Archive forNovember, 2014

Oil prices hit fresh four-year lows in wake of Opec meeting

http://www.bbc.com/news/business-30223721

This article is related to the cartels that we studied in class. Some main oil-production countries forms a cartel called OPEC. So they have great influence on the oil price by regulating how much oil to produce per day. However, as the demand of oil decrease and the production from the U.S rises, the price of oil for the world decrees. So some members in the cartel cannot balance the government budget, they need to discuss the new production per day. This is related to one of the reasons why cartel may break down. However, since OPEC has strict rules for producing oil, it is unlikely that members in this cartel will cheat each other.

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Rock – Paper – Scissors

As a child, and even now, we all have had our shares of Rock Paper Scissors matches, but have you ever thought about how we won those games. In this article, BBC news shares how the childhood game is linked to the Nash equilibrium. Even though, this is not primarily related to our economy, it is pretty interesting to see how one theory is can be practiced outside of the context that we learned it in.

Rock, Paper, Scissors is an example of Nash equilibrium because each player does not know which option their opponent will chose, making their decisions unrelated since the outcome in unknown. But as the game continues, it can be inferred that players observe their opponents pattern in order to make their own decision.

 

-Tonian Ortega

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Fishing Quotas

This article talks about the recent increase in the number of bluefin tuna that can be caught by fishing vessels in the western Atlantic. These tuna are a large ingredient in sushi and they worth a lot in the current market because of the diminishing supply of them in the world’s oceans. The overfishing of these tuna has led to their classification as an endangered species. This touches upon the idea of the tragedy of the commons. Since nobody “owns” the oceans, it is very tough to put regulations on how much people can fish. Therefore, everyone will catch as many fish as possible. However, there is a critical point in the fish population under which the fish cannot sufficiently reproduce. Therefore, the more that the fishermen fish, the more they are hurting the future of their own livelihood. Therein lies the tragedy. This makes me wonder about the serious problems at stake. If the fishing quota is less strict, this will drive the species into extinction. However, this isn’t the only problem. As there becomes a lower and lower stock of tuna in the ocean, their value will rise. Thus giving fishermen more incentive to fish. This self-destructing complex is relevant in many more industries than just the fishing industry. Many resource-based industries and public goods face this problem as well.

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Elsa vs Anna: “Frozen” sisters and market

http://online.wsj.com/articles/elsa-dominates-anna-in-frozen-merchandise-sales-1415131605

Again, I am pretty obsessed with Frozen, and Elsa is my favorite character, so this article was interesting. Elsa seems to have more market power and a higher demand because of her appearance, Stores also tend to stock more Elsa dolls. The article also talks about bundling; Elsa and Anna are often bundled together so that both characters sell.

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CHOCOLATE SHORTAGE

http://www.theguardian.com/lifeandstyle/2014/nov/21/cocoa-crisis-world-chocolate-stash-melting-away

This article caught my attention since I love chocolate. There is a warning that there will be a global chocolate shortage by 2020. Several cocoa trees have been diseased, and many farmers have sold it at very low prices. This connects to what we learned about there being a point that you will sell something at the lowest cost to continue to stay at the market, but if you sell below that point, you’ll probably exit the market. One farmer stated that he should have gone into the rubber market since it is more profitable. The government of the Cote d’Ivoire tried to fix the price in order to save the market; it did increase income. An externality would be Ebola. Because of Ebola, the exports of cocoa could be affected. So far, they haven’t been, but since the Cote d’Ivoire boarders Liberia and Guinea, there is that threat.

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Obama’s Immigration Plan Seen Affecting Wages, Job Moves

This article is about how President Obama’s plans to offer temporary legal status to 5 million immigrants living in the United States illegally will send unpredictable ripples through the U.S. economy.  Many politicians and economists disagree on the impact this plan will have on the economy and labor markets.  Although the impact will be minimal, supporters of the immigration overhaul estimate that granting legal status will bring more workers into the tax system and boost government revenue whereas critics say it will overwhelm social welfare programs and displace numerous workers.  The supporters believe that this plan will give immigrants mobility and cause them to search for better jobs which will be better for the economy because it will grow more quickly, the labor market will tighten, and it will offer better opportunities.  Critics say that this plan will hurt low skilled Americans because they will be displaced but the opposition is that immigrants already have jobs and only high skilled immigrants will move up, which will open up low skilled jobs.  Overall, the plan to offer temporary legal status to illegal immigrants will increase competition in the labor market, but it is not certain exactly how it will affect the economy.

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China’s Millenniums-Old Salt Monopoly

This article is about how China plans to end its monopoly on the sale of salt that was introduced as early as 685 B.C, maybe even earlier.  China’s economic planners have been trying to eliminate the monopoly for years, however they faced opposition from consumers as well as the China National Salt Industry Corporation, a state owned agency that controls salt distribution.  The reason there is a monopoly on the sale of salt in China is because the government is in charge of designating who can produce salt and the salt trade has been a significant source of revenue for the state.  Much of the salt revenue has helped provide pay for troops in distant outposts of the Chinese empire.  In addition, it has provided other benefits such as when there was a widespread problem of preventable developmental disabilities because of the lack of iodine in children’s food supply. In response to this problem, China mandated that edible salt be iodized to reduce the problem and used the salt monopoly to enforce that rule.  Although the monopoly may seem like a good thing and many consumers wanted the government controls to remain in place, there have been raised concerns about the inclusion of toxic industrial salts being mixed with edible salt.  In addition, consumers are paying three to four times higher than they would be if there were other authorized producers.  Although the average consumer does not feel the price difference because salt makes up such a small portion of the grocery bill, the markup supports a vast and malicious underground market that often produces salt that does not contain iodine and can have harmful impurities.  By eliminating the salt monopoly in China as well as the hefty profits that resulted from it, there will be less incentive for corruption and malpractice as well as an increase in the food safety dangers.

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At Last, A Realistic Barbie Doll

For years Barbie dolls have dominated the market for girls’ dolls, with their incredibly unrealistic body proportions that have given girls skewed ideas about beauty.

Until now. This article describes one business’ new venture – “Lamilly” dolls. That is, dolls that are based on the average 19 year old’s body type, with stickers so that girls can add acne, freckles, scars, etc. “Lamilly” dolls are trying to compete with Barbies in a contestable market, and honestly – Lamm, the creator, has quite the market. The Lammily doll may not be magazine perfect like Barbie, but she’s real – and she’s just as beautiful. It’s time that girls are given a doll that doesn’t make them want to lose some pounds, but realize that they are beautiful just the way they are.

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External Costs of Hamburgers

This article is about the external costs of Hamburgers. It highlights the concept of externalities that contribute to the true cost of a product. Health costs are considered an external cost. Mark Bittman states that red meat intake can increase risk of cardiovascular disease and mortality. Burger consumption contributes to obesity, health risks, and treatment costs. The economic burden is the medical diet-related costs that reach about $231 billion annually. Other externalities that are harder to calculate include the loss of biodiversity from the destruction of rain forests to create cattle farms and elevated nitrates in water supplies resulting from chemical fertilizers used to grow cattle feed. A huge externality is the cost of carbon. The official government monetary value is about $37 per metric ton of CO2 emissions. The fast food industry would fail if external costs were covered by producers rather than consumers. This article concludes with the claim that industrial food is not an indication of “savings” but of deception due to its high hidden costs.

 

http://www.nytimes.com/2014/07/16/opinion/the-true-cost-of-a-burger.html?_r=0

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“It’s time to tell Heathrow that the party is over…”

Heathrow Airport Holdings Limited, is the UK-based operator of four British airports, including Heathrow and Glasgow airports (it previously owned both London Stansted and Gatwick airports). This article from the Financial Times discuses how one of the largest transport companies in the world has become a monopoly who has power over all travelers. Heathrow makes money from charging airline landing fees, and more recently, from additional operations such as retail and property. Heathrow Airport itself is a hub for major airlines like  British Airways and Virgin Atlantic, and has the highest number of international passengers. Like the FT article discusses, airport hubs are natural monopolies, with large incumbent advantages – “the more flights already using it, the more attractive the hub.” The sad reality of Heathrow, as this Telegraph article points out, “Heathrow’s shareholders have been amply rewarded during hard economic times”, but simultaneously. commercial airlines have to had to “endure heavy financial losses” and massive restructuring. These articles both end with reinforcing the point that first and foremost, monopolies need tough regulation, and it doesn’t help that the CAA is being ineffective when dealing with Heathrow. 

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