost $22.74. It took this worker 6 hours and 47 minutes ($22.74/$3.35) to earn enough for the meal.

In 2017 the minimum wage is $7.25 and the meal cost $49.12.  It took this worker 6 hours and 46 minutes ($49.12/$7.25) to earn enough for the meal---virtually the SAME 30 years apart!

Bottom line. Using this VERY rough measure of purchasing power of a specific wage, the "average hourly earning" worker today is much better off, by 1/3, than his/her counterpart 30 years ago and the minimum wage worker has stayed the same with their counterpart.

Wednesday, August 30, 2017

Continuum of Economic Systems

Labeling and characterizing particular countries economic systems based on how they are organized to allocate societies scarce resources can be a tricky proposition.  People tend to insert their own biases in assessing the label.

Here is a simple presentation of the "facts".  We can debate/argue the specifics of where a particular country falls on the continuum (I inserted select countries on where I think they fall), but the over-arching considerations should be what I outlined in the textbook:

1.  The level of government ownership/control of societal resources.
2.  The level of regulation and taxation over economic activity within the country.

These are broad, for certain, but I believe serve as a jumping off point for discussion.

For instance, take the US.

The Private Sector holds a vast majority of overall societal resources, but not all.  National Parks are one significant "land" resource that I can think of that the Federal Government owns outright.  Is this "socialism" in the context of all societal resources combined?  I think not so that is why I put it closer to Free Market than Socialism. Does the US regulate/tax economic activity?  Yes, to some degree so we cannot give it the full label "Free Market". With this one you have to consider "relative to what/who?"

In this case I choose the UK. In the UK the healthcare system is owned/operated by the government and they have a higher level of taxation compared to the US (this is a generalized statement on my part).

After understanding where you fall on this line, the debate becomes which way is "best" for your country to move---towards Free Markets to the left or Socialism/Communism to the right.  This is political tension that is derived from the economics.

Saturday, August 26, 2017

Dwayne "The Rock " Johnson understands TANSTAAFL. Video proof!

This from his Facebook page.  He is acknowledging a young mans heroics (rightly so!) but at the end of this video (about the 50 second mark) he makes a remark that stunned me.

A pretty solid reference to a basic economic concept we learn the fist day in economics! While he does not identify it directly, "TANSTAAFL", the intent is clear.

Made me smile.  Only a minute long. Worth it!

Friday, August 25, 2017

Potential Real GDP vs Actual Real GDP and the PPF.

Here is a  nice illustration of "Potential Real GDP" vs "Actual Real GDP.  Potential GDP is an estimate at a given point in time of an economy's potential to produce Real GDP given its available resources (Land, Labor, Capital, Entrepreneurship).  Gives me an opportunity to show how two important AP Macroeconomic concepts are related to each other.

The Congressional Budget Office (CBO) publishes a forward looking projection of Potential RGDP years in advance.  This graphic gives the estimated trajectory of Potential RGDP that was calculated in a given year (2007,09,11,13,15, and 2017).  The heavy BLACK line is the trajectory of the "Actual RGDP" that was recorded in the respective year.

It is evident Actual RGDP, since the advent of the 2008 recession has been below the projected Potential---the difference is known as the "Output Gap".

It is noteworthy that after 2008 the CBO consistently lowered the estimate of the US economy's potential to produce Real GDP.
Source: VOXEU
Below I paired this graphic with the Production Possibilities Frontier (PPF).  The PPF is an important model in AP Macro.

I color coded the PPF frontiers in a similar color as the one in the graphic to show the contraction of the US PPF over time (as calculated by the CBO).  I used Point "A" to represent the heavy black line and a consistent under-utilization of societal resources, shown as a point inside the PPF.

Both of these models show the same thing---an output gap that suggests more resources could be put into use before we reach our economic potential.

Sunday, August 20, 2017

Hotel price surge for the Eclipse: Price Gouging or Revenue Smoothing? Easy call for me...

If you are looking for a last minute hotel room in the path of the eclipse you will either find no availability or a shockingly high price for a one night stay.

Below is the price for a stay at a Days Inn hotel I found on in rural Kentucky.

The first price is the "normal" price they charge for a room, the second is for Sunday, August 20th (eclipse is Monday afternoon).  A mark-up of 5.66 times the regular price.

Is this price gouging or revenue smoothing?   Is it "fair"?

One justification is that the hotel business is seasonal.  Special events that a preponderance of people are "willing and able" to pay a premium over the regular market price to attend are one way hotel operators are able to reap extra revenue that allows them to keep prices lower (or even stay in business) for the rest of the year.

I believe in this case, the informed opinion is revenue smoothing and the, well, ignorant one is price gouging.

Think of it as "robbing rich Peter" (the the person who values the special event a lot) to "pay poor Paul" (the person who gets to enjoy a lower price during non-special event times which is most of the year).

Tuesday, August 15, 2017

Foreign Exchange Market presentation for AP Macroeconomics

Smartphone/Creative Destruction Cartoon. I see lots of consumer and producer surplus value. How about you?

Stop and think about ALL the separate and distinct products we used to have to purchase individually to do all the things a Smartphone can do today.

One way to think of Smartphones is it is a plus for the environment.  Think about all the resources, most non-renewable, that are not employed because they are contained in one small rectangular case.

I am not sure the real value of these devices is captured in the price we pay.  I have to think the surplus value far (?) exceeds the price.

What do you think?

Found on Twitter. No real source to cite.

Keynesian Multiplier Effect Illustrated

Here is a presentation I created that explains the Keynesian Multiplier Effect in as simple terms as I can make it.  I bit long in number of slides for that reason.

This is an important part in the Unit on Fiscal Policy.  The math, while simple, seems to be a stumbling block for many students. Hopefully this eases that tension!

Wording for Correct answers for Foreign Exchange Market (FOREX) on the AP Macroeconomics FRQ's

On the AP Macroeconomics exam you can be 99% certain you will be asked Foreign Exchange Market question(s) on the FRQ section of the test.

Precise and to the point answers are required.  They are looking for the proper linkages from the various cause and effect scenarios you are presented with.

Below I wrote out what would be the "best way" to respond to these questions.  You may be asked to identify and explain ALL the effects under each bullet point or maybe just one (for example, only what happens to Exports given an event---all the rest is implied and you have to understand it in order to get to what happens to Exports).

My advice is to memorize these until they "click".  Again, they contain ALL the key words/phrases that past FRQ rubics have required students explicitly mention.

NOTES:  BE CAREFUL with #3 through #6.  They seem very counter-intuitive what happens to the value of the dollar given the scenario.  These can easily trip you up.

1. “If the interest rate in the U.S. INCREASES relative to the Rest of the World (ROW), U.S. financial assets become more desirable.  The demand for the dollars INCREASES and APPRECIATES the value of the dollar internationally. “
Effect on Exports: When the dollar APPRECIATES in value, U.S. goods and services become relatively MORE expensive and Exports will DECREASE.
Effect of Imports: When the dollar APPRECIATES in value, Foreign goods and services become relatively LESS expensive and Imports will INCREASE.
Effect on Net Exports (N(x): If Exports Decrease and Imports Increase, then net exports will DECREASE.

2.If the interest rate in the U.S. DECREASES relative to the Rest of the World (ROW), U.S. financial assets become less desirable.  The supply of the dollars INCREASES and DEPRECIATES the value of the dollar internationally. “
Effect on Exports: When the dollar DEPRECIATES in value, U.S. goods and services become relatively LESS expensive and Exports will INCREASE.
Effect of Imports: When the dollar DEPRECIATES in value, Foreign goods and services become relatively MORE expensive and Imports will DECREASE.
Effect on Net Exports (N(x): If Exports Increase and Imports Decrease, then net exports will INCREASE.

3. If price levels in U.S. are LOWER relative to Rest of the World (ROW) then U.S. goods and services become MORE desirable. The demand for the dollars INCREASES and APPRECIATES the value of the dollar internationally. “
Effect on Exports: When the dollar APPRECIATES in value, U.S. goods and services become relatively MORE expensive and Exports will DECREASE.
Effect of Imports: When the dollar APPRECIATES in value, Foreign goods and services become relatively LESS expensive and Imports will INCREASE.
Effect on Net Exports (N(x): If Exports Decrease and Imports Increase, then net exports will DECREASE.

4. If price levels in U.S. are HIGHER relative to Rest of the World (ROW) then Foreign goods and services become MORE desirable. The supply of dollars INCREASES and DEPRECIATES the value of the dollar internationally.
Effect on Exports: When the dollar DEPRECIATES in value, U.S. goods and services become relatively LESS expensive and Exports will INCREASE.
Effect of Imports: When the dollar DEPRECIATES in value, Foreign goods and services become relatively MORE expensive and Imports will DECREASE.
Effect on Net Exports (N(x): If Exports Increase and Imports Decrease, then net exports will INCREASE.

5. If GDP INCREASES in the U.S. relative to the Rest of the World, then Americans will want to buy not only MORE domestic goods/services, but MORE foreign goods/services also. The supply of dollars INCREASES and DEPRECIATES the value of the dollar internationally.
Effect on Exports: When the dollar DEPRECIATES in value, U.S. goods and services become relatively  LESS expensive and Exports will INCREASE.
Effect of Imports: When the dollar DEPRECIATES in value, Foreign goods and services become relatively MORE expensive and Imports will DECREASE.
Effect on Net Exports (N(x): If Exports Increase and Imports Decrease, then net exports will INCREASE.

6. If GDP DECREASES in the US relative to the Rest of the World. then Americans will not only buy FEWER domestic goods/services, but FEWER Foreign goods/services also.  The supply of dollars DECREASES and APPRECIATES the value of the dollar internationally.
Effect on Exports: When the dollar APPRECIATES in value, U.S. goods and services become relatively MORE expensive and Exports will DECREASE.
Effect of Imports: When the dollar APPRECIATES in value, Foreign goods and services become relatively LESS expensive and Imports will INCREASE.
Effect on Net Exports (N(x): If Exports Decrease and Imports Increase, then net exports will DECREASE.

Monday, August 14, 2017

Calculating Comparative Advantage with Output and Input Methods Made Easy...I think.

One of the hardest concepts to intuitively understand in economics is Comparative Advantage. Seems like most of the time with students a deep understanding is elusive. It just takes practice and thought.

While we wait for those "AH HA!" moments, students still need to understand the "nuts and bolts" of the math behind the concept.  This can be elusive as well, especially for students who are not strong in math.

These two very short presentations will walk you through the basics so at least you can get the math right. It is important to get the "set-up" of the problems correct before proceeding with the math.

I hope this helps someone!

IOU Method to determine Comparative Advantage

"OOO" Method to determine Comparative Advantage

Absolute and Comparative Advantage for me.

Here is my very detailed look at how to calculate Absolute and Comparative Advantage for AP Economics.  Overkill? Maybe, but it is a step by step look at how to do it that I think would be helpful to teachers and students alike.  Kinda wish I had the "Trade for Dummies" breakdown when I was first learning it.

Hope it helps someone have a breakthrough.

Thursday, August 10, 2017

Ticket to Disneyland in 1955 vs 2017---which is a better "value"?

This ticket to Disneyland in 1955 cost $1.00.  In 1955 the minimum wage was $.75 (75 cents), so it took 1.33 hours of labor to earn enough to buy this one ticket in 1955.

Today, a ticket would cost you $105.00  to visit the Happiest Place on Earth.  In 2016 the minimum wage (although it varies in States and even some localities) is $7.25 per hour.  At that rate, a ticket would take 14.5 hours of labor (excluding labor taxes, of course).

A day at Disneyland in 1955 was definitely more affordable for a low wage worker 60 years ago. The only thing that really remains to be determined is the comparable quality of the experience.  The parks are vastly different in composition.

Has the quality of the visit improved by a large enough factor to make the extra hours worked to buy a one-day pass more "utility maximizing" in 2017 than in 1955?

Nice resource for illustrating "Increasing Opportunity Costs" and the concave nature of the PPF

Here is a nice article on the great productivity slowdown in the US, and in the developed world for the most part.

The article is interesting throughout but the excerpt below caught my eye.

It goes to the edge but does not explicitly mention the important concept of "Increasing Opportunity Costs" and the reason the Production Possibility Frontier (or Curve) is "bowed", or concave from the origin.

While Services Sector Booms, Productivity Gains Remain Elusive 

“The changing distribution of workers might be able to explain up to one-half of the slowdown in labor productivity growth from 2.5% to 1.5% per year since the 1960s," said Dietrich Vollrath, a University of Houston economist. Indeed, this effect has accelerated since 2000, when workers, in aggregate, started to move from higher to lower productivity sectors. 
Services productivity, besides its natural disadvantage, may be facing an added headwind: The sector is absorbing millions of workers whose underlying skills may not be well suited to the jobs they take on. 
If people start doing work they are relatively good at, and if manufacturers shed their least efficient workers first, manufacturing productivity will improve as it downsizes but services-sector productivity will suffer as it absorbs workers who are a poor fit. (Sections in bold are mine).
All resources, including labor, are not "perfectly adaptable" to a alternative uses.  If you employ/deploy resources to such alternative uses they tend to be less productive, hence more costly.
Simple example.  The decline of steel manufacturing coincided with a increased demand for truck drivers.  While some unemployed steel workers may make fine truck drivers, the "marginal" ones may not be so good. They may have more accidents or load mishaps and are more expensive (ceteris paribus) to employ.

Wednesday, August 9, 2017

Negative Externality: Meat industry blamed for largest-ever 'dead zone' in Gulf of Mexico

suggests that the market quantity for meat products is greater than it should be.  The chemical run-off of fertilizers and other agricultural inputs that go into the production of meat products flow into waterways.  Its negative affects go much further than the borders of the farms and ranches. Some excerpts:
"Toxins from manure and fertiliser pouring into waterways are exacerbating huge, harmful algal blooms that create oxygen-deprived stretches of the gulf, the Great Lakes and Chesapeake Bay, according to a new report by Mighty, an environmental group chaired by former congressman Henry Waxman... 
...Nutrients flowing into streams, rivers and the ocean from agriculture and wastewater stimulate an overgrowth of algae, which then decomposes. This results in hypoxia, or lack of oxygen, in the water, causing marine life either to flee or to die... 
...America’s vast appetite for meat is driving much of this harmful pollution, according to Mighty, which blamed a small number of businesses for practices that are “contaminating our water and destroying our landscape” in the heart of the country..."
If the problem IS production over a more "socially optimal" level of production, how do we attain that optimal level?

The essential problem is that the cost of the externality is not being borne by the consumer or producer of the product.  Consumers are paying and producers are receiving only the money cost to make the product available. They are not paying for the residual costs of environmental degradation that affect others near and far (out into the Gulf of Mexico!).

Our task here is to use the basics of Supply and Demand to illustrate how markets respond to government intervention in order to require Producers and/or Consumers to "internalize" that "external" cost that has been imposed on the rest of society.

Internalizing that cost can take the form of an explicit tax on the good or some other "non-monetary" rule or regulation that de facto internalizes the cost of producing the good.

I put together a short-ish presentation to show you how this is modeled for AP Microeconomics. The key here is to correctly identify the "area of Dead Weight Loss" in the presence of a Negative Externality.

Tuesday, August 1, 2017

The most prominent determinant for a "change in supply" is a change in the cost of an input that goes into the production of an output (final good).

This article uses the example of the input cream that is used in the production of the output butter in the UK.

Rising price of cream squeezes Dairy Crest's margins

“Cream prices, which determine input costs for the butter business, have increased substantially during the first quarter,” the company said.
“This will put pressure on margins in our butter business. We have reduced our promotional activity on Country Life, which is adversely impacting volumes but mitigating some of the margin pressure.” (underlining mine)
Here are some slides to walk you through a basic demand and supply model to illustrated how this impacts the market for butter as described in the article.

Tuesday, July 25, 2017

How to answer basic Demand and Supply Problems in 3 easy steps.

Determining which curve to shift in the simple Demand and Supply model can be a challenge for students.

Students tend to rush and "over-think" the problem and/or they want to jump ahead a step or two and look at the subsequent effect a particular scenario has on a market.

My advice is "KISS!" (Keep It Simple Students!).

Here is my recommendation as to how to logically think about a given scenario and to get the curve shift right every time.  All in 3 easy steps.

First, you need to be familiar with the Determinants of Demand or Supply:

Factors that affect DEMAND (cause the Demand Curve to SHIFT):
  • change in consumer tastes
  • change in the number of buyers
  • change in consumer incomes
  • change in the prices of complementary and substitute goods
  • change in consumer expectations
Factors the affect SUPPLY*** (cause the Supply Curve to SHIFT):
  • change in input prices
  • change in technology
  • change in taxes and subsidies
  • change in the prices of other goods
  • change in producer expectations
  • change in the number of suppliers
***With SUPPLY, the primary reason you will encounter for Supply Curve shifts is a change in the COST OF PRODUCTION.  When the Costs of Production increases, Supply decreases (curve shifts LEFT). When Costs of Production decrease, Supply Increases (curve shifts RIGHT).

With these determinants in mind, here are the next questions you will want to ask yourself when confronted with a scenario that will shift either the Demand or Supply Curve.
1. Ceterus Paribus (holding all other variables constant--except the one we are addressing) ask yourself  "Is this scenario a function of Demand or Supply?"  Look at your Determinants listed above---make sure you confine yourself to these determinants and do not read more into it! 
2.  After determining which curve to shift ask yourself: ""Will this scenario have a POSITIVE ("good") or NEGATIVE ("bad") impact on Demand or Supply (whichever you decided in question #1)
3.  (a)  If it has a positive impact the curve will shift RIGHT.  This is true whether you    are shifting the Demand OR Supply Curve.
     (b) If it has a negative impact the curve will shift LEFT.  This is true whether you are          shifting the Demand OR Supply Curve.
After you shift the appropriate curve, simply locate the new equilibrium point where Demand and Supply intersect showing a new Price and Market Quantity.

Here is a link to a Google Doc that has some examples for you to work on. Once you establish a rhythm, these get very easy to do.

BIG CAVEAT:  This works well with basic introductory problems in Supply and Demand analysis. HOWEVER, when we go a bit deeper you will encounter at least one situation where the answers are counter-intuitive to the above explanation, especially on the Demand-side.  That is when the scenario suggests that the good is a "Normal Good" or an "Inferior Good" as it relates to a CHANGE IN INCOME (a function of Demand).  For instance, if the good is "Inferior" and incomes INCREASE, then the demand for that Inferior good will DECREASE (shift LEFT). If income Decreases, Demand for the Inferior good INCREASES.  Be careful with this one!

Tuesday, July 18, 2017

Bacon and Supply/Demand Graphs. What a great breakfast combination.

A nice article to practice graphing Supply and Demand.  

America’s Lust for Bacon Is Pushing Pork Belly Prices to Records

Once considered an unhealthy byproduct, bacon has become a guilty pleasure—with prices to match.

Excerpt for graphing:
""Some analysts say bacon, meanwhile, is becoming a yearlong staple that consumers are eager to procure. That voracious demand has left wholesalers in a squeeze. Retailers “have turned hand-to-mouth, buying only what they need, waiting for production to increase and prices to decline,” said Dennis Smith, a commodities broker at Archer Financial Services in Chicago. 
Pig farmers are struggling to keep up with demand. The national hog herd rose to a seasonal record of 71.7 million head in early June, according to the U.S. Department of Agriculture, up 3% from a year earlier. 
But it hasn’t been enough to satiate bacon demand. Stocks of pork bellies in commercial freezers fell to 31.6 million pounds in May, down 59% from a year earlier and the lowest figure for the month since the USDA began keeping track in the 1950s.""

Friday, July 14, 2017

A 1967 Wrigley Field Menu Board and Inflation.

Found this HERE

It shows a menu board for concessions and game tickets at Wrigley Field in Chicago for the year 1967 (relying on information from the source).

In order to see what these prices are in today's dollars, multiply each number below by 7.43 (using the Bureau of Labor Statistics (BLS) inflation calculator)

Example: An Oscar Mayer Hot Dog cost .30 cents in 1967. If the price of that hot dog simply increased in price at the pace of overall inflation, then it would cost you $2.23 (.30 cents X 7.43) at Wrigley today.

Go to Wrigley today and you will pay about $5.50.  That is a factor increase of 18.33 from 1967, or a 2.5 times (18.33/7.43) increase over stated inflation.

There are lots of comparatives you can do with this menu board over a broad range of goods shown here.  A nice way to help students understand the effects of inflation.

Wednesday, July 12, 2017

Tax Policy and the 1%. A nice illustrative video!

Here is an excellent video from the Wall Street Journal, with a simple illustration, of the tax share of the different quintiles (20% blocks) of US taxpayers and extends it to the top 1%.

It is a nice introduction for high school students to the progressive income tax structure and a discussion on income (as opposed to "wealth") inequality.

Wednesday, January 25, 2017

Healthcare Spending Graph. Easy to see the problem but how it "fix it"?

Here is a graphic regarding healthcare spending in the US I think is important but rarely talked about.

It is very clear that a small number of people relative to the whole population are responsible for a disproportionate share of heath care dollars. This from the JAMA article that contains the graph:
"...The core of the answer to this question can be read in the chart below, showing the highly skewed distribution of per capita health spending across the US population. The phenomenon is known as the “80-20 rule,” indicating that 20% of any large insured populations tends to account for 80% of all health care spending on that population...."

Health spending is highly concentrated among the highest spenders.

The cited paragraph seems to understate that data presented in the graph, but the point is well taken.

Why do we not discuss a "Marshal Plan" to address the needs of the few that cost us the most?

Rhetorical question, I guess.

The article is about why insurers are abandoning the ACA Exchanges.  It is written in layman's language enough that I think it would be a good read for students.

Monday, January 2, 2017

The Market for Bison Meat and a basic Demand and Supply Model. Fun times graphing!

Here is an excellent article that allows us to practice a "simultaneous shift" in our Demand and Supply Curves in our basic Market Model.

That Bison Burger Just Got Pricier Thanks to Canada Ranchers
""Bison prices have been rallying as demand for the niche product is rising among U.S. consumers amid a favorable exchange rate and as more people seek out organic foods and healthy alternative proteins. The grass-fed meat has fewer calories, less cholesterol and fat than beef, and the animals are raised without hormones or antibiotics.""
A nice description of factors that affect the Demand for a good or service: a "change is consumer tastes/preferences" and "change in number of consumers" with a dab of foreign exchange effect thrown in (US dollar stronger than Canadian dollar).

Using a basic Market Model from a starting equilibrium we can see that the Demand for Bison Meat increases as more consumers choose to, well, consume bison meat.  At each and every price, the Quantity Demanded for Bison meat is greater than is was before.

The Demand Curve shifts RIGHT.

Here is the tricky part in trying to relate this to "real life".  If we stopped right now, it appears that at the new equilibrium "B" that the Quantity Supplied is now greater than it was before (Q1 rather than Qe--we move up and along the Supply Curve) In this case it is an "illusion" because we have a simultaneous change in Supply as described here:
""As demand gains, Canada’s ranchers are becoming more reluctant to send animals to slaughter, and instead are holding them back in favor of herd expansion. As a result, fewer bison are being exported for processing in the U.S., Canada’s biggest market, and domestic production probably fell 25 percent in 2016 from a year earlier to 10,500 animals, Kremeniuk said.""

The assumption is that at "every price the Quantity Supplied is less" than it was before, by about 25%.

The Market Supply Curve for Bison shifts to the LEFT indicating a DECREASE in Supply ("S1").

We have to be mindful that the Quantity Supplied, hence our Market quantity, will be LESS than it was before at "Qe".
The new "final" equilibrium Price  is "P2" at a Market quantity of "Q2" at Point "C"

Let's clean that up a bit:

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