"Buy one, Get One Free" Or "Half-Off"--I can't decide which is better!!

It is difficult to not be manipulated by clever marketing, or unclever marketing for that matter (You believe when an item is advertised as "half-off" that it was ACTUALLY sold at the original price at one time, don't you??).  I can explain this to students all day long, but I am sure when they go to the store they are lured by the "sale".  Sellers engage in a concept called relative pricing.  If I have an item I want to sell for $50 and advertise it at that price I will NOT get the same response if I instead put a "manufacturers suggested retail price" of $100.00 and offered it for sale at $50.00, half-off.   Same price outcome but not the same sales response.  the first instance I did not give you are basis for comparison, the second I did...

""Behaviorial economist Richard Thaler has noted that consumers are really bad at making decisions about value and constantly need "reference prices" for comparison. A dress costs $80. Is that too much? Not if it's marked down 50 percent from $160. The trick is, that artificial $160 reference price may not really exist.""How Apple plays the pricing game

 I can cleverly do this with multiple items that are similar but steer you to the one I really want you to buy. Apple (and others) do this very well, but Apple may be the best at this "relative pricing" game...

""...Decoys explain why Apple often sells each gadget in a pricing series, such as the new iPod Touch's $229, $299, and $399 price points for different storage capacities. You may gladly spend $229 to get a hot media player, thinking it's a deal compared with the highest-priced version and not blink that you could instead buy an iPhone 4 at the lower price of $199 with more features.
The $399 "decoy" has clouded your judgment. Apple wins the best of both worlds - stoking demand for products that look like bargains and for all the decoys it sells at much higher prices. Yes, some people will spend $399 for a music player with slightly better technology - and Apple makes even fatter margins...."

If after reading this you still get fooled, well, at LEAST you are an educated fool...Ummm, that did not come our right, did it??? :)

How compromise choices can make you money

Need a current event article for Economics? This one is short and discusses more concepts than any other article I have seen recently...it a carpet bombing of econ concepts!!

Short article chocked full of supply and demand problems thoughout a supply chain, illustrates structural unemployment, changes in the labor force for trucking, the pitfalls of extending unemployment benefits...seems unending...if you need a source for AP Economics or a college economics class, this is one stop shopping...
Shortages of trucks and truck drivers stall product deliveries

Nice graph showing the Natural Rate of Unemployment vs Actual Unemployment overtime...Yes, it IS important!!

Below you will find a graph showing the Natural Rate of Unemployment vs the Actual Rate of Unemployment over time.  The Natural Rate of Unemployment (aka NRU) is the sum or Frictional Unemployment and Structural Unemployment the economy.  These two categories of unemployment are always present and the goal is to minimize them, especially Structural.  Structural unemployment is serious and poses many problems. Workers are unemployed because their skills have been rendered obsolete, primarily through advancements in technology and production process.  These workers tend to be unemployed for longer periods of time and need to undergo re-training to acquire relevant skills.  It is feared that the Natural Rate of Unemployment is going to increase because of an increase in the number of workers who fall into the Structurally unemployed category.  This could describe between 2 and 3 million people!! How do we solve THAT problem?? Ideas?

Cleveland Federal Reserve

Are Americans selfish and not charitable? Nice graphic enclosed that shows who is naughty and who is nice

A bit of good news, but I did not have to be told this...Americans ARE generous...(Click on image to make bigger OR click on link to go to source).
Americans Are More Caring Than 99% Of The World

Here's a rare bit of information to make Americans feel good about themselves.
A UK-based think tank rated Americans fifth in the world in a composite index of charitable activity, including giving money, volunteering, and helping a stranger. Only Canada, Ireland, Australia, and New Zealand ranked higher.  Charity-wise, Americans do better than the British, French, Chinese, and the rest of the world.

Liar, Liar, pants on fire! Well, not on fire, but they may be larger than they appear...

I KNEW IT!!  Not all pant sizes are created equal.  The graphic below shows the variations in ACTUAL size of select pants relative to the size stated on the label.  The label in the pants says "36 inches". However, when measured you can see the ACTUAL size of the pants is not as advertised.  The pants are considerably larger, in some cases.  Is this dishonest advertising OR do we WANT to be duped in this manner? Just to be safe, I am NOT going to measure MY pants...I am SURE they are really "38's" as labeled!
Are Your Pants Lying to You? An Investigation

POP! That is sound of the"bubble" about to burst in the market for Higher Education...Can colleges escape the laws of supply and demand? I think not...

There has been lots of talk about how to control over-spending in the housing and healthcare markets.  Major legislation has been passed and political capital has been expend to address these problems. How about the potential "bubble" in higher education? Is this issue important to college students?? Well, yes.  Has it been seriously addressed? Well, you decide for yourself as you write checks to pay for your college expenses...

The first graph pulls out the price of College Tuition  (Dark Red Line) over time and compares it to prices as a whole (CPI-Blue Line) and the price of housing ( Bright Red Line)

The second graph pulls out the price of College Textbooks (Blue Line) and compare it to prices as a whole (CPI-Dark Red Line) and the price of housing (Bright Red Line)

Graphs courtesy of Carpe Diem

Ok, the deep fried thing at the State Fair has gone one product too far....

I don't drink at all, so this does not affect me personally. The creativity and trial and error that stems from this innovation is what fascinates me.  The economics is interesting too: is this food item the result of demand-side or supply-side economics?  Did people demand this good and the entrepreneur then go about producing it, or did the entrepreneur anticipate that if he/she supplied it people would want it? Sorry, this is how I think about everything---the "economic way of thinking" controls my life!! :)

Texas State Fair's culinary contenders fry everything from Pop-Tarts to beer

""If Big Tex looks a little glassy-eyed this fall, blame it on the Fried Beer. Or the Deep Fried Frozen Margarita.
Booze is generating a buzz for the State Fair of Texas, as fried-alcohol dishes made the list of top new fair foods announced Wednesday.
Eight imaginative contenders are vying for the Sixth Annual Big Tex Choice Awards, with the winners getting plenty of publicity – and long lines of eager fairgoers willing to gobble up the fried goodness.
But have your ID handy for the Fried Beer and Deep Fried Frozen Margarita – you must be 21 or older to partake....Fried Beer is a beer-filled pretzel-like dough pocket that's shaped like ravioli. Take a bite and the beer pours out.""

Happy Capital Day!! Opps, I mean Labor Day...or do I?

On Labor Day we celebrate the contribution of the worker to the production of goods and services.  Good enough and well deserved.  However, why don't we have a day for what really allows workers to be more productive AND work less with their physical bodies and more with higher level thinking skills?...(HT: Division of Labour)

""Any good economist will tell you that as complementary factors of production, labor and capital are not only indispensable but hugely dependent upon each other as well.
Capital without labor means machines with no operators, or financial resources without the manpower to invest in. Labor without capital looks like Haiti or North Korea: plenty of people working but doing it with sticks instead of bulldozers, or starting a small enterprise with pocket change instead of a bank loan.
There may be no place in the world where there’s a shortage of labor but every inch of the planet is short of capital. There is no worker who couldn’t become more productive and better himself and society in the process if he had a more powerful labor-saving machine or a little more venture capital behind him. Capital can refer to either the tools of production or the funds that finance them. It ought to be abundantly clear that the vast improvement in standards of living over the past century is not explained by physical labor (we actually do less of that), but rather to the application of capital.
This is not class warfare. I’m not “taking sides” between labor and capital. I don’t see them as natural antagonists in spite of some people’s attempts to make them so. Don’t think of capital as something possessed and deployed only by bankers, the college-educated, the rich, or the elite. We workers of all income levels are “capital-ists” too—every time we save and invest, buy a share of stock, fix a machine, or start a business.
And yet, we have a “Labor Day” in America but not a “Capital Day.”
Like most Americans, I’ve traditionally celebrated labor on Labor Day weekend—not organized labor or compulsory labor unions, mind you, but the noble act of physical labor to produce the things we want and need. Nothing at all wrong about that! But I’m starting a new tradition this year that may never catch on and it doesn’t matter to me if it doesn’t. I’m doing it anyway: In odd-numbered years, I will celebrate Labor Day on the first Monday of September. In even-numbered years, I will celebrate what I’ll call Capital Day. This makes Monday, September 6, 2010 my first official Capital Day.
This weekend, I’ll be thinking about the remarkable achievements of inventors of labor-saving devices, the risk-taking venture capitalists who put their own money (not your tax money) on the line and the fact that nobody in America has to dig a ditch with a spoon or cut his lawn with a knife.
Happy Capital Day, America!""

Do the carpets in Vegas Casinos camoflage stains OR poker chips? I got to know!!

Apparently there is money to be made in carpets in Las Vegas...Are the carpets in casinos for covering up stains OR for camoflaging chips that have fallen from the possession of the gamblers? OR perhaps it is both!

HT: Marginal Revolution

Economics underpins ALL conflict---Food Inflation causes rioting--is this just the beginning?

    The subject of the article below is something we discussed in class today.  Increasing food prices, while a nuisance, are easily absorbed by rich countries but disproportionately effect poor people in poor countries in a negative way.  It emphasizes the point of my lecture:  If you look at the history of conflict/revolution/war and strip away all the rhetoric, you will find an economic problem as the root cause.  In this case, it is rising wheat prices.  Wheat is a vital input into making many basic food staples.  While rising food prices may not be an ultimate reason for over-throwing a government, it may certainly be the catalyst.
Seven die in Mozambique food rioting

""The first food riots since the 2007-08 crisis have left seven people dead and at least 280 injured in Maputo, the Mozambican government said on Thursday. The unrest in the country’s capital followed the government’s decision to raise bread prices by 30 per cent.  The riots have prompted concerns that food protests could spread across poor African countries that rely heavily on agricultural commodities imports. Discontent about rising prices for staples has already emerged in countries from Egypt to South Africa.
Further violence in Maputo was possible, he added""

Another graph showing world meat prices relative to food prices world-wide:

"Priming the Pump"---this ain't plumbing but we are trying to unclog the stagnant economy---see multipliers enclosed.

  A nice graphic  below showing the multiplier effects of various fiscal policies Congress could implement to move the economy forward.  In a recession, Congress would want to decrease taxes and/or increase direct government spending.  The goal is to increase the demand for goods and services so businesses will produce more goods and services. In turn businesses would need to hire additional workers to produce these goods and services (or at the minimum, not layoff people or close it doors).  This would serve to stabilize the economy until private demand returns and government could back off.   In theory and in practice (I say that with reservations), each dollar spent by the government yields MORE in terms of  goods/services purchased than a decrease in taxes because in the very first round of spending the government does not save a portion of the dollar and people tend to save a portion of the tax cut.  This is the foundation of John Maynard Keynes "Multiplier Effect" of a dollar spent by government versus by "people".  According to this theory, if you want to jump-start an economy, or as Keynes said "prime the pump", then government spending a dollar trumps people spending that same dollar.  The extent of the multiplier effect is STILL up for much debate in economics, but depending on the policy, it seems to bear out.  Judge for yourself...
Tax Cuts That Make a Difference

""...But the most effective tax cut for putting people back to work quickly is one that businesses and households get only if they spend money. Last year’s cash-for-clunkers program was an example. So was a recent bipartisan tax credit for businesses that hired workers who had been unemployed for months. Perhaps the broadest example is a temporary cut in the payroll tax for businesses, which reduces the cost of employing people.

Any of these steps would increase the budget deficit, obviously. But relative to the multitrillion-dollar, Medicare-driven, long-term deficit, a temporary tax cut costing a couple of hundred billion dollars isn’t significant. The more pressing problem today, by far, is the weak economy...""

 

Keep your externalities Positive---"Metering Out" benefits...

It is usually easier to find examples of negative externalities than positive ones.  Positive externalities are benefits accrued by society from a use of a good BUT the market does not provide enough of this good.  Government can play a role in promoting the production of this good by offering a subsidy to either produce it or for the consumer to purchase more of it (increase the quantity demanded and the quantity supplied will increase--it still induces production):

""More than 100,000 central Ohio households are on the leading edge of energy technology, having received high-tech electricity meters with the help of federal aid, a project an Obama administration official praised yesterday.As soon as October, the customers will be able to use an AEP website to track their electricity usage the previous day. Future versions of the meters might allow for real-time tracking.  Electric utilities eventually might use the technology to offer different prices for power, depending on the time of day, which would encourage customers to use less power during times of high demand. This kind of change to pricing would require approval by state regulators.  As Chu sees it, the meters' main asset is the way they provide information that can be used to cut power bills.  "First and foremost, it's about saving money," he said."" (Source: Environmental Economics)

How many versions of an IPOD do we need?? The market says more...listen to the market...

Creative Destruction at work---within the same company.  A miracle of market activity that can only take place where people toil in economic freedom and have profit as a motive. Why else would anyone do it?? The IPOD is successful, why the need to continue to go above and beyond?  Is the answer "Because Steve Jobs can?" Incremental improvements lead to better products now, and we never know what those improvements might morph into someday. Innovate or die.  Sounds harsh, but would we really want it any other way?  Look at your IPOD or I-Phone or Laptop or ???? before you answer.

The iPod's Amazing Evolution

""Wednesday, Apple will likely unveil new iPods at an event in San Francisco.
The latest rumored features: An iPod touch with two cameras for "FaceTime" video chats, and a tiny new iPod nano with touchscreen controls. (And maybe even 3G Internet access for the iPod touch.)
Yes, the iPod has come a long way since its launch in October, 2001. That's when Steve Jobs showed off a device that promised "1,000 songs in your pocket" for $400.
This week's new iPod touch could promise "an HD camcorder and 250,000 apps in your pocket" -- for half the price.
The iPod could arguably be the most important product in Apple's entire history. Over the last 9 years, Apple has made the iPod one of the biggest consumer electronics hits of all time, pushing out more than a dozen new models and selling hundreds of millions of units.""

Want to know why printing money in not the answer to our problems? Inflate your knowledge with this link...

Students---An EXCELLENT, concise lesson on why the US has to be careful about printing money to get us out of the recession...Please take the time to read it---it answers alot of questions...
“Why can’t the government just print more money?” – NOT such a silly question!

China's now infamous traffic jam---and why more will happen!!

China's 11-Day Traffic Jam Was Insane... But Here's Why More Will Happen...
Graph shows the growth in the number of cars (BLUE line) relative to the road infrastructure to handle that growth (RED line)...The math does not work...