Archive forOctober, 2015

In response to costly bananas and apples, oranges become India’s favorite fruit this season

With the prices of apples and grapes rising coupled with the loss of banana crop in Kerala, the demand for oranges in south India in 2013 had skyrocketed. Authors Ghosal and Krishnakumar note in their article (linked below) the prices of these fruits; “Orange is selling at Rs40 (40 rupees) per kg whereas banana, the commoner’s fruit, is selling at Rs50-60 *50-60 rupees) per kg, while apple is priced double that of orange.” Since the orange is a substitute for the other fruit, as the prices of apples and grapes rise and the shortage of bananas hits the markets, the demand for oranges goes way up. This is because people saw oranges as a suitable alternative to purchasing the more expensive fruits. Additionally, the production of oranges in Nagpur had doubles since the previous year, leading to even more demand of this conventionally high-class commodity. Some economists speculated if these prices would stay low throughout India’s summer season (2013-2014), citing that the market price of oranges had changed by around 5 rupees in just a week. Consumers would’ve needed to wait to find out since the harvest was still going on.

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McDonald’s price increase

We have all heard of and have probably been to the fast food super chain named McDonalds. McDonalds plans to increase prices on some of its menu products. With higher prices it could cause the demand to go down for the customers facing inflation. McDonald’s is also one of the mot known fast food chains in the world so a price increase will not hurt the company to poorly.

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Higher milk prices? “Blame China”

This article is a great example of the demand for a normal good increasing with an increased income. The author of this article, Melvin Backman, explains that the increased milk prices that we are experiencing in the U.S. are a result of emerging markets around the globe. China, along with other areas of the world are experiencing economic growth which is causing their middle classes to “upgrade their palates” to higher quality products (American milk). The supply of milk is not keeping up with this higher demand which is causing its price to increase.

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“Another Year of the Chicken”

In the Bloomberg Business article, Another Year of the Chicken: U.S. Beef Supply Will Fall Again in 2015, we have a clear example of shifting supply and demand curves: the beef supply has seen a shift leftward and upward, causing the chicken demand curve to shift to the right and up. Because of a drought in 2012, domestic corn feed prices peeked and farmers responded by thinning their herds. Energy prices have also been rising and the global supply of beef is tight. As a result of their supply being less, beef suppliers have had to sell the same amount of beef at higher prices. This price increase has moved consumers away from beef and toward its cheaper substitute, chicken. The changes in opportunity cost for beef suppliers, plus the expectations of future supply, tell us that the beef supply has shifted and not merely moved along the curve.
The same holds true for the demand curve of chicken. The article gives an example at Chipotle: customers are buying a lot more chicken burritos than steak because there has been a 9% increase in the price of steak, as opposed to chicken’s 5% increase. Because it is a cheaper substitute for beef, and because of the expectations the article talks about, we know that the there has been a shift of the curve, not a move along the curve. This article is a clear example of what we have talked about in class: the decrease in supply of one good will cause an increase in demand for its substitute because of the price changes.
In this article we can also see that the chicken supply is more elastic than beef because it responds better to the higher feed and energy prices. Raising poultry for slaughter takes a lot less time than cattle and therefore is more flexible to adapt to its market.


Blackstone Saves Rent Control In Stuyvesant Town

In this article, the Blackstone Group, a private equity firm purchases the Stuyvesant Town Projects in Manhattan.This is especially relevant to class in the respect that they are maintaining rent control in half of the project’s 11,000 units for the next twenty years, a type of price ceiling we learned about in class. Without the sale to Blackstone, many of the units would have lost their rent control status and tenants would have been priced out of their units once rent dues adjusted to the current market equilibrium. Additionally, the other half of the units are being sold and rented out at market value by BlackStone. Furthermore, this $5.3 billion dollar purchase marks BlackStone’s aquisition of the largest apartment complex in Manhattan, certainly a landmark aquisition.

Blackstone Nears Deal to Buy NYC’s Stuyvesant Town for $5.3 Billion


How Incentives and Oppertunity Cost Drive the Creation of Vaccines

This TED talk discusses why certain vaccines are made while others are not. It has a lot to do with what we were talking about in the first chapter. Essentially labs that discover and produce vaccines for have no real incentive to develop certain vaccines because the countries that need them do not have money. These labs also find that that it is too big of a risk or too high of an opportunity cost, due to the time and money that must be spent, to develop vaccines for countries that will not be able to buy them. The opportunity cost of creating a vaccine for Ebola, for example, was seen as high until a few patients were brought to rich countries and panic spread. There are now two vaccines. However, other illnesses, such as dengue fever, which kills more people in a year than Ebola has killed in the last four decades, still has no vaccine. While there was an incentive to create a vaccine for Ebola, until richer countries become heavily involved, or scared of, dengue fever the cost will out weigh the benefits. Seth Berkley suggest giving labs better incentives to create vaccines or giving them subsidies in order to help cut costs.



Oil Market and Climate Change

Throughout the course of the class, we discussed the Oil Market. We talked about how the oil market has shaped the rest of the world’s economy. One specific thing that we talked about how it has inelastic demand (without substitute) especially in the short run. People are not going to be able to go and buy hybrid cars if the gas prices raised tomorrow, and they are not going to switch to alternate routes of transportation if it costs more. Oil is a good that right now, does not have a great substitute. Unfortunately, the use of so much oil has detrimental effects on the environment.

This article discusses Oil’s role in something I am very interested in, climate change. The oil companies decisions to combat Climate Change effect what the whole world is going to do to combat climate change. Why is that? Economics! With a basic understanding of the supply and demand of the oil market, we can now understand how big of decision it is for Oil companies to choose to take a stand on sustainability. Since the demand is inelastic, oil companies are able to supply what they can, at a decently high price. People are not able to go along on their daily lives without their supply of oil. If oil companies make the switch to sustainability and there is no option to be unsustainable, we will take a step in the right direction to combat climate change!!! 🙂

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Water price elasticity

Talks about resource misallocation, due to the fact that water prices cannot be increased. This also represents a price roof on water.

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Venezuela price controls and toilet paper shortage

2013 saw a lot of articles on the toilet paper shortage in Venezuela. This was a classic example of the impact of price controls: price ceilings result in a shortage. See here for a brief explanation.

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Egg Price Risings

I had recently noticed while grocery shopping the sudden rise in egg prices. I was curious as to why the price of eggs had recently gone up and this is because of the Avian Flu, A disease that wiped out animals such as chickens, causing a dramatic shift in egg production. This caused an uprise in the price of eggs, which doubled in the months of May and June. This is also because the demand was expected to increase, causing the rise of prices. A major concern was if the supply would be able to handle the amount demanded due to the shortage of chickens that had been wiped out.

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