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?

UK minimum wage pre and post-Brexit. How has it changed?

There is always a debate about the appropriate level at which the minimum wage should be set (or even if there should be one).

International comparisons are often used to see how other countries approach the use of it as a policy tool.

Here is how the U.K. deals with the issue. They have what is called a "tier" approach---a different minimum wage for different age groups and/or skill levels.

From UK.gov

Of course the wages are in Sterling Pound, the currency of the UK. We know with "Brexit" the value of the Pound has taken a hit over the course of the last month or so.

For the purposes of understanding how making cross border comparisons can be tricky, let's put the a above numbers in the current exchange rate, exchange rate before Brexit and Purchasing Power Parity (PPP) exchange rate.

Before the effects of Brexit hit the market, the Pound was trading at roughly $1.45. So if you take the above wage rates and multiply them by $1.45 that will give you the US dollar value of the minimum wage for that particular age/skill group.

For 25 and over: $10.44.  For 21-24: $9.72.  For 18-20: $7.69. For under 18: $5.61. Apprentice: $4.79

Today, the exchange rate is 1 Pound = $1.33. Again, take the numbers in the chart above and multiply by $1.33.

For 25 and over: $9.58.  For 21-24: $8.91.  For 18-20: $7.04. For under 18: $5.15. Apprentice: $4.39.

Quite a difference!  The only thing that changed is the exchange rate between the Dollar and the Pound in a relatively short period of time.  You can see how using current exchange rates can present a misleading picture when presented in current exchange rates.

Fortunately we have a better, but not necessarily perfect, way to show the differences in currency exchange rates.  It is called Purchasing Power Parity (PPP).  PPP is the economists preferred exchange rate to use when making international comparisons because it takes country specific prices/price level into consideration.

In many cases the PPP exchange rate varies drastically in comparison to market exchange rates.

In the case of the UK, data from the OECD show the PPP rate to be almost identical (1 cent less) to the pre-Brexit market exchange rate: $.144 (See the data here).  The numbers I calculated above for "pre-Brexit" will only be slightly less given the PPP exchange rate.

The US has minimum wage has some exceptions but for the most part, regardless of age and/or skill level, it is a blanket $7.25 per hour.  You can see how this falls into the UK policy scheme.

So, when someone quotes a foreign country's minimum wage in dollars it is critical to know (1) if that it is in current dollars how has that currency faired lately in the foreign exchange market and (2) is that in market dollars or in PPP?

Then judge by the look on their face if they are as informed as you or not.  :)

Back to the Future: Russia threatens price controls in the face of Economic Sanctions. We know how this will work out.

Predictable consequences are playing out in the economic sanctions world---with more to come:.

Russians already hurt by Western food import ban

Russians are already paying a price — literally — for the ban on food imports from Europe and the United States that Russia imposed last week to retaliate for American and European economic sanctions.

Suppliers and consumers are facing shortages and price hikes on staples such as fish and fruit, as well as gourmet items such as Italian Parmesan and French Brie cheese.

Suppliers have raised prices for some fish by 20-36%, one of Russia's biggest retailers, X5 Retail Group, complained to Russia's government, the Kommersantbusiness daily reported on Wednesday. Suppliers reported shortages and higher prices for fruit, retailers braced for milk prices to go up, and some meat suppliers were engaging in price speculation, Kommersant reported.

Russia's Central Bank warned last week that the sanctions are likely to increase an already rising inflation rate. Even so, Russia's government has pledged that prices will not go up as a result of the import ban, promising that the Federal Anti-Monopoly Service will check reports of suppliers raising prices.

In the worst case, the government could resort to price controls, Kommersantreported.

Should Russia enforce price controls one unintended BUT predictable consequence would be the rise of Black Market activity.  Russians are used to this--they just need to brush off the rust from the old Communist days.

Below I explain the economic theory/rationale behind the rise of Black Market activity in face of Government policy to control prices.  Let me know what you think. Thanks.

If you are going to have a Socialist Revolution you better have some toilet paper. Oh, and take a basic Econ class too

Venezuelans are learning a hard lesson that could have been avoided if their leader took a basic economics class.  The lesson is on the price paid, literally and figuratively, when price controls are imposed on a market in the name of serving a "social good".

Venezuela hopes to wipe out toilet paper shortage by importing 50m rolls

First milk, butter, coffee and cornmeal ran short. Now Venezuela is running out of the most basic of necessities – toilet paper.

Blaming political opponents for the shortfall, as it does for other shortages, the government says it will import 50m rolls to boost supplies.

Economists say Venezuela's shortages stem from price controls meant to make basic goods available to the poorest parts of society and the government's controls on foreign currency.

"State-controlled prices – prices that are set below market-clearing price – always result in shortages. The shortage problem will only get worse, as it did over the years in the Soviet Union," said Steve Hanke, professor of economics at Johns Hopkins University. 

 If you don't believe in downward sloping Demand Curves and/or upward sloping Supply Curves, then, well, you might be a beloved Populist Leader of a people who don't access to toilet paper. 

It might be just me, but I prefer to love my leaders a bit less and have a bit more toilet paper. But then again, I am a simple man...

Graphically, here is how a specific price control---a Price Ceiling works. 

Here is our Market for Toilet Paper in "free" market equilibrium.  At price "Pe" the Quantity Supplied of TP is equal to Quantity Demanded for TP at Point "A".

Fearless Populist Leader believes that the market price is too high.  Fearless Leader imposes a price on the market that is BELOW the established market price.  This price is called a Price Ceiling---by law the good cannot be priced ABOVE this government set price.

In the next graph, at "P Ceiling" the quantity supplied by domestic producers is now "Q supplied"(Point "B:")  and the quantity demanded is "Q demanded" (Point "C"). 

At the lower price producers will supply SOME toilet paper, but not as much as before because the lower price (assuming production costs stay the same) makes it less profitable.  There is movement ALONG the Supply Curve from Point "A" to Point "B".

At the lower price consumers will increase their quantity demanded from Point "A" to Point "C"---there is movement ALONG the Demand Curve as the price decreases.

You can easily see what is happening on the ground in Venezuela.  At the lower price consumers are "stocking up" on toliet paper at the same time producers are cutting back on production.  With no corresponding change in price allowed, we quickly move into a situation where Quantity Demanded is greater than Quantity Supplied and a SHORTAGE emerges.

Fealess Leader for some reason does not anticipate this and is quite shocked by the outcome.  Now he/she has to pivot and go buy 50 million rolls from SOME OTHER COUNTRY in order to make up for the shortfall.

The result of the Price Control?  Domestic producers/suppliers and their employees are hurt (presumably they use toilet paper too), some consumers have pantry's full of toilet paper but most go without (can you say emergence of "Black Market" trade in TP?), and the government has to use money to buy toilet paper instead of, well, fill in the blank.

Dear Fearless Leader it is called "Econ" usually with a number, like, "101" following it.  It might cost you some money to enroll, but it will be much less than the cost of 50 million roles of TP. 

Just sayin'...

Price Ceilings explained as simply as possible. Must know info for when the Mayhem Guy from AllState comes to visit your community...

When disaster looms or when it strikes there can be a significant disruption in the delivery of goods to that area.  We have learned about this from the recent natural disasters in the Northeast US (Hurricane in the Summer and Snow just recently).

When this happens there are usually price increases on vital goods, such as water, basic food staples, gasoline, batteries, etc.  When the prices rise there is the inevitable cry of "PRICE GOUGING!!" and people demand the government do something about it.

The obvious action would be for the government to impose Price Ceilings.  A Price Ceiling prevents sellers of goods from raising prices above "reasonable" levels---whatever that means exactly.

The imposition of Price Ceilings do have consequences.  I put this powerpoint presentation to help you (or your students) understand how they work to serve AND under serve the marketplace.

Let me know what you think. Thanks!

Price Ceilings Explained Step by Step

Uploaded by Gene on WizIQ Tutorials

With hurricane Issac looming there are the inevitable cries of "Price Gouging!" with gasoline. Please read this to get some perspective before getting angry.

With hurricane Issac hitting Florida and the Gulf Coast, the inevitable rise in the price of gasoline and other commodities will make headlines and cries of "Price Gouging!" will arise.  Justified or not, at least consider the issue from an economic and business perspective.

Most businesses, on a daily basis, do not stock more inventory than they can sell. This is especially true if the good is perishable or expensive to keep in stock. In other words, they try to not have any unnecessary excess inventory if they can avoid it. 

If I am selling a good, say gasoline, that is both perishable and expensive to stock, I would like to time it so that the quantity of gasoline I supply in a 24 hour period (before the trucks come to re-supply me) equals the quantity of gasoline demanded by my customers. I have no or little excess gasoline in my tanks for the day.  This is just good business practice, agreed??

Let's say I have studied my inventory spreadsheets and determine on average I need 1,000 gallons of gas in my tanks (my quantity supplied) to meet my daily average quantity of gasoline demanded by my customers.

For me, quantity supplied (1,000 gal) = quantity demanded (1,000 gal) at, say, $3.00 per gallon. I am at a relatively steady equilibrium on a daily basis. So far so good.

Now there is a hurricane or some other natural disaster looming.  I notice not only are my customers for that day coming for gas, but so are some of the others who I know filled up the day before yesterday are coming in to "top off the tank". In addition, I also notice they have a gas can or two (or 5) with them.

Halfway through the day I check my gas inventory and see I am selling 20% more gas at that time relative to a normal day.  I project I would need 1,200 gallons at $3.00 a gallon to meet the needs of my customers.  At this rate my 1,000 gallon tank is going to be empty by late afternoon and my other, regular daily customers will not be able to buy ANY gas. I will be out!!  The anger will be palpable.

How do I avoid this?  My supplier can't get another truck to me in a timely manner because ALL the other gas stations in the area are experiencing the same thing I am (this more to this part of the story (the suppliers side) but I will leave it out for now).

Economic theory suggests if I raise the price for each gallon of gas then "at the margin" buyers will decrease their quantity demanded.  But the question becomes, how much do I have to raise the price of each gallon to make sure I have enough gasoline to sell to anyone who wants some for the rest of my business day?

My goal is to get each customer to purchase a little less gasoline than they otherwise would, even in the face of the natural disaster.  Maybe forgo filling one or two extra gas cans.  As each person purchases less then the cumulative effect will be such that I will have gas for everyone (or most everyone) who comes in to get some throughout the day.  That is admirable on my part, don't you think?

What increase in price would be enough to accomplish this? $.10 cents a gallon? $.20? $1.00?  More?

People are getting out of town. Gotta have gas!  Seems like it will take a significant increase in the price to incentivize them to think about each additional gallon of gas they are buying.  Again, if I can stop them through aggressive pricing from buying "too much" then there will be some for the next person--so on and so forth.

Here is my dilemma:  If I increase the price enough to sufficiently reduce quantity demanded to meet more needs/wants, people will yell "PRICE GOUGER!!" (But they are at least driving down the road).  On the other hand, if I run out of gas my customers are going to be mad AND not have any gasoline to get down the road. 

What am I to do? 

Note: Here is an article written by a REAL economist on this topic. Much more academic in nature than my analysis. Worth a read.