Archive forNovember, 2016

Marijuana Cultivation and Negative Externalities

Marijuana is used as a psychoactive drug or medicine. “Marijuana (herbal cannabis),consists of the dried flowers and subtending leaves and stems of the female Cannabis plant.” Marijuana can be produced in a number of different ways but the most prevalent method is outdoor or indoor cultivation.  Most of outdoor cannabis cultivation in the United States occurs on public lands. This allows cultivators take advantage of remote areas to minimize the risk of forfeiture from the government. In retrospect, home-grown cultivators have knowledge in breeding and nurturing a variety of different strains of marijuana. Cultivators concentrate on creating various types of marijuana by controlling the growth process.“This is done by using heating lamps, fluorescent bulbs, ventilation and soil nutrients, hydroponics (growing without soil by using a liquid solution which contains nutrients and minerals) and salt-free sand.” All these factor require a large amount of electricity.

The large amount of electricity needed for the cultivation of marijuana results in a negative externality because it uses an excessive amount of electricity. Four indoor plants sucks as much as much electricity as 29 refrigerators. A scientist, Evan Mills, discovered that “legalized indoor marijuana-growing operations account for 1% of total electricity use in the US, at a cost of $6bn per year. Annually, such consumption produces 15m tons of greenhouse gas emissions (CO2), equal to that of three million average cars.” The excessive amount of energy used results in large amounts of CO2 emission which is a negative externality.

Once the social cost is taken into account, the quantity of the goods consumed decreases. In order to account for the negative externality, in this case CO2 emissions, the price for the good increases which leads to a lower quantity being consumed.

Why Marijuana is Not Green

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Positive Externalities and Opportunity Cost

This article articulates that last year the flu accounted for $5.8 billion dollars in health care and loss productivity costs. 80% of those losses were because of the people that did not get the vaccine. A Society for Risk Analysis provides a study that the potential GDP loss of a pandemic outbreak would be $34.4 billion and $43.5 billion. Health officials cannot tell how severe the flu will be, but they do know that not many adults are getting the vaccines available. There was a drop of 1.5% of people who obtained the vaccine last year, displaying that not as many people are obtaining the flu shot. The Centers for Disease Control and Prevention urge people to take the vaccines in case the flu is more severe than they think.

This article conveys the concept of positive externalities. The government is spending more on vaccines and consumers are spending money to get the shots to create a healthier environment. If the government spends more on vaccines, then people will be able to get flu shots. This reduces the chances of them getting the illness, which essentially helps everyone around them from obtaining the sickness. This process establishes positive externalities as the vaccines are protecting the people getting the shot as well as the other people who are around. However, at the same time, the government is spending so much money on the vaccines that they are almost acquiring a lost since not many people are buying the vaccines. This situation employs an opportunity cost as the government can be spending money on other important things such as education, the military, and more. But at the same time, they are spending the money on people’s health, which ultimately helps everyone in the country. If more people spend money on the vaccines, there would be a greater positive externality. A positive externality exists since people are buying the vaccines; however, it could be better if more people bought the vaccines, as it would create a healthier environment.


The Rising Cost of Health Insurance

While this increase is far from normal, people in the industry do not consider it good. These increases in cost have been expected, as most people expect around a similar rate of increase per year. However, employers use lots of cost cutting measures in order to keep the increase from growing. A major component is the concept of an HSA. These accounts are used to pay health care costs and are tax advantaged. This will help keep costs of insurance down because employees can contribute to it over the years in order to raise funds for when they need it later in life. The funds grow over time and will eventually be a large sum that can help with the increased need for healthcare that comes with growing older. However, these HSAs are not perfect, and there are still bound to be other cost increases for plans as time goes on.


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Price discrimination as an incentive tool

The above article clearly represents how a travel agency used price discrimination to enforce a change in people’s behavior. Couples with babies tend to have sex less frequently. So, in order to benefit couples because of the positive effects of sex like decreasing stress, increasing life up to 8 years, improving the immune system, the travel agency provides vacation discounts to couples according to the number of babies they have. The travel agency is providing an incentive which is a crucial factor in determining a consumer’s decision. And, because of the discount, the couples are more inclined to have more babies (one of their objectives as Denmark has a high old-age population) and the couples will also have more sex because of the time they will spend on a vacation (another objective of the agency). Price discrimination can be clearly seen during the advertisement video when they show the discount they are offering to couples according to the number of babies (1, 2, and 3). Although, price discrimination is regarded mostly as a strategy sellers use to increase their revenue, we can see from the above article that it can also be used to influence and incentivize certain needs and laws which in this case is having healthy old people in Denmark and increasing the teenage population so that the welfare system can function properly.

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Uber Surge Pricing Discrimination


Uber, a popular taxi service that connects drivers with people needing a ride, has recently employed a strategy to maximize how much consumers are willing to pay for a ride. During busy time or when demand increases, “surge pricing” occurs. Companies like Uber raise prices when demand is strong, and lower prices when demand is weak. Their strategy is if supply of drivers became low, prices would rise, and by doing so, they would increase supply and encourage more drivers to work. Without this “surge pricing”, supple would run out and people would not be able to get rides. This new policy implemented last New Year’s upset customers because they were having to pay more for rides in areas and times with high demand like cities.

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Are You Actually Getting A Good Deal or Getting Ripped Off?

Online shopping has always been the best option for people especially me. It limits waiting in lines, avoiding rude customers and customer service while everything is just a click away. However, CBS, conducted a test that illustrated price discrimination online! Online shopping is not on our side as we once thought. Price Discrimination is when there are different prices listed for the same product, but the prices change depending on the situation. CBS’s research discovered based on someone’s computer, online search history, and zip code online retailers use this information to figure prices discrimination. Northeastern University conducted a study that demonstrated how nine out of sixteen online retailers and travel websites use this method to increase their profits.

One example of Price Discrimination is Home Depot. A man was offered free home delivery for a tree he paid $399, but CBS producers in Boston and Minneapolis found the same exact tree for $438. Home Depot then admit that in some cases based on a person’s region where they log on will determine their price.

One tip: always use multiple computers or phones to order something for the best price.

I-Team: You May Be Paying More Than Others When Shopping Online



Switching Cost Of Phone Providers

The article, The High Cost Of Loving Your Phone, by Damon Darlin outlines the ideas of how firms in oligopolies and monopolistic competitive markets use high switching cost to ensure that it keeps its customers from switching from itself and to another supplier. It does so by showing that consumers have a hard time switching from one phone provider to another because A, the consumers has non-transferable messages, photos, and a number that holds ‘priceless’ memories, or B, there is a social standard that a customer may be switching from. One the contrary, It also shows an example where a switching cost is eliminated (previously consumers weren’t able to keep their phone number when they switched, but now they are able to), and how a large majority of individual firms responded (They lowered their prices because now the market resemble more of a competitive market rather than a monopolistic competitive market). Ultimately, Loving one’s phone is costly because of the high switching cost associated with phones, and the fact that a new and better phone that a consumer may wish to have (but can’t because of switching cost) may be release from a another providers.

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Online Shopping Price Discrimination

I-Team: You May Be Paying More Than Others When Shopping Online

Most people choose shopping online out of convenience, to avoid long lines and crowds, to save gas, and get better deals. However, online shoppers are often charged different prices for the same products. Online retailers and travel websites charge different prices depending on the buyers location, online search history and the type of computer they use. An example of this pricing strategy in this article is when buyers searched Rosetta Stone’s online language software on a desktop versus a mobile device. Those who used a computer were charged over a hundred dollars more for the same software. This is a perfect example of selling the same product or service at different prices to buyers in different markets, based on their personal information in order to maximize sales and profits.


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OPEC makes agreement to cut down production

In September 2016, members from OPEC gathered to talk about the cut down of production since last time, which is 2008. The members agreed to cut the production to 32.5m-33m barrels per day, which is 0.7% to 2.2% below the output in September. After the agreement, the oil price rose by over 5%.

OPEC here is trying to act as a monopoly in the oil market and by cutting the production of oil, it increased the demand of consumers. Therefore the market price is increased.


Disney discovers peak pricing

Disney has recently begun to utilize price discrimination. During the summer, when children are out of schools, Disney ticket sales are at its peak. However, during the regular school year, ticket sales are much lower. Without price discrimination, the ticket price stayed constant throughout the year. This caused the park to be very busy during its peak and very quiet otherwise. Now that Disney has decided to utilize price discrimination, the price will be higher for a ticket during its peak and lower during the school year. People who had originally avoided going during the peak due to the long periods of time waiting in line are now affected. The lower price during the off-season will attract more customers than before and therefore increase the amount of wait time which customers will experience. The overall effect would create a more even amount of customers during the peak and the off-season. Discouraging customers to come during the peak of the season will lower wait time, and encouraging customers to come during off season will bring in more revenue.

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