AP Micro Example: Perfect Competition and a change in cost AND Market Price. Does not get better than this!!

For Teachers and/or Students of Microeconomics here is an excellent article you can use to illustrate how changes in variable costs and a change in market price affects a producer ("Firm") that operates in a "Perfectly Competitive" market.
Dairy farmers squeezing white gold from cows

Most milk manufactured in Wisconsin becomes cheese, but it’s also turning into white gold for dairy farmers in America’s Dairyland, because demand has never been higher and prices for it are rising at meteoric rates. 

A dramatic increase in dairy exports and limited milk production have combined to create the near-record high prices dairy farmers are receiving for their milk from customers like cheese producers. 

Combined with the near-record low prices they’re paying for corn to feed their cows, dairy farmers should see increased profits through this year, a leading dairy economist said.
“This is the dairy farmers’ year to enjoy,” said Mark Stephenson, the director of the UW-Madison’s Center for Dairy Profitability. 

Read more: http://host.madison.com/business/dairy-farmers-squeezing-white-gold-from-cows/article_c5ecf6f1-88a3-55e7-98b9-0a60be9857fb.html#ixzz2tm3OU2Mf

Let's go to the GRAPHS!  Each slide has has its own narration so I will let them speak for themselves.  If you see any errors or omissions please let me know. 

I hope this helps you understand changes in costs and prices in a Perfectly Competitive Market.

Jane Goodall releases a chimp into the wild. Your awwwwwweee moment of the week.

If this does not get to you then you are not human! :)

If you cannot watch the whole thing, start at 2:30.  Your awwwweee moment of the day. Your welcome. (HT: Sowing Agriculture Seeds)

In 2012 China bought as many new cars as the US, Germany and Japan COMBINED. Surprised?

Quite astounding.  Since 2005 the sale of passenger cars (excludes SUVs'/Trucks) in the US, Germany and Japan have been level and/or declining.  Look at China starting in 2008.

In 2012 China bought as many new cars as the US, Germany and Japan COMBINED (my eyeball estimate).

They need gasoline, spare parts, tires, etc. The center of economic gravity is moving East, my friends.

Find more statistics at Statista

Food coupon redemption before and after the recession. Buy 1 recession get 1 recovery free...

Sign of the times...

As of 2012 the dollar amount of food coupons redeemed returned to pre-recession levels. At the height of the recession $500 to $600 million dollars more were redeemed.

The use of coupons by stores and manufacturers is an example of 3rd Degree Price Discrimination by producers that have some pricing power.  It is a way to capture "Consumer Surplus" by segmenting consumers based on their willingness to pay. Some people (like me) dislike using coupons so I end up paying more for a particular good than someone who is willing to take the time to cut-out, save, and bring to the store the coupons.  The store captures a sale from the coupon-er that they might not have received before.

I suppose I subsidize people that do the coupon thing....Your welcome...

Well, anyway, seems like in terms of the use of coupons we are back to normal. Wonder what this says about the economy.  Any suggestions?

Find more statistics at Statista

I can't even go to the movies and not observe an economics issue---See the picture I took in the parking lot today. Merica'...

I parked next to this car when we went to the movies today.

Noticed the bumper sticker that suggested buying this car, a Chevy Malibu, shows support for US auto manufacturing at the expense of a foreign auto producer. True enough.  Was this car assembled in the US with US labor?  Yes, it was produced in Kansas at a GM plant.  However....

If you are looking at a car in its entirety in terms of labor and PARTS, then perhaps a better choice could have been made.

Cars.com does an annual survey of vehicles to determine the TOTAL US supplied labor and parts that went to producing it.

Here is the latest one from 2013.  Each of these vehicles has at least 75% US sourced labor and parts.

If the owner of the above car wanted to buy a comparable car that was MORE Made in the USA than his Chevy he would do better to buy a Toyota Camry.

I bought American---I own a Camry myself.  :)

Federal Government Spending in two must see charts/graphs. It has increased BUT it depends on what the definition of "spending" is. It ain't as easy as it sounds...

Nice, concise visuals of the metamorphisis that the Federal government has undergone in the past 40 years (from a report from the Cato Institute)

This first graph shows, in trillions of dollars, federal spending from 2000 to 2013 in the 5 categories spending can be categorized (see the box for descriptions).

Transfer payments are simply moving money from one entity (taxpayers) to a second entity (government) to a third entity (recipients of entitlements).  The major entitlement programs are Social Security, Medicare, Medicaid.  Interest on the national debt is another big transfer payment (about $290 billion last year).

You can see that at about $2 Trillion transfer payments are the majority of the Federal Budget and subject to the most growth since 2000.

Source: Cato Institute

The data below puts the growth of Federal government spending since 1970 in the context of national in come, or GDP.  Notice that transfer payments have almost doubled!  The other categories are relatively stagnant.

Conclusion:  The Federal Government has become a check writer---moving money from one place to another.  "Doing things" has moved down the list of things the Federal government might accomplish.

Some say that is a good thing. Some say it is a bad thing.  Either way, it is a thing.  I report, you decide.

Source: Cato Institute

Nice chart showing cable TV prices since 1995. Found an interesting nugget that shows you are getting a deal! See it here.

Found the link to this chart the Federal Communications Commission (FCC)  from Money Box at Slate.

Shows the prices for cable TV in nominal dollars (just the price in that particular year not adjusted for inflation) from 1995 to 2012.

The price of just the basic level of service in 1998 (don't know why they don't have it for the earlier years) was $12.06.  Adjusted for inflation that would be equivalent to $16.99 today.  The actual price in 2012 was $20.55.  We can say that the price of the very basic package increased by +21% more than inflation in general.

The price of the "Expanded Basic Service in 1995 was $22.35 for 44 channels.  The per channel price would be $22.35/44 = $.51.  Put those two numbers in 2012 dollars would be $33.67 and $.77, respectively.

In 2012 the "Expanded Basic Service" was $61.63 for 150 channels. The per channel price would $61.63/150 = .$41.

So, the Expanded Basic Service has increased +83% above the general rate of inflation. OUCH!

However, the per channel price of cable (adjusted for inflation) has DECREASED by 48% since 1995.

I guess that last statistic is something to hang your hat on in terms of value to you from your cable bill. :)

Source: FCC via MoneyBox

Wondering why your Netflix downloads/streaming have been slower as of late? Nice graph showing you are not crazy...

From Quartz which has a nice write up about this and other issues with streaming Netflix.  If you are interested in the topic it is a must read.

Chart of pizza consumption by age and gender. Can anyone explain to me why guys stop eating so much pizza after the age of 19?

Here is a bar chart (from Reason who got it from the USDA) showing the US daily consumption of Pizza by age group and gender.

The distribution seems right to me by age and gender.  The only thing I am curious about the large percentage drop-off for males past age 19 into the next category, 20-39.

Female consumption drops off 28% (18% to 13%) but males drop 38% (26%-16%).

Any guesses as to why?

Source: Via Reason

Nice pie charts showing the consolidation in the Telephone/Wireless business since 2003. Not many wagons in the circle anymore...

Yesterday I posted a graphic showing the consolidation since 1990 of the TV cable provider industry.

Today Quartz has a graphic showing consolidation of the Telephone/Wireless industry since 2003.

Consolidation implies economies of scale will make providing service less expensive good for consumers.

Consolidation implies increased pricing power for the companies over consumers good for the business.

Consolidation implies costs go down, prices go up and economic profits increase.  Doubly good for the business.  I think we have found a winner! :)

Source: Quartz

Nice article teachers and students can use to analyze Perfect Competition. Corn vs Soybeans. May the be best crop win.

In AP Microeconomics one of the types of market structures we study is of firms that operate in a "Perfectly Competitive" market.  This means: (1) there are many producers, (2) they produce an identical product, (3) there is easy entry and exit from the market, (4) low barriers to entry into the market, (4) the firm is a "price taker". Each individual farmer has no control over the price they receive for what they produce.

Farmers in the agricultural industry are the best (and closest) example to illustrate a Perfectly Competitive Market.

In the article excerpted below (Bloomberg)  a farmer is looking at the price he can receive for growing either corn or soybeans ("Price Taker").  His land is suitable for producing either corn or soybeans ("easy exit from corn, easy entry into soybeans") and it is not costly to switch from one to the other (low barrier of entry--he has the equipment and know-how to grow either).

He has no particular love for either crop.  He is simply measuring what he can receive for each acre planted and harvested against the his cost of planting and harvesting each acre.  The difference is his profit per acre.

This is a great article for teachers and students to show with the two graphs necessary to analyze the perfectly competitive market:  The Firm Graph and the Market Graph.  Both are taken into consideration here.
Soybean Switch on U.S. Corn Farms Expanding World Surplus

Corn is no longer king on Todd Wachtel’s 5,500-acre farm inIllinois. After prices fell to a three-year low in January, he will cut planting by 20 percent in 2014 and devote half his land to soybeans, which are cheaper to grow and just as profitable for the first time in four years. 

Across the Corn Belt, growing the biggest U.S. crop had been an easy choice for farmers since 2009. Annual revenue was $150 per acre more than soybeans on average for Wachtel, who sowed 3,450 acres of corn in 2013, or 63 percent of his land. This year, lower prices mean both crops will earn $10 to $20 an acre, so Wachtel is reducing his risk by sowing more soybeans, which cost $220 less per acre to grow than corn. 

“You are putting less money at risk for the same profit,” Wachtel, 42, said by telephone from Altamont, about 220 miles (354 kilometers) south of Chicago.

Here are the firm graphs I made to illustrate what is happening.  For simplicity, I am assuming all cost associated with the switch are "Fixed Costs" and will only affect the Average Total Cost ("ATC") of producing.  I did not want to shift the Marginal Cost curve too because it complicates things.  If I did it would show the MC curve shifting to the RIGHT and the Quantity of Soybeans would increase, just as the article states.

The Price the farmer receives is the same for either crop (as mentioned in the article) at "P*=MR*) but his cost of producing soybeans is LESS than the cost of producing Corn per acre.

Ceterus Paribus, the ATC curve for soybeans shifts DOWN and the farmer is now making some economic profits in soybeans as compared to "Breaking Even" when he produces Corn.

Nice graphic showing the consolidation of the Cable TV provider market since 1990. Is this a good thing? Bad thing? Or just a thing that we have to accept?

In AP Microeconomics we are discussing the various forms firms can take in terms of market concentration: Perfect Competition, Monopolistic Competition, Oligopoly, and Monopoly.

Here is a graphic from the Wall Street Journal that shows the consolidation of the cable TV industry since 1990. There is a nice Q&A regarding some of the details and ramifications of the deal.  If the recent move by Comcast to purchase Time Warner Cable (TWC) goes through there will be 3 main cable providers in the US.

The market is clearly one operating in the mode of an Oligopoly:

Oligopoly is a common market form where a small number of firms are in competition. As a quantitative description of oligopoly, the four-firm concentration ratio is often utilized. This measure expresses the market share of the four largest firms in an industry as a percentage--Wikipedia

 The key question will be how this affects the price of cable.  They would say scales of economies and efficiencies (fancy way of saying duplication of tasks will reduce labor and administrative costs) will keep prices from rising. Economic theory suggests less competition gives the firm more pricing power. There are some substitutes for it, such as satellite, but a significant part of the market is still hardwired for cable.

Now I see why people stockpile supplies in bunkers. The rest of us cannot control ourselves in times of crisis. See the empty shelves here

Quantity Demanded is greater than Quantity Supplied.  A problem across the South and Southeast.

Much higher prices would served to limit peoples purchasing at the margin.  That is a fancy way of saying pay more so you will leave some for the rest of us, please.

Limits on quantities do not work.  You start a revolving door of the family going in an out to buy stuff or having the kids stand in line with your purchases.

Higher prices might be distasteful but you might actually GET a taste-full (or a full taste)  if people left some food on the shelves.

We can feel good that prices are still low but we do it with hunger pangs or we can complain about high prices while snacking on a bag of chips.

Stay in school kids. It is more important than ever. MUST SEE GRAPHICS that support this view. Ignore at your own peril!

The Pew Research Center has a nice report on the importance of education as a source of personal economic stability.
The Rising Cost of Not Going to College

"...On virtually every measure of economic well-being and career attainment—from personal earnings to job satisfaction to the share employed full time—young college graduates are outperforming their peers with less education. And when today’s young adults are compared with previous generations, the disparity in economic outcomes between college graduates and those with a high school diploma or less formal schooling has never been greater in the modern era...."

The underlining is my emphasis.  Read that again!

Here are a couple of graphics that support this view. There are more at the link above and an extensive discussion of the subject. I encourage you to take a look at it.

CVS's decided to stop selling cigarettes....OR DID THEY?

CVS, the large pharmacy and other dry goods chain, recently announced that it would cease selling cigarettes and all other related tobacco products. However, in that they did not include Electronic Cigarettes or "E-Cigarettes" in that decision.  Here is an article in TIME that goes into more detail.

Regular tobacco based cigarette smoking has been on a downward decline for some time now.  But the sale of e-cigarettes have grown significantly.

Perhaps it was a stroke of public relations genius on CVS's part to cease selling a product that they believe is on the long term decline but leave open the possibility of selling a similar product that is on the rise.

It will be interesting to see what they do.