Beer prices at Atlanta Falcons games are going down 37.5%. I predict problems will increase by more than that...

The professional football team Atlanta Falcons are opening a new stadium this year and have announced a drastic cut in the price of concessions people can buy.  Here is a link to the whole story.

The price of a beer will drop from $8.00 to $5.00.  In Microeconomics we know when there is a decrease in the price of a good/service the Quantity Demanded will increase (Law of Demand).

We move along the existing Demand Curve down and to the right (ceterus paribus).

Businesses care about profits. Profits come from Revenues.  A decrease in the price of beer from $8 to $5 is a minus 37.5%.

Now, business also care about elasticity of demand---the general slope of the Demand Curve.

In order for the vendor of beer at the stadium to get the SAME amount of revenue as before there must be, at a minimum, an increase of 37.5% in the quantity demanded for beer.

If it falls short of 37.5%, even though it increased, then Total Revenue will be less than before. Not a good strategy! This would suggest Demand is relatively INELASTIC.

If the quantity demanded is greater than 37.5% then Total Revenue will be greater than before. This would suggest Demand is relatively ELASTIC.  A win for the beer vendor!

Anyone see a problem? Does a 37.5% + increase in the flow of beer in a closed stadium pose some "external problems" that are not factored into the price?

On the benign side, more visits to the restroom equals higher sewage/water use.

On the more serious side, well, more drunks and all that entails at a sporting event.

I think alcohol prices should stay high.  Not for a personal preference, but for a better social outcome.

What do you think?

GDP and Water...

Found this on Twitter so it must be true...

If true, it is interesting that 50% (about $9 Trillion dollars) of GDP is produced in concentrated areas close to ports/water.  Historical patterns of trade are hard to break I guess could be an observation.

What do you see?

TSA-Pre Checks --- Quantity Demanded vs Change in Demand

Bloomberg has an article on TSA Pre-checks that provides another good example to illustrate a basic yet difficult to grasp Microeconomic concept: the difference between a change in Quantity Demanded when there is a change in price and a change in demand when something other than a change in price affects the market. Got that?

"""...The agency’s Pre-Check program is designed to fix that problem and move the lines—but only 2.77 million people have enrolled to date, far below projections. The TSA wants to have 25 million people signed up by 2019 for federal “trusted traveler” programs such as PreCheck, for domestic travel, and Global Entry, the program for international travelers run by the U.S. Customs and Border Protection.

"""...But according to the U.S. Travel Association, a lower fee and simpler application process would spur 7 million more people to enroll in the PreCheck program. In a statement Thursday, the group based its claim on a survey of 1,000 domestic travelers conducted March 7-10. Of the 1,000 people, 20.5 percent said they would likely enroll in PreCheck. Among the rest, half cited the $85 fee as the reason they would probably not enroll...."---(bold and underline are mine).

Let's take both of the claims made in the first sentence of this last paragraph, separately and then together, to see how this plays out on a market demand curve.

If you are reading this while standing in line to get through airport security, I hope it makes the wait more satisfying.  :)

Mexican Soda Tax and Change in Qd vs Change in Demand. FUN STUFF!

A couple of years ago, the Mexican government imposed a "soda tax" on soft drinks.  Lots of controversy at the time but the goal was (1) to address the issue of obesity and (2) raise some revenue to combat obesity.

WSJ: "...Sales of soda are climbing two years after Mexico imposed a roughly 10% tax on sugary drinks—a bright spot for an industry that has feared it could be cast as the next tobacco.
Mexico’s tax was an attempt to cap alarming obesity and diabetes rates in a country where per-capita soda consumption is the highest in the world. It came at a time when then Mayor Michael Bloomberg was trying to limit sales of the beverages in New York City, and more countries are weighing a similar tax. 

Purchases, however, are rising in Mexico after an initial drop, making the country a key-growth market again for soda giants Coca-Cola Co. and PepsiCo Inc. Underscoring the resiliency of sugary drinks, the tax of one peso per liter has raised more than $2 billion since January 2014, about a third more than the government expected...."

 The first sentence (actually first clause!) in that last paragraph caught my attention. I put it in bold.  It is a nice opportunity to analyze these few, yet impactful, words with a market Demand Curve.

This first graph shows a downward sloping Market Demand Curve of soda in Mexico BEFORE the imposition of the tax at some price "Pe" and some market quantity demanded "Qde" at Point "A". Easy enough:

When the tax is imposed the price is going to be something higher than "Pe".  

Key point:  The only thing that has happened in this market is the price of soda has increased due to the tax.  We will move ALONG the market demand curve UP and to the LEFT. 

We are now at "Pe +Tax" and a lesser quantity demanded at "Qd1" at Point "B" 

Price goes up, Quantity Demanded goes down. Sound familiar?---Law of Demand!

But our key phrase from the article says that the quantity of soda consumed is now increasing after the initial decrease.  So what happened?

"...Anti-soda groups aren’t ready to declare the tax a failure and say sales got a boost from unusually warm weather..."--WSJ

So, something OTHER THAN THE PRICE of soda affected the Demand for Soda. 

Now, at Pe+Tax the Quantity Demanded is GREATER than it was before ("Qd1").  For simplicity I use the new quantity demanded back at "Qde"---we move from Point "B" to Point "C". 

Key Point:  As shown below, the market demand curve shifts to the RIGHT indicating an increase in Demand for Soda in Mexico, relative to the prior condition.

This article contains  MANY basic Microeconomic concepts but I really liked it because it nicely, if implicitly, illustrated the difference between a "Change in Quantity Demanded" and a "Change in Demand".

This is no small thing when trying to understand Microeconomics.

I hope it helps someone.

A Tale of Two Norwegian government bodies. Which side are they on?

These two stories appear side-by-side on the homepage of "The Nordic Page", a Norwegian media outlet.

Can you spot the contradiction?

Source: The Nordic Page

Burning Ivory Towers...

Quiz Question:  What happens to the world price of Ivory?

Kenya Burns Ivory Stacks in Protest of Poaching

Burning of 105 metric tons of seized ivory aimed at highlighting scourge of illegal elephant poaching

"""Authorities set fire to 11 pyres and finished ivory goods representing more than 6,000 dead elephants Saturday to highlight the scourge of poaching that is driving the mammal to extinction on the African continent.

Some 105 metric tons of confiscated ivory was set alight in a national park on the outskirts of the capital, Nairobi, in what organizers say would be the largest-ever burning of the valued material.

The undertaking highlights both a renewed push by African nations to end poaching and the challenges faced by conservationists on a continent where the pressure to address urgent human needs often collides with efforts to preserve wildlife habitats."""

Can Economics Solve a Nazi Flag Problem?

This from USA Today.

This property owner has a right, under the 1st Amendment, to fly this flag on his/her property.

""Mark Moskowitz, Southeast regional director for the Anti-Defamation League, said that Spurgeon’s decision to display the flag on his property is “disappointing” but there’s nothing to stop him, legally.

“He is protected by the First Amendment,” Moskowitz said. “In America, there is nothing to say you can’t hate. Sometimes people just want attention, and that’s one way to get it.”

Southern Poverty Law Center senior fellow Mark Potok agreed.

“A person who flies the Nazi flag in front of his house is clearly trying to be provocative,” he said. “Certainly, neighbors looking at that flag who are anything but purely white are going to be intimidated. That flag stands for the mass murder of millions of Jews and others worldwide.”

However, if this person's right to free speech causes me significant economic harm do I have a right to be compensated?

What if I own a home next to this person and I want to sell it.

Seems likely/possible that this flag flying next to my house would negatively impact the value of my home and/or take me longer to sell it.  This would be a significant cost to me that I cannot re-coop.

How can economics solve this? Calling Ronald Coase!

A very short Google search turned up nothing of significance in this regard.  Are homeowners just out of luck?

If anyone knows the answer, please let me know.

Rapper 50 Cent and Purchasing Power Parity

Purchasing Power Parity.

Rapper "50 Cent" CD now sells for, well, 50 Cents.  :)

$10.10 - $7.25 Minimum Wage should equal a $2.85 pay raise but is actually only $1.92. See the funny math here...

I have written about this before but wanted to expand on it a bit.

What is the effect on a minimum wage worker, who claims SNAP benefits and the Earned Income Tax Credit--EITC (for the "working poor"), when the minimum wage is increased?  Each of these benefits decrease as the reported income to claim the benefits increases.

Assumptions: single parent of 2 dependent minor children.  Pays $600 per month in rent and $350 per month in child care (these could be high or low. I just picked two reasonable numbers).

Minimum Wage of $7.25 X 40 hours per week  X 4.3 weeks in a month = $1,247.00 in monthly market income.

SNAP Benefits at this monthly market income = $453.00 per month  (Calculator here)

EITC at this market monthly income = $462.00 (Calculator here)

Total market income and transfer payments = $2,162.00

Hours worked in a month at 40 hours per week X 4.3 weeks in a month = 172 hours.

Effective hourly wage ($2,162.00/172) = $12.57 per hour

Minimum Wage of $10.10 X 40 hours per week  X 4.3 weeks in a month = $1737.00 in monthly market income.

SNAP Benefits at this monthly market income = $342.00 per month (Calculator here)

EITC at this market monthly income = $413.00 (Calculator here)

Total market income and transfer payments = $2,492.00

Hours worked in a month at 40 hours per week X 4.3 weeks in a month = 172 hours.

Effective hourly wage ($2,492.00/172) = $14.49 per hour

Notice what happened here. The minimum wage increased by $2.85 per hour (from $7.25 to $10.10), but this person's effective income to actually purchase stuff, market income plus transfer payments, increased only by $1.92 ($14.49 per hour - $12.57 per hour).

I rarely hear this talked about, especially by proponents of an increase in the minimum wage.  While there is an actual increase in total compensation, hence potential consumption for this person, it is not as much as is touted.

The market income increases, but the transfer payments DECREASE as well which reduce the impact of the mandatory wage increase.

Anyway, I thought it interesting.  I hope you do too.

A Loonie, A Dollar and an Apple. A nice story of fruit and currency exchange

The Canadian dollar has taken real hit over the past few years in terms of its value relative to the US dollar.

Here is an article on how the change is value has negatively impacted the price of fruit and vegetables in Canada. I did not know this, but it says that almost all fruit and vegetables consumed in Canada are imported.  So, Canadians are VERY dependent on the value of their currency when it comes to this category of food.

I saw this and wondered how much of the price change could be attributed to the fluctuation in the exchange rate between the US Dollar and the Canadian Loonie:

"...In November 2011, one kilogram of apples cost an average of $3.35 in Canada, according to Statistics Canada. Four years later, the same amount cost $4.12..."

The percentage change in the price of apples over the 4 years was 23% (4.12-3.35/3.35 X 100).

In November of 2011 (November 11th to be exact--to pick a day in mid-month) the US dollar to Canadian Loonie exchange rate was $1.00 =  1.01 CD ("Canadian Dollar").

On November 13th, 2015 the exchange rate was $1.00 = 1.33CD.  That is a 32% increase (1.33 - 1.01/1.01 x 100).

A couple of observations.

(1)  the price of apples in Canada increased 23%, BUT not as much as the depreciation of the Loonie did over that time--- 32%.  So something else held prices in check, but the depreciation of the Loonie certainly had a big impact.

(2) If the price of apples had mirrored the depreciation of the Loonie then apples would have cost consumers $4.45 Canadian, instead of $4.12---8% more.

Looking at the price of things priced in different currencies is interesting to me.  The good itself, apples in this case, is the same regardless of where it is consumed but the price consumers pay might be drastically different primarily because of the value of the currencies traded to get the apples.

Where did the jobs in education go during the recession? They moved downtown...

More fun with education data...

Below are data from the National Center for Education Statistics.  I just highligted the data between 2005 and 2012 (last year available).

Much/Most of this tracks through the recession so the numbers are interesting to me.

Click on image to make a bit larger.

Through the budget cuts of the recession school level staffing, notably teachers, librarians, and counselors decreased in numbers, but Administrative staff "downtown" increased (probably lots of the "support staff" on the right side were downtown staff as well).

If you do the additions and subtractions you pretty end up with, not a net loss of jobs in education, but a relative status quo.  School level jobs (with exception of principals) just morphed on over to the administration offices downtown.

Number of Students at each grade level 2005-2014

Having fun with data and working on my excel skills which are at the most basic level.

I was looking at different categories of in the Census Bureau's "American FactFinder" (good stuff for research purposes!) and came across surprising data on the number of students in grades 9-12 from 2005 through 2014 (only years available).

I created some bar charts. Becareful in reading the vertical (Y-axis).  They  do not start at 0 but at the lowest millionth that the category falls under. Perhaps not good technique, but...

The vertical axis (left hand scale) starts at 16,000,000. Notice the rise in 2006 then a steady fall until we get back where we started (the actual numbers or on the horizontal axis below the corresponding year.  I put the actual enrollment numbers along the  bottom of the horizontal axis for reference.

Starting in 2012 the number flatlines. No growth in the secondary students in 10 years.

How about the younger grades?

No growth there either. Pretty flat from 2010 on.

Now we are getting somewhere. Grades 1-4 show a growth from 2005 to 2014 of 849,262 or 5.46%

Kindergarten has 236,792 or 5.97% more little ones.

Total enrollment K-12 increased 1,088,579 or 2.05%.

Why is the US using all of Yellowstone National Park to grow corn for Ethanol?

Sort of...

This bar graph was derived from US Dept of Agriculture data.  I found it on Twitter HERE.  The numbers on the left are in "1,000's", so add 3 zeroes at the end of the numbers you see.

My perspective is Corn for Fuel is, on net, a bad policy.

Just to put the numbers in some perspective, in May the number of bushels to of corn used to produce fuel alcohol was 450,000,000 (450 million!).

US Dept of Agriculture estimates the average number of bushels of corn harvested in 2015 was 168 per acre.

To find the number of acres required for the corn used to make ethanol in May alone, divide 450,000,000 by 168.

That equals 2,678,571 acres.  Yellowstone National Park is 2,219,000 for comparison.

The Relationship between the Minimum Wage and SNAP Benefits

In light of current policy, how much does a minimum wage earning single mother with 2 dependent children  stand to gain/lose in SNAP benefits ("food stamps") if the minium wage in the US is increased to $10.10 per hour?

I use the basic guidelines from the USDA website that determine the level of SNAP (Food Assistance) based on an applicants income.

Here is the link to the Dept of Agriculture's website that the following graphic organizers came from.

All I did was change the amounts of monthly income based on 2 different wages ($7.25 and $10.10).  I also made assumptions regarding monthly shelter ($600) and dependent daycare costs ($350).  These may be higher or lower, depending of where the person lives in the US. I also use 172 work hours in month---40 hours per week X 4.3 weeks in a month.

I double checked my math so I am relatively confident of the numbers (however, check if you like and let me know. I am a bit math challenged).

This first one shows the level of SNAP benefits at the prevailing $7.25 minimum wage. The person would be entitled to $469.00 per month in food assistance (see last line "16") out of a maximum $511 allowed.

This is a form of "non-cash" income that supplements the market income a person earned. In effect, if you add this amount to the monthly market income earned ($1,247 "cash income") you have a total of $1,716 in monthly income. Back this out to an effective hourly rate and you have $9.98 ($1,716/172 work hours per month).

The SNAP subsidy works out to $2.73 per hour ($9.98 minus $7.25).

The next one shows a minimum wage of $10.10 per hour.

Market  monthly "cash income" is $1,737.00 at $10.10 (line 2).  "Non-cash" SNAP benefits are $293.00 per month (line 16).  Total income is $2,030.00 for an effective hourly wage of $11.80 ($2,030/172 hrs).

The SNAP subsidy works out to $1.70 per hour ($11.80 minus $10.10).

The market income the person earns is $490.00 per month more at $10.10 an hour vs $7.25 and  SNAP benefits decrease by $176.00 per month. Net change in total compensation is +$314 or an additional $1.82 on an hourly basis ($314/172 hours worked in a month) for the single mother of two.

While the hourly minimum wage increased by $2.85 per hour ($10.10 minus $7.25), a 39% increase, the SNAP subsidy decreased by $1.03 on an hourly basis ($2.73 minus $1.70), 38% decrease, the single mother of two is effectively "better off"on net by just $1.82 per hour worked when all is said and done as the minimum wage moves from $7.25 to $10.10 per hour.

Raise the minimum wage by $2.85 and the single parent is ultimately better off by only $1.82.  Beats a sharp stick in the eye, but is it a pathway out of poverty?

Note: LOTS of caveats with this posting.  Market income is subject to payroll taxes so an increase in the min wage will cost a worker more.  There may or may not be a "dis-employment effect" with raising the min wage (more so in some industries than others).  How might this affect the EITC tax credit. On and on and on...I just wanted to present a cursory perspective on the merits (demerits) of increasing the min wage in light of existing policy on SNAP (food stamp) benefits.

Hope it helps do just that.  Comments welcome.  Thanks.

The Minimum Wage and Poverty Level Income. How much do I need to make? Numbers here...

Here is a table of the official income levels the US Federal government uses to determine whether or not someone is classified as "poor" (copied from HERE but I saw it at The Conversabel Economist)



This is useful but it does not help me fully understand what these numbers mean.

Below, I calculated the hourly wage I would need to earn in order meet these levels of  income based on household size.

I am going to use 2,000 hours worked per year as my measuring stick (40 hours per week, 50 weeks per year).  To make it simple, I am only going to use the numbers in the first colum "Weight Average Thresholds".  If I divide these income numbers by 2,000 I will get the hourly wage needed to make that amount of income (numbers in RED). I am assuming ONLY 1 wage earner in the household for this calculation.

This is the same graphic as above but enlarged:

The number I am most interested in is the "Three people".  This could be a single parent with two children.  That parent would have to earn at least $9.43 (not including taxes/other deductions NOR othe public transfer payments) per hour in order to meet or exceed the Federal definition of poverty for a family of 3.

You can compare this to the minimum wage of $7.25 per hour.

I think looking at it like this allows us to have a more effective discussion of how we get the "working poor" AT LEAST to a poverty level income.  Raise the minimum wage? Increase Transfer Payments (EITC for low income workers, Food/Housing Assistance, etc).

How do we intelligently cover that deficit between the actual minium wage and a near poverty wage I calculated?

Let me know in the comments.  I hope this perspective gives some body to your thoughts on the subject.  I do realize there are many ways of looking at these numbers too.  What about a family of 4 (two working parents with two kids). Combined they need to make "only" $12.12 an hour, less than their combined minium wage incomes.  Does this mean they are living above the poverty line and all is well?

Thanks!