Category Archives: Uncategorized

D.C. Bag Tax & Externalities

 

D.C.’s tax on plastic bags may be small but it’s effect is surely mighty. The tax is a mere nickel however, it seems to be having an influence buyer shopping patterns which may also be indirectly affecting the environment for the batter. This 5 cent tax has buyers skipping out on the plastic bag option and has customers opting to bring in their own reusable bag and even carrying groceries by hand. The article “Why D.C.’s Skimpy Bag Tax Works So Well” stated that many stores in D.C. have reported a significant decrease in the demand for plastic bags with stores giving out only half the amount of bags as before. Although, D.C.’s adoption of the bag tax has been ultimately successful, other cities have had trouble implementing the tax in their city. The bag tax has been linked to decreased use of plastic bags and ultimately less plastic bags will end up in the landfill. This leads to a reduction in the negative externality on the environment with decreased pollution and an increase in the use of renewable resources.

 

If we were to approach this issue in a manner that is more suitable to be implemented in our government, the Pigouvian tax is the best solution. This is the ideal solution because it does not limit anything. Those who do not mind paying for the tax should be allowed to use plastic bags, while those who prefer a greener solution should be compensated for helping the environment. The revenue created by the tax benefits those who make a difference by using a greener solution and this creates an incentive for for more environmentally friendly bags– which in return helps the environment and ultimately us.

Online Businesses & Price Discrimination

Whether it is getting a new haircut or buying car insurance, price discrimination is certainly something everyone- whether young or old, male or female- has experienced. I for one have witnessed price discrimination in various forms and outlets. Though it never seemed comprehensible in the past, understanding the mechanics of price discrimination has changed my mind about why some firms charge various prices for the same services or good. Growing up I noticed the various differences in prices for me and my parents. For example, one of the most blatant use of price discrimination when I was younger was entry into theme parks. Children’s prices were typically 30-40% less than what the price was for adults. As a preteen, walking down the aisles of the cosmetics section was very different than walking down the aisles of the men’s care section. Women’s shaving cream was almost always double the price of men’s shaving cream, despite doing the same job. Another example of price discrimination I have noticed in the recent years, especially now as a driver, is the varied disparity in gas prices. I have noticed that wealthier neighborhoods usually have more expensive gas because people are willing to pay that price. Despite these tangible examples of price discrimination being so evident in our lives, it continues to play a predominant role in our market.

 

With online shopping becoming an increasingly popular market among consumers today, shopping websites are constantly looking for ways to price discriminate customers. A possible scheme that might be effective for online companies to price discriminate is observing internet histories to analyze shopping patterns. For example, if someone is looking to buy a waffle maker they will naturally search “buy waffle maker” in a search engine. A website selling a waffle maker can pick up on the consumer’s necessity for one and sell the waffle maker at a higher price to them. Similarly, a customer looking to purchase a waffle maker can also be interested in purchasing a complementary appliance such as a coffee maker and the company can offer that item on sale in combination to a waffle maker. Therefore, the company can exploit the price discrimination to make more profit.

 

This is just one example of price discrimination that can work for various companies. As consumers evolve their shopping habits, price discrimination also must conform to market changes.

Starbucks or Dunkin’

In life even the most intelligent people can make irrational decisions. Like Dan Ariely elaborates in his Ted Talk, these decisions are a product of emotion and illusion of making a decision or other decisive factors. After listening to his piece I realized that I too have been a victim of making irrational decisions. The most glaring behavior I have that many would consider irrational is purchasing coffee from places like Starbucks when I know there are cheaper options available.. I could instead make my own coffee or purchase coffee from someone else for cheaper. The more rational decision would simply be to head over to Dunkin Donuts And pay less for the same beverage. Similarly, my willingness to buy something is based off of a price I’ve established in my head. Therefore, even though I know diamonds are incredibly expensive- the price would be normal to the mind because we are accustomed to knowing that diamonds are high priced goods. After we have established a price in our heads, we view everything later through that mindset.

 

Harford says that we usually can be expected to make rational decisions. Rational people tend to respond to incentives. Once something gets more expensive we tend to do less of it. When it is easier or more beneficial (or cheaper) we do more of it. By Harford’s standards my behaviors would be deemed irrational because I’m choosing a more expensive option and utilizing it more. Dan Ariely, in his Ted talk- Are We In Control of Our Decisions- would say that we are generally far less rational than we think we are. We like to give ourselves the illusion of making decisions however we largely fail to comprehend the that it is humans that are used to make decisions. We tend to make the same mistakes over and over because of basic wiring of our brains. In “Predictably Irrational,” Ariely speaks about the phenomenon of Starbucks:

 

“Starbucks did everything in its power to make the experience feel different — so different that we would not use the prices at Dunkin Donuts as an anchor, but instead would be open to the new anchor that Starbucks was preparing for us.”  

 

According to Ariely Starbucks succeeded in making customers pay enormous amounts of money for coffee because it changed the experience for customers. Therefore customers thought when they were buying coffee they were also investing in a high quality experience.  

 

In one of Ariely’s other books the Upside of Irrationality, Ariely argues that we hold a naive assumption that there is a positive link between the magnitude of the incentive and the ability to perform better. I don’t think that our economic assumptions should necessarily be thrown out if irrational behavior is predictable as it is. I think it would be less efficient if rational economists ignored that accumulating data from research into human behavior and decision making. I think economists need to approach the big questions in society with the dispassion of science. I think Harford and Ariely’s arguments are in line with optimal maximization and optimal consumption. For example, when we did the cookie experiment in class because the cookies were free the student consumed the most to his satisfaction. This coincides with rationality theories. I think that the larger implications of Harford and Ariely’s theory is that our decisions will be paved by other factors besides rationality. Policy makers and business people have to take into account that consumers cannot always be expected to act rationally. Therefore the path an economy can take cannot always be so planned.

 

Reducing Poverty: What Minimum Wage Boils Down To

Imagine living off of $7.25.

There’s only so much you could save, invest, and splurge on. There’s only so much you can do with the national minimum wage.

Arguments have been made both, for and against the increase of the minimum wage. Here’s my take on it:

The government tends to gross less if the government controls and sets prices- so if a higher minimum wage is set, this translates to restricted economic growth. PLUS, unemployment will skyrocket because now the employer at Burt’s and Bees can’t afford to give Mike and Greg both $10.10, they can only afford to hire Greg. But if there was an unrestricted wage market they can hire Mike and Greg both for $5 each. So actually the attempt at alleviating poverty by increasing the minimum wage is actually just another way to create poverty… right?

Surprise! The actual wage market actually happens to be more complex than oversimplified models concocted by students of economics.

Studies such as that done by David Card and Alan Krueger has shown that employment actually increases with higher minimum wage. Why? Well, it turns out that the minimum wage is usually set very close to where the market sets it. Also, well waged workers tend to spend more of their pay wages, which leads to higher economic activity and therefore the creation of more jobs. Higher wages also mean less turnover which leads to less costs of training and hiring. Nevertheless, hirer wages are associated with higher prices of goods, which means that businesses that really on low wage workers will probably start charging more for the services and items they sell. However, the larger question is whether raising the minimum wage decreases poverty which in the long run it actually does. Yes, hiking the minimum wage does lead to inflation and slower job creation at some point but I would like to think that the world’s richest country would rather have less people in poverty.

To me this argument comes down to not how much the employers are worse off, it’s a matter of how much better off low wage workers can get. Saying that the minimum wage is a job killer or saying that it is the solution to economic inequality is disingenuous, however when it comes to reducing poverty without effecting employment- higher minimum wages seems to be atleast the cheapest option. And in a personal argument, a higher minimum wage leads to happier and more productive employees-that’s hard to quantify but it is also what pushes companies to retain employees for years and years and grow sustainably.

Avian Flu on the Supply and Demand of Eggs

Article title: Bird Flu Sends Egg Prices Up, but Slowing Demand Prevents Shortages

Article source and date: New York Times (June 15, 2015)

Economic topic (and chapter): Supply and Demand (Chapter 3)

What is the article about?: An outbreak of Avian flu has sent egg supply dwindling and prices prices surging throughout America. Some 47 million chickens have been effected along with millions of turkeys. Wholesale prices for eggs have reached its highest in years. Forecast are predicting that it may reach as high as $2.49 for a dozen. This is more than a dollar’s difference since the average price last year.  The USDA themselves have predicted that production will be down a whopping 341 million dozen. The recent surge in prices has gotten big name corporations scrambling for alternatives.The outcome of the flu have been far reaching with it effecting major fast food industries such as McDonald’s and Taco Bell. Local diners and restaurants have also been affected with most places searching for egg alternatives. Some other grocery stores have gone as far as limiting the amount of eggs customers can buy.

What are the economics of the article?  How does a recent topic covered in the course explain the subject matter of the article?:

In class we learned about supply and demand. In this scenario we see the supply declining and the prices of the eggs therefore rising. The production of eggs is declining due to the Avian flu but the demand for eggs is the same. A decrease in supply with a constant demand will increase the equilibrium price and decrease the equilibrium quantity.

How does your graph show the economic concepts seen in the article?

The graph shows the shift in supply after the outbreak of Avian flu.  Since the demand stays the same, the new intersection of the quantity of eggs and demand yields a higher price.  

https://docs.google.com/a/cps.edu/document/d/13Z5B5lONoJcxTKG9LiSdSJu0icyvtxcHr_0cjJIp3fk/edit?usp=sharing

Strom, Stephanie (2015, June 15) Bird Flu Sends Egg Prices Up, but Slowing Demand Prevents Shortages. New York Times. Retrieved from

http://www.nytimes.com/2015/06/17/business/bird-flu-sends-egg-prices-up-but-slowing-demand-prevents-shortages.html?_r=0

“MADE IN CHINA”

Imagine. You walk into a store and pick up a boomerang. Not knowing much about it, you throw it across the store.

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It flies in front of you. Enamored by its beauty, you keep watching. Suddenly, it takes a turn- it’s flying right back! Shocked by the sudden twist in events you’re unable to move. It knocks you right in the face. Ouch. After overcoming the stars you see, you bend down to pick up the boomerang. Feeling the thick plastic, you turn it over.

‘Made in China’, it says.

Much like the boomerang, most items in those were probably also made in China. China has developed into becoming the global hub of manufacturing. While many, including the article, might pin this to the nature of Chinese and other Asian sweatshops and low wages, the problem extends far beyond the spectrum of cheap labor and fast construction. The article cites the specialization of Chinese markets and even explain the ‘clustered’ system of manufacturers. China, in this scenario, has a comparative advantage- it can produce goods at a lower opportunity cost and marginal than American industries. If you evaluate the system holistically, American companies are at a disadvantage in terms of convenience and the immediacy of product changes. However, much like a boomerang, the choices that American companies have made a comeback. Many companies are relocating to the states. These companies may lack the luxury of low wage labor, but the surge of robotics in the product lines has expanded American markets. American markets, in this case, would have the absolute advantage. This overall achieves the “boomerang” effect. 

There are two types of companies in America: big and small. Bigger companies tend to outsource because economically that is the most efficient option. Smaller companies tend to stay within the country to manage the various elements of manufacturing. Countries such as Brazil have shown more support for companies that choose to remain homebound. They have shown support to local business and have imposed harsher taxes on outsourced goods. For Brazil this works. Keeping businesses  in the country enforces training, education, jobs, and specialization.

Driving to Kill: the Not so Unintentional Accident

Admit it. We’ve all done it before. Whether it was driving a car, a truck, or even cruisin on your bike- gotten distracted by the new restaurant opening or by the mammoth billboard- and then readjusting your focus to find yourself slamming the breaks. That was close. You almost hit grandpa. Phew, you think, glad you applied the brake on time.

But what if you did hit grandpa or some other pedestrian? What would you do?

I would like to think that for the most of us, our first concern would be the safety of the pedestrian. However, reading this article changed my initial perspective. It’s sickening to think that drivers are willing to kill people for the means to stay economically stable. While many can argue that the individuals themselves are inherently evil in their determination to kill the injured pedestrian, I believe that the problem extends beyond the driver. The intentional act of driving over someone’s body, over and over again extends beyond its frontage. It’s an act done to protect oneself while promptly undermining the value of someone else’s life. It’s in human nature to put yourself above others, prioritizing you before the rest. These accidents were a display of human nature- the immediate tendency for survival. The idea that survival, indirectly defined by Taiwanese and Chinese driving laws, is to kill someone instead of taking responsibility of their accident is innately flawed. The economic incentive competes with the moral and social incentives in this scenario. Drivers are forced to value economic incentives more  because they chose to kill the pedestrian despite having to live with the burden of murder. I think it’s more appropriate to inflict higher fees on the act of killing a pedestrian than the act of injuring a pedestrian. Therefore, a broken arm does not equate to killing a person.

On a similar scale we see flawed incentives in our present American society, more specifically we see them affecting all college bound students. High schoolers are expected to have near perfect GPAs and standardized test scores for them to be seen favorably by colleges. The incentive is a chance to go to a better college. However, this puts students under pressure to ace tests and push through high school with many extra curriculars. Many students revert to cheating on tests and go as far as paying people to take tests for them (this is why photo recognition has been implemented now). While the intention might be to look presentable to colleges, the system is bent by students for their better interests.
While it might be easy for us to point fingers at flawed incentives in other parts of the world, we sometimes neglect the broken systems we experience on a daily basis.