Bobcat hunting permits and Basic Economics. Not sure which gets killed more cruelly.

Here is an interesting article that shows conflict between basic economic principles and a social policy that makes for a terrific lesson.  The following is an excerpt from a media source in the State of Illinois (any highlights are mine):

6,000-plus apply for 500 bobcat permits; some aren’t hunters

"""More than 6,000 people applied for the 500 permits available to hunt for bobcats this fall in Illinois, which is having its first legal bobcat hunting season in more than 40 years. 

The Illinois Department of Natural Resources received 6,416 applications, which it accepted throughout the month of September, for 500 available permits, according to the Carbondale Southern Illinoisan. 

A lottery will be held to determine who gets the 500 available permits. 

Some of the applicants apparently are opposed to bobcat hunting, and would not be using any permits they receive. Rockford resident Jennifer Kuroda started a Facebook group called Illinois Bobcat Conservation, on which she encouraged opponents of bobcat hunting to apply for permits, according to Chicago radio station WBEZ. 

“I don’t feel that badly about doing it because I feel strongly that these animals need to be conserved at some level,” Kuroda told the radio station. 

Kuroda said 11 of her friends have applied for permits. 

The fee to apply for a bobcat permit is $5. Hunters who harvest one are required to purchase a possession permit for another $5. 

The bobcat was once listed as a threatened species in Illinois, but the designation was removed in 1999.""""

Read more here: http://www.bnd.com/news/local/article105844877.html#storylink=cpy

The number of permits issued is fixed at 500. No more will be issued. We can assume the Supply of Permits is Perfectly INELASTIC---regardless of the price, only 500 will be available.

The State has set a price of $5.00 for each permit. We can assume there will be a demand for these permits at that price. This is how the "equilibrium" sets up---but not for long:

We know from the response there are at least 6,000 people who would like a permit at $5.00. Quantity Demanded is greater than Quantity Supplied.

There is a shortage in this market of 5,500 permits at $5.00.

 Ceteris Paribus, what is true at $5.00 and Point "B" is going to be true at every other point on along "D*"---at some price the Quantity Demanded is going to be greater than it was before. The market Demand Curve shifts to the RIGHT.

In this case the "true" market price would rise to some price higher than "Pe = $5.00"  to "P 1= ???" at Point "C".

However, Illinois does not seem predisposed to do this. They also do not allow the permit to be transferred from one person to another.

This, in effect, puts a "Price Ceiling" on the permits---the price is not allowed to rise above $5.00.

What are the costs of this policy?
 1. Lot's of people can't get a permit. Consumer Surplus is diminished.
 2. Right now the State gets a total of $2,500 for issuing the permits ($5 each X 500).  That CAN'T possibly cover the costs of permit issuing and enforcement, can it?
 3.  LOTS of foregone fee  revenue! Would 500 of that vast surplus of consumers/hunters be willing and able to pay $1,000 for a permit? $2,000? More?

Why only $5.00?  The only reason I can think of is the issue of "equity"---a low permit price allows low income people the opportunity to participate in the hunt.  That seems like a weak argument to me given what is at stake.

What are the benefits of this policy?

Any ideas?

POSTSCRIPT: I did not include in the calculation (but should have) in the total revenue the fact that anyone just APPLYING had to pay $5.00.  So the actual total revenue generated is greater than I posited.  However, my question still stands---why is the permit so cheap?

Lower gas prices and higher consumer welfare for the win.

I read the following passage at Carpe Diem (emphasis mine):

According to the Department of Energy, Americans buy 365 million gallons of gasoline every day, so every one cent drop in prices at the pump saves consumers $3.65 million per day, and $1.33 billion dollars over a year. Therefore, the 42 cent drop in prices since April will save US consumers almost $56 billion over the next year compared to what they would have paid if gas remained at $3.70 per gallon.

Think of an increase or decrease in the price of a good (or service) as a transfer of purchasing power from producer to consumer and vice versa.

When the price of something that is effectively a fixed "need" in the short term (gasoline, some food items, a utility bill, etc) changes is has a large impact on our individual welfare and consumption possibilities for other goods/servics that are more "luxuries" (by way of a very lenient definition) to us.

Those saved dollars from lower gas prices might not be explicit to us but they do appear elsewhere in the bundle of goods/services we consume on a regular basis.

I would think a good portion of that $56 billion shows up in retail spending such as food away from home, entertainment, and whatever you might buy at the Mall/Walmart after you fill up the tank.

In terms of GDP it is a wash.  Either the fuel companies get the money or you do and in turn other businesses get it when you spend it.

However, in terms of our standard of living, individually we are better off because we get to purchase other stuff with the extra money from lower gasoline prices.

This "surplus" welfare for consumers is not captured in the GDP accounting.

However, it is captured in my heart.  I LOVE MY SURPLUS!

Is a new house about to become more expensive? Plywood producers seeking an Import Tariff on plywood from China. Let's go to the graphs and examine this!

Plywood manufacturers in the US petitioned the Government to investigate claims that Chinese producers of plywood were "dumping" their plywood on the US market at unfair prices.  The implication is the Chinese government is giving their producers subsidies so they can sell the plywood at prices that are actually below the cost of producing them.  The overall goal of "dumping" is to gain market share as (1) the company sells more because the price is cheaper and (2) competitors without the subsidies go out of business because the dumping price is lower than their cost of producing.

U.S.Plywood industry's plea for help rejected: Firms complain of Chinese 'dumping' on domestic market.

That's more than Sloan can say for the inside of the mill, where Columbia has been hit hard by Chinese competitors dumping plywood on the North American market, undercutting price by as much as 56%, says Gary Gillespie, Columbia's general manager for northern operations.

Dumping is defined by the U.S. Department of Commerce as a foreign company selling a product in the U.S. at "less than its fair value."

U.S. producers are crying foul and would like have tariffs imposed on each piece of plywood imported into the US.

Welch testified before the ITC this past September, urging it to impose tariffs on Chinese plywood imports to ensure a "level playing field."

Microeconomics has a lot to say about the effect tariffs have on the marketplace.  I am going to show you graphically how this MAY/MIGHT play out in the Market for Plywood. This is an IMPORTANT concept in AP Microeconomics so I hope it will be helpful to you.

The following graphs have made up prices and quantities.  They are just for instructional purposes and not to be taken literally.

If an economy is not open to trade with foreigners it is said to be in a state of Autarky (pronounced "Otter-Key").  The first graph shows the market in this state with a domestic price or $10.00 and a domestic market quantity of 1,000 pieces of plywood.

This next graph is the same as above but shows the areas of Consumer Surplus and Producer Surplus in equilibrium in autarky. 

Now, assume the country engages in trade and comes out of autarky.  The price of the same good when it is imported is $5.00. Half of the domestic price!

When the price of the good changes we MOVE ALONG the respective Supply and Demand Curves (Law  of Supply and Law of Demand). We can see in the graph above, when the price is $5.00 the Domestic Quantity Supplied is 500 (Point "B") and the Domestic Quantity Demanded is 1,500 (Point "A").  Our Domestic Market for Plywood is no longer in equilibrium---Quantity Demanded ("C") is GREATER than Quantity Supplied ("B"). Normally this would result in a shortage, but the shortfall is going to be made up with  IMPORTS or 1,000 pieces of plywood from China.

Important point: Notice what happens to Consumer Surplus in the graph below.  There is additional CS for consumers: They get to "enjoy" more plywood at a lower price than before trade. However, notice that Producer Surplus is less than it was before.  Some producer surplus was transferred to consumers.  Producers are left with a small sliver on the bottom left hand portion of Supply*.

So, US consumers are much better off and US producers are much worse off.

Because US producers are worse off, they may choose to try to "level the playing field" by lobbying for a tariff to be assessed on imported plywood so the price will closer reflect the US cost of producing.  In other words, to take away the un-competitive edge the foreign governments may have given their producer.

Assume they are successful  and a tariff of $3.00 is levied on each piece of plywood (graph below).  This will increase the price to $8.00. 

Remember: PRICE increases we (again) MOVE ALONG our respective Supply Curve (from Point B" to "F") and Demand Curve (from Point "C" to "E"):

As a result of the tariff, we have a change in Imports, Domestic production, Domestic Consumption, Surplus, Dead Weight Loss, and Tariff Revenue.  The most significant change is imports have been reduced to 500 pieces of plywood. The higher price as a result of the tariff induced the producers to increase quantity supplied by 250 (movement from "B" to "F") AND the the higher price has decreased the quantity demanded by US consumer by 250 pieces of plywood (movement from "C" to "E"). 

Other significant changes take place as well.  These areas have the "?" in them and are important to be able to identify.  Note they are all areas that USED to be Consumer Surplus. That is going to go away!

The first one (below) Producer Surplus is recaptured by US manufacturers of plywood. Because the price is now $8.00 in the marketplace they are induced to produce an additional 250 pieces of plywood (Law of Supply!).

The second area is "Dead Weight Loss" (DWL) to consumers.  This is the area just below the Demand curve between Point  "C" and "E".  This means that as a result of the tariff consumers lose the benefit of purchasing 250 pieces of plywood at the lower import price of $5.00.

The second area of "Dead Weight Loss"(DWL) is attributed to "Society" (graph below).  It is DWL because resources were allocated to produce additional plywood SOLELY as a result of the tariff.  This implication is society could have benefited in two ways: (1) consumers could have enjoyed more plywood at lower prices from the foreign producer and (2) the resources allocated to produce the additional units of plywood could have been used for something else.  You might recognize this as  "Opportunity Costs".

Lastly, the some lost Consumer Surplus is transferred to the Government by way of the tariff.  We can calculate the Tariff Revenue ("T.R.") by taking the amount of the tariff ($3.00) and multiply it by the number of imported pieces of plywood (500) and get $1,500.  This area is not considered DWL because the tariff revenue could be used by the government to subsidize the production of another good, creating surplus somewhere else.  

Oh, wait, isn't that what the foreign government did in the first place to create this situation?  Makes you think, doesn't it?? :)

Why has the price of computers decreased but the price of broadband internet connection increased (or HAS it?). If you need an analysis for a Microeconomics class this will be helpful.

...or a Macroeconomics class as well...

The author of this blog entry (found HERE and also pasted in full below the fold at the bottom of this entry) uses a graph to show how, in the last 5 years, the price of computers (BLACK arrow) has decreased over 40%  but the price of Broadband (RED arrow) has increased (slight, but an increase).

While the blog entry is very short it suggests (explicitly and implicitly) 2 Microeconomic and 1 Macroeconomic concept that are important for students to know.

(1) In Microeconomics, two goods are considered Complements if they are used together. They are separate and distinct goods, each with their own market price and cost of producing. They are largely dependent on each other to function profitably in the market place. 

When the PRICE of one of the complementary goods DECREASES (in this case computers), the DEMAND for the other good used with it INCREASES (Broadband Internet connection).  This makes sense.  People buy more computers so they need more internet access. This could be the reason, but...

(2) The computer market is vast and their are lots of competitors.  With more competition, prices tend to gravitate closer to the actual cost of production (this is a characteristic of a "perfectly competitive firm").  In broadband "production" this is less so:

"The high, fixed costs of broadband means that there hasn’t been a big rise in competition among providers, according to Scott Wallsten, Vice President for Research and Senior Fellow at Technology Policy Institute. Indeed, most Americans don’t have more than two options when it comes to wireline broadband providers...."

High fixed costs serve as a barrier to entry in markets. It takes very large upfront investments that may take years to re-cover.  Hence competition is more limited AND the producer is able to charge a price, dictated by the market demand for the good/service, that is something greater than the cost of producing.  In other words, the producer has pricing power ABOVE the Marginal Cost of producing extra units of the good/service.  This could be the answer, but...

The Macroeconomic concept comes from one the commenter's on the blog entry in regards as to how the Consumer Price Index is calculated and its accommodation for changes in the quality of a good or service over time. 

Is the price consumers paid for broadband in 2007 the SAME broadband they pay for in 2012?

If the price of broadband (consider it just a single good/service) has increased 10% since 2007  BUT the amount of speed, quality of the connection, and places I can access it has increased, say 50% or more, am I not better off per dollar spent?

Has the BLS fully accounted for this quality change and it is built into the price change noted in the chart, so in real terms broadband has increased 10%?  This could be the reason, but...

This is why I love Economics! All three answers COULD be correct!

What do you think?  Which one seems the likely culprit or am I missing a piece of the puzzle? 

State of Texas (and other States) has a wealth-redistribution scheme I 100% approve of...I think "UWILL2"...

I did not know Texas was doing this, but what a great idea---auctioning off vanity plates to the highest bidder:

What Drives People to Take a Creative License?

""To boost state coffers, Texas sold a Dallas doctor a "PORSCHE" for $7,500.  Then it sold him "AMERICA" for $3,000.

Both were license plates, sold at auction. "I will get my American citizenship next month, so it means a lot to me," says Salman Waheed, an intensive-care physician. He also wanted "FERRARI," but dropped out when bidding for that one went too high—eventually netting $15,000, the top price paid.

After years of selling vanity plates as a modest sideline—charging as little as $5—states think there's more money to be made in whatever drives people to buy them. Facing budget crunches, states are raising surcharges or proposing annual fee hikes for custom plates.
Texas has gone a step further. It hired a private company to raise $25 million over the next five years by auctioning off vanity plates. "People like to express themselves, especially in Texas," says a spokesperson for the Texas Department of Motor Vehicles. This year, at the nation's first such auction, Texas sold 33 plates for $139,400...""

Nobody gets hurt and people pay what they believe the plate is worth to them. Vanity plates are a "want" and not a "need".

This illustrates the microeconomic concept of Consumer Surplus and how a business, or government, can increase its revenues by segregating its customers by their willingness to pay.

Below is a demand curve for the market for vanity plates. I am keeping it very simple with the numbers just to illustrate the concept.  Assume that the state does not charge much more for a vanity plate relative to a "regular" license plate.  Assume the price charged by the state is $100 and they sell 3 license plates total (vanity and non-vanity). 

The total revenue from the sale of license plates is $300.  But we know from our market demand curve that someone was "willing and able" to pay $300 and someone else was "willing and able" to pay $200 for vanity plate. The 3rd buyer did not want a vanity plate, just a regular one so she paid $100.  See graph below. However, buyers 1 and 2 did not have to pay a higher price because the price set by the government was $100 and they could get the plate cheaper than what they were willing to pay.  They retain significant Consumer Surplus.  NICE DEAL FOR THEM!!

Would it not be great to extract some money from these vain people?  In this particular market, according to the article, it is easy to segment customers. Texas is doing this through an auction system.  The state can still sell 3 license plates, but they can transfer that Consumer Surplus from the buyers to the state.  See the graph below for the math in how revenues to the state are affected.

This is a "wealth-redistribution" scheme that I approve of 100%. 

I bet I could get "HAYWARDECON" very cheap!! What do you think?? :)