Archive forSeptember, 2016

Maersk previously Monopolized Trade; now Separating and Specializing

http://www.bbc.com/news/uk-scotland-scotland-business-37441698

Maersk being one of the largest shipping companies in the country has monopolized the shipping industry in Denmark for 11 years. The country worries that the company has decreased in trade. In order to counterbalance their decrees in trade, the 112 year old company is breaking up its  590 ships large and 500 smaller ships. The company currently  is the operator of one of the biggest gas field developments in the UK waters, along with monopolized production in  Denmark, Qatar, Kazakhstan, the US Gulf of Mexico and Algeria. Additionally, further development is currently underway in half a dozen other countries.

They have decided to split form their oil, drilling,  and offshore services, as profits in that division have come in far below their predicted expectations. The companies decision to separate businesses will allow them to focus on their most profitable markets. The company has decided to focus on its transport and logistics business. Their decision to shrink back from the global market will allow then to specialize in the areas where they can make the greatest profit.

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WSJ Coffee Substitute Prices

The Wall Street Journal  has an article about how the price of the one kind of coffee bean, robusta coffee beans, is increasing, and the price of another, the arabica coffee bean, is decreasing. As of right now the price of the robusta coffee been is less than the price of the arabica coffee bean. This means that the two prices of the coffee beans are growing closer, and therefore many producers of coffee and investors are closely watching and waiting for the prices to potentially be equal or pass each other. In that case, people will switch over to the arabica, as it would be the cheap of the two coffee beans.  This example shows the changing prices of substitutes (as we have talked about in class) and how it affects the supply and demand curves of each kind of coffee bean.

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Uber Everywhere – A Win for the Consumer

According to the Wall Street Journal,  Uber’s convenient service works so closely off of demand, the consumer benefits far more than the actual company. Uber is able to record “the time place, price, and demand-and-supply conditions of every paid ride” plus the factors in which the customer rejects the projected price. Such information gives such a detailed view of their consumers’ demand so the suppliers can very accurately adjust their system to their customers’ need. However, from Uber’s own date, the consumer demand for their service is “quite inelastic”. The consumers are willing to pay a wide range of prices for an Uber ride throughout the year and on specific holidays, spikes in demand allow the company to institute a surge by doubling fairs, which then reduces demand by 40% to prevent shortages. However, despite the high demand, the curve demonstrated through Uber’s data goes to show consumer surplus as “Uber riders enjoyed $1.57 in consumer surplus for every $1 they spent” last year. Economists totaled this surplus to $6.8 billion a year or $18 million a day, which doubles the salary of Uber drivers and is “six times what Uber itself earned” last year. The company has lost, but such figures demonstrate a victory on the side of the consumer and a real life example of consumer surplus and the power of demand.

 

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Demand for Cable TV in Constant Decrease

Cutting the Cord – The Economist

Since 2013, traditional (200 channel bundles) cable subscriptions, along with “television viewership,” are decreasing progressively. In fact, people are switching to online streaming services such as Netflix and Hulu.

This showcases some important economical concepts. Namely, the demand for cable TV is decreasing because the price of its substitutes (Video streaming services, skinny bundles… ) is much cheaper and more available in recent years than it has ever been.

Further, this shift from cable TV to streaming services showcases the effects of a downward pressure on the price of television. Indeed, the large bundles of channels creates a surplus in the quantity of channels supplied (viewers watch on average 17 channels while the bundle offers 200 channels), therefore, viewers switch to on-demand services and skinny bundles for cheaper prices and less “wasted” content.

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Climate Change Threatens World’s Coffee Supply

Attention all coffee lovers! Climate change will be raising the price of your cup of coffee.

A report released this week by Climate Institute indicates climate change will have a stark effect on the world’s coffee supply. Rising temperatures are diminishing the farmland where coffee’s grown and “will reduce the global area suitable for coffee by about 50 percent across emission scenarios.” In addition to the reduction of fertile land, the remaining land will be jeopardized by unstable climate.  Regions where coffee is currently produced will no longer sustain the health of coffee beans as the effects of global warming result in unpredictable weather. These factors contribute to the difficulty to supply coffee, turning it into a scarce product priced at a higher value. This will result in an increase of demand for this coffee despite its increase in cost.

The example highlights how influential external factors can affect the supply of a product. The changing of these variables will influence the price, amount, and demand of a product.

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The Impact of Japan Nuclear Threat on Salt Market in China

According to the Guardian, Chinese shoppers rushed into shops for salt after the misinformation about Japan’s nuclear emergency broke out in March, 2011. This was due to the false belief that consumption of iodized salt can help to resist radiation exposure.

This article shows how a negative shock on the demand side can shift the demand curve upwards, and how governmental interventions can work to stabilize the market price.

After hearing the rumors, buyers who believed them bought more salt to prevent radiation exposure. On the other hand, buyers like the factory worker mentioned in the article who didn’t believe the rumors still chose to buy more in the expectation that there would be a shortage of salt caused by irrational buyers. As the result, buyers demanded more at any given price. This caused the demand curve to shift upwards. At the initial equilibrium price, quantity demanded exceeded quantity supplied, which indicated a shortage of salt. In a free market, buyers would pay more for salt and sellers would raise the price for more revenue. The new equilibrium price would be higher than the initial one.

However, salt is considered as a necessity, and a sudden increase in price would hugely affect people’s lives, which would affect the social stability. In reality, governmental interventions are required to stabilize the price. On the demand side, China National Salt Industry Corp, the country’s largest state-owned salt maker, stated that the salt reserve was enough and there was no need to buy and store more salt. The expectation of enough salt in the future comforted panic buyers and decreased the demand for salt. On the supply side, the government ‘warned of fines of up to 2 million yuan (£188,000) for companies that sharply increased salt prices.’ This restricted the market force that would have pushed the market price upwards. With proper governmental interventions, the quantity demanded would fall back to the initial equilibrium quantity demanded in the long run.

 

 

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Oil Prices: What’s Behind the Drop?

Since the 1990’s, the oil industry has been experiencing a series of boom and busts. However, recently, the oil industry is at an all-time low. Rising oil producers such as, Nigeria, Algeria, Russia, and Canada, have contributed immensely to the drop in oil prices. Since there are more producers of oil that are competing in the same market, producers are forced to lower their prices in order to sell their oil to consumers. The diversification of the market is actually  hindering producers in the oil industry rather than allowing them to succeed in a global market. Although producers are feeling the ramifications due to the increased number of producers, consumers are benefiting from the sharp drop in oil prices.

According to the article, the drop in oil prices is “helping lower-income groups, because fuel costs eat up a larger share of their more limited earnings”. Since oil has become more affordable, the demand for oil has increased. Although the demand of oil has increased,  producers are still forced to retain low prices due to growing number of producers entering the market. This discrepancy has caused a shock to ripple throughout the international oil industry. As a result of this “In the United States, there are now virtually no wells that are profitable to drill.” Due to this shock, oil companies have announced cuts to their pay roll and have even laid off thousands of employees. Overall this sudden change in the oil markets has lead to both benefits and repercussions in the international market.

 

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Fears Over Zika Drive Demand for Mosquito-Repellent Products

Entrepreneur published an article in which they discussed the increasing demand for Mosquito-repellents due to the increasing rise of the Zika virus from South and Central America. No one has yet caught the virus in the U.S., but there is a growing concern that it will spread throughout the country with mosquito season coming in the spring. The normal market for bug repellents are not high during the winter seasons, especially in February, but sales from mosquito-repellent companies such as, “Invisaband,” were up 400 percent last February.  Companies are observing that the increase in orders of bug repellent are increasing with the the “dramatic” increase in Google searches for Zika in the U.S.

“Invisaband’s” manufacturer is located in China, and they are continuously beginning to run out of stock due to the increase in orders in which they can’t be delivered until March. Buyers are starting to double their orders at a time, increasing the pressure on big companies and manufacturers to prevent running out of inventory. As a result companies like “Invisaband,” are starting to introduce new products on the market as an alternative in an effort to keep the supply and demand balance of the bug repellent market in check as to not lose too many customers.

This article ultimately exhibits the effects expectations present on the markets in terms of supply and demand, in that the expected possibility of the introduction of the virus into the U.S. ultimately drove the demand for Mosquito-repellent to disproportional ratios that otherwise would not have been there in the absence of the virus. https://www.entrepreneur.com/article/270687

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Cafeteria Worker Resigns After Having to Confiscate Hot Meal from Student

Cafeteria Worker Resigns Over “Lunch Shaming” Policy

A school district adopted a policy that students who have more than $25 in debt in paying for lunch will have modified lunches. Students in grades 7-12 will receive no lunch while, since the requires that students in K-6 be provided lunch, will be given a sandwich. This sandwich consists of two pieces of bread and a slice of cheese.
The woman resigned after she had to take a first grader’s chicken and replace it with the sandwich. The boy reacted with tears as he was embarrassed and upset that he would not be eating the chicken.

This relates to economics in the realm of incentives. The school wants the money for the meals that they provide. Prior to this policy, about 300 students were in debt more than $25, while now the number of students is down to about 66 students. This change brought costs for the school from $60,000 to $100,000 to about $20,000 predicted for this year. This incentivizes the school to make such a policy to save money.
For parents, they are incentivized to pay the bill so that students will receive a hot meal daily and so that the students are neither hungry nor embarrassed. The students are incentivized to pressure their parents so that the bill is paid.

The school made this policy in order to reduce losses. #Incentives #Policy-BasedEconomics

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Cup Noodles Changing taste of Ramen

The LA Times published an article describing how consumer tastes are changing, specifically regarding Cup Noodles. A vast majority of consumers in the United States are looking for something fast, yet want it to be healthy, thus deterring them away from the sodium filled Cup Noodles. Ramen has now been altered by reducing the high sodium content and artificial flavors, while adding hints of lime and paprika to provide taste. This change, stemmed from the need to keep up with the latest health trends, while being affordable and accessible. Nissin Foods, the company that owns Cup Noodles, stated that it was difficult to find recipes that would not alter the taste and not raise the price. However, Americans consumption of noodles was lower last year than it was in 2013. Ranging from 4.2 billion servings last year, to the 4.4 billion servings consumed in 2013. It will be interesting to see how this new recipe changes the amount of servings consumed this year, and if there will be a notable change in the taste of Cup Noodles with consumers.

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