Archive forSeptember, 2015

Starbucks, Incentives, and Thinking on the Margin

http://www.fastcompany.com/1777409/how-starbucks-transformed-coffee-commodity-4-splurge

Upon looking for an example for Problem set #4 I stumbled across this article. I found it really interesting and read it from top to bottom. It turns out that it also involves some concepts we have discussed in Economics! First of all, the idea of incentives is discussed throughout the interview with Stanley Hainsworth, who has been the creative director for Nike, Lego, and Starbucks. He talks about the broad questions of what makes buyers buy things and what things sellers want to sell. He discusses how he made the brand of Starbucks stand for the elements of wisdom, integrity, showmanship, and intelligence. He explains that allowing consumers make a connection to a brand makes them feel almost dependent on that particular brand. Also, the consumers and sellers are thinking on the margin. (Will the appeal to Starbucks be enough or will the customer go to other companies like Dunkin Donuts etc.?) Hainsworth gives readers a look into what goes into making those decisions that ultimately gives Starbucks the edge. Overall, the beginnings on Econ are mentioned in this pretty interesting article.

 

Also, the Globalization of Starbucks applies to economics, however, it is not completely mentioned in this article. 🙂

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Cracking the Supply Shifts

Whether you are in the cafeteria or Union Station, eggs are likely to be there too. America has always been a huge consumer of eggs and egg products, but it is possible that in the near future, we may be seeing less egg-related options on the menus. In an article published last month by NBS news, the author reports on the changing egg supply, illustrating how certain determinants (cost of input, predictions, and substitutes) cause the demand and supply curves to shift in response to the varying prices.

Currently we are in the middle of the “worst avian flu outbreak in three decades.” As an economic consequence of this epidemic, there has been a huge decrease in the supply of eggs, which shifts the supply curve up and to the left, as it is becoming harder and more costly for the producers to keep the chickens protected from the disease. The demand curve is also shifting down as people are turning to alternative substitutes of nutrition since prices are starting to double per dozen. Panda Express has begun to reinvent their fried rice after learning that the egg shortage is predicted to last another two long years. Rita’s Italian Ice is also accommodating the changing market for eggs by eliminating their frozen custard for egg-less soft-serve ice cream in the mean time.

http://www.nbcnews.com/business/consumer/6-dozen-eggs-prices-may-continue-rise-if-bird-flu-n404011

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Meat for Tires: Post on Trade

http://www.nytimes.com/2015/09/22/business/international/trading-meat-for-tires-as-bartering-economy-grows-in-greece.html?ref=economy

Trading Meat for Tires as Bartering Economy Grows in Greece


Recently, the New York Times published an article on an international business dilemma that relates to what we are currently studying in Microeconomics on the issue of trade and comparative advantage that is also in chapter two of Aplia.

Roussos, a butcher living in Greece, discussed not replacing his truck’s tires for several months because they were so expensive and he was not making the amount of money he expected (supply shifter!) in his shop due to Greece’s bad economy.

Fortunately, a website called Tradenow, is allowing business and nonbusiness owners to sign up and trade their products for an alternative item that they may need. This relates to the course because we learned that trade makes people better off, and increases productivity because of comparative advantage. Roussos has a comparative advantage in meat and was able to pay for his truck’s tires with meat. Proudly, the owner of new tires states, “Normally, the tires cost 340 euros, but no money changed hands,”… “I paid the guy in meat.”

The article continues to talk about several different trades that people have tried to make such as a Madonna CD for a chicken (crazy, right?) but thanks to this website people have found out that not everything has to involve money. The founder of Tradenow says, “We are offering them one alternative” and the people have actually taken advantage of it.

So all in all this article puts to work _ things we have learned in class:

  1. Trade
  2. Comparative Advantage
  3. Demand and Supply

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Milk. When Supply Outgrows Demand

Supply and Demand have been a focus in recent discussions in class. In this article supplied by University of Missouri Extension we see the effects of supply outgrowing the consumers demand. Here the focus is milk and its major supply growth. In this article they tell of how in 2014, farmers in the US saw a great year for dairy production. Milk and milk products were selling at high prices, with a high consumption rate. With a strong market come growth, this is shown when the author states “When producers see that kind of profitability, they tend to expand both number of cows and milk production per cow.” What we see here is farmers making a decision, one in which they believe has a low opportunity cost with high potential reward. From this decision the supply of milk begins to rise. In the farmers pursuit to make more milk they produced more than the US market can consume. Consequently, the demand for milk has fallen and the price of milk and milk product along with it. Though the author says farmers solution to this issue is to slaughter more cows for hamburger production. In doing so the farmers would effectively balance the supply and demand scale for milk and raise future prices for milk and milk product, while also supplying to another market. http://www.agweb.com/article/increased-dairy-supply-steady-demand-lead-to-drop-in-prices-NAA-university-news-release/

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Subsidizing comparative advantage

In our class discussion of comparative advantage we assumed that relative prices were determined by relative productivity in the two countries based on real factors such as labor supply and skill, availability of inputs, investment in physical capital and technology. Relative prices provide a signal of such productivity differences and of comparative advantage. When countries implement policies that alter relative prices this can undermine efforts to determine comparative advantage and hinder trade. This is one reason the World Trade Organization, WTO, has rules against trade-distorting subsidies. The U.S. has recently received criticism for objecting to agricultural subsidies in India while approving significant domestic subsidies in the 2014 Farm Bill. Timothy Wise explains the details in his opinion piece “Destruction of US credibility at WTO“.

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Reinforcing Big Idea Ten

http://http://www.nytimes.com/2015/09/05/upshot/new-jobs-numbers-arent-making-the-feds-decision-any-easier.html?ref=economy

A recent New York Times article titled, “A Positive Jobs Report Keeps the Fed in a Tricky Spot” reemphasizes Big Idea Ten: Central Banking is a Hard Job, which can be found in chapter one of our Aplia textbook.

In the report, the author Neil Irwin displays the difficulty of the decision that has to be made by the Federal Reserve (Fed) about raising the interest rate as a result of the current low unemployment rates and a steady economy. He acknowledges that “it is important that the Fed not be led around by the latest fluctuations in financial markets and make decisions based on what is happening in the real economy.” But, he explains that it is not as easy as it seems. The “real economy,” he argues, is multifaceted, slippery, and constantly being impacted from factors such as the slowing of the Chinese economy, the increase in hourly wage, and the change in the unemployment rate. Therefore, as always, there is no easy decision for the Fed to make because the data is always varying and offers “no surprises that might obviously tilt a close decision one way or the other.”

To further reinforce the Big Ten idea, Irwin also includes two main tricky questions as examples of the level of uncertainty and complex thought that has to be considered by the Fed when they make their decision on September 16:

  1. “Is the labor market now tight enough that wage inflation is sure to follow, even though there is only spotty evidence for it so far?”
  2. “How much should the new strains in financial markets and the global economy matter for United States monetary policy?”

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Technological change

Can you imagine listening to live piano music while flying across the Atlantic? How about completing your Aplia assignments while flying to California? The first of these was the early days of in-flight entertainment. The second looks to be the future of on-line wifi.

This change in flight entertainment, as reported by the BBC, reflects both technological change and the competition between airlines to offer services that customers want at the lowest cost possible.

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Welcome to your Intro to Microeconomics blog

This blog is for students in Econ 111-07 to share interesting articles relating to microeconomics concepts discussed in class.

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