Archive forSection 03

E-reader Market In Relation To The Rise of Apps and iPads

http://www.cnn.com/2012/09/06/tech/mobile/ipad-kindle-comparison/

https://www.wired.com/2015/04/kobo-new-ereader/

An E-reader is an appealing good because it gives consumers the opportunity to gain access to numerous e-books and there are even other features such as free samples of novels, the ability to highlight quotations, and some e-readers are able to even lend out books among users. The biggest competitive advantage regarding E-readers would have to be its usefulness – it is very portable and allows consumers to have the access to countless books. However, in actuality they only need to carry one “book” (the E-reader) around with them, which is not only far easier, but also more sustainable.  It is worth noting the undeniable influence that technological innovation has had in this market; for example, some consumers do not technically own a traditional E-reader, but use their Ipads (or tablets) to download virtual eBooks. E-readers can appeal to people from all ages and backgrounds since reading is a timeless activity and can serve many purposes ranging from educational to enjoyment. E-readers are not necessarily cheap, but the goal is to be able to invest in one for at least several years.

There has also been the entry of more substitute products, such as the Kobo and Ipad minis. These specific substitute products also illustrate a decrease in prices since they are both cheaper alternatives than previous models (Kobo is a cheaper alternative to Amazon’s Kindle, while Ipad minis are cheaper and more portable than Ipads); therefore, the demand of the E-reader market goes down.

It is necessary to note apps’ dominance in the technology industry; in fact, Apple’s App Store now offers over 225,000 apps for sale. This is actually detrimental to the demand for E-reader devices (even including Ipads) because now consumers are less willing to invest in purchasing these types of products, since they could just easily download apps on their smartphones where they can utilize virtual eBooks. Ultimately, the most influential shock to this market was the apps because it changed the way people access eBooks because now they do not even always see a need to purchase an E-reader device, or even an Ipad, anymore.

 

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Negative Externalities from Cigarettes and Second-hand Smoke

Cigarette consumers vary greatly regarding age and culture, yet most people who consistently consume cigarettes ultimately become addicted due to nicotine. Younger generations are notorious for buying this commodity in order to appear cool, which ultimately turns into a habitual purchase as a coping mechanism, while older generations typically have developed an addiction to smoking. The tobacco industry is a relatively strong one that is willing to conceal the obvious health risks associated with smoking.

One external cost that has historically not been taken into account  would be second-hand smoke and its associated health risks. It is worth noting that the adult population of American smokers has reached an all time low. From 2005 to 2013, the quantity of smokers decreased from “45.1 million to 42.1 million” (1) despite the US population increasing over the last decade. Possible contributions to this overall decrease include the increase in the prices of cigarettes, raising the taxes of cigarettes, and more “smoke-free” laws (1). Although, Centers for Disease Control and Prevention estimates that there is still more progress that must be made since “over 5.5 million kids who are alive today will die prematurely from tobacco-related diseases” (1).

There are many dangerous consequences that are directly related to the tobacco industry’s main negative externality (second-hand smoke) especially for children whose bodies are still developing. The U.S. Surgeon General’s Report from 2006 declared that second-hand smoke is a “known cause of low birth weight, Sudden Infant Death Syndrome (SIDS), asthma, bronchitis, pneumonia, middle ear infection, and other diseases” (2). One of the most thought-provoking things about second-hand smoke is that these health issues that can arise from the exposure to it are preventable for children, and this is something that society has begun to recognize. Now, women are more informed about the dangers of smoking while pregnant, and this is crucial to targeting second-hand smoke exposure. Also, timing is another factor because studies have shown that the sooner the amount of second-hand smoke exposure decreases for a child, the less likely the child is to develop an addiction to smoking as a teenager or adult.

  1. http://www.cbsnews.com/news/adult-smoking-rate-drops-to-new-low-in-u-s/
  2. http://no-smoke.org/document.php?id=212

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OPEC Sends Oil Prices Soaring

http://www.nytimes.com/2016/11/30/business/international/opec-energy-oil-saudi-iran.html?ref=energy-environment

As a result of low oil prices world wide, members of the Organization of the Petroleum Exporting Countries agreed this fall to lower collective production. Acting as a cartel, the countries came to an agreement that if they restricted production across all its members, the prices paid for their oil would increase significantly. They agreed to cut production by 4.5% or 1.2 million barrels a day. The deal, however, is contingent on the cooperation of Russia, a country notorious for reneging on its promises and producing more oil than previously allowed. In order to take advantage of the high oil prices, countries often cheat and produce more than they had agreed to. This break in promise causes the world price of oil to decrease as the supply of oil is increased because of Russia. Buyers become more willing to buy from Russia’s supply than the other countries who continue to sell oil at the negotiated higher prices. In the short term, Russia’s profits will be much higher than those countries who hold fast to the deal. It is common for more countries to break these deals, however, and sell more oil at a lower prices once they see other countries cheat and break the promise. Iran, for instance, has in the past gone on its own selling spree in India which makes this new plan less meaningful. Eventually, with countries breaking their promises, world prices drop back down to where it they were originally and each country’s oil revenues are much lower than what they could have been had no one broken the deal.

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Oil and Gas Supply Shifters

http://www.nytimes.com/2016/12/05/business/energy-environment/oil-and-gas-industry-takes-stakes-in-mexican-offshore-fields.html?ref=energy-environment

In this article, international companies such as Total of France and Exxon Mobil and Chevron of France expect the price of oil and natural gas to rebound and increase in the future. A little more than two years ago, a barrel of oil cost more than a $100. Today a barrel of oil costs a little over $50. As a result of this decrease in price, companies today are spending far less on exploration and oil production as high-cost, deepwater projects are too costly to drill from.  But as prices are expected to increase in the future, current sales of the oil supply will be postponed in order to take advantage of the high future oil prices. As the article explains, companies are paying the Mexican government billons of dollars for the rights to drill oil on their lands but actual exploration and production of oil in the deepwater fields will “not produce a significant amount of oil for at least a decade.” The expectation of higher sale prices in the future and postponment of the production of oil shifts the current oil supply curve up and to the left.

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A380 Super-Jumbo

The Airbus A380 is the worlds largest passenger plane and was thought to be the future of aviation. Emirates, a Dubai based airline, owns 86 of these monster jets which equates to almost half of the world’s supply. Demand for flights through Dubai, the “super-connector” airport once seemed insatiable. Positioned halfway between Asia and Europe, the airport offered connecting flights to Cape Town, Cairo, Moscow and Shanghai. With soaring passenger volume through Dubai high demand for flights airlines such as Emirates purchased a string of Airbus A380s beginning in 2008 attempting to maximize profits through airline ticket sales.

Over the past year, problems have mounted. Low oil prices have impacted the neighboring economies and reduced regular regional travel. Also terrorism in cities and airports have dampened tourism.

This external shock has caused a decrease in demand for flights out of Dubai. This decrease in demand has caused Emirates to slash ticket prices in order to fill the seats on the Airbus. Profits have decreased also The Economism.com states that “earnings have tumbled by 75%.” Airbus is on the hunt for new buyers in big markets where demand is far greater such as China and Japan.

 

http://www.economist.com/news/business/21710850-three-years-ago-emirates-rescued-a380-aeroplane-its-own-problems-now-cast-doubt

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Price discrimination as an incentive tool

http://nordic.businessinsider.com/after-saving-denmark-with-sex-spies-rejser-have-stepped-it-up-with-a-hilarious-new-campaign-and-a-perfect-price-discrimination-model-2016-11

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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N.F.L. Agrees to Stop Calling for Price Floor on Resold Tickets

The N.F.L. has agreed to remove its price floor on tickets sold on the secondary market through the NFL’s online exchange, reaching a settlement with five states and Washington, D.C., ending a two-year antitrust investigation into allegedly unlawful ticket resale practices. The investigation explored whether the league’s ticket pricing practices, including applying a price floor on tickets sold on league websites, violated antitrust laws. The price floor was set because the league blamed resellers for declines in attendance because reselling of cheap tickets online makes it more difficult to sell full-price tickets at the box office. However, under the NFL’s price floor scheme, fans were forced to pay inflated prices for even the least desirable NFL games, which put fans at a disadvantage.

As a result, the NFL will discontinue a league policy that had required all 32 teams to ban tickets being resold on Ticketmaster and similar websites for less than face value, set at the price floor.  While the NFL agreed not to force teams to impose a price floor, the settlement allows for them to privately set one for their team. In addition, the league cannot encourage teams to use technology making it more difficult for buyers to purchase tickets from other online vendors, leaving it to the teams to stop ticket fraud.

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Production of Palm Oil Polluting Southeast Asia

Palm oil is a type of edible vegetable oil derived from the palm fruit produced in Southeast Asia, more specifically in Indonesia, the world’s biggest producer, where it acts as a significant basis of the country’s economic security. It is exported around the world to be used in a wide variety items: from being an important ingredient in foods such as chocolate and chewing gum to washing powders, and even bio diesel. It is a high demand item, consumed by people in everyday products, such as chocolate, however, many consumers do not realize its negative externalities. Despite it being a core ingredient to many products, it causes severe environmental implications that often cause controversy.

This industry is linked to major issues such as deforestation and forest fires, causing heavy air pollution as a result of using slash and burn agricultural techniques used to clear and regrow palm oil plantations. This technique causes terrible air pollution in surrounding areas, particularly in Singapore, Indonesia’s neighboring country. On September 24, 2015, Singapore’s air quality index reached unhealthy levels, hitting a record of 321 (anything above 100 is considered “unhealthy”), closing schools and producing acid haze, darkening daylight. During this time, people were highly advised to stay inside and wear masks outdoors in order to protect their lungs from the toxins carried in the air. These hazy conditions lingered for weeks and were directly attributed to the timing of the palm oil plantation season where slash and burn agriculture is used to clear clear the land. Although it did not directly around impact the price of palm oil at this time, the diagram represents how the negative externality shifts the supply curve left because of its indirect cost on Singaporean society. The quantity of the good consumed is less than the optimal quantity that internalizes all costs and benefits.

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Why We Should Treat our Teachers Better

Teacher’s salaries have continued to decrease over the past few decades. As a result, becoming a teacher has become significantly less appealing to college graduates. It is much more encouraging to enter a field where you can earn more money from the start. This is frustrating for our education system though because in some schools there aren’t enough teachers for the number of students and in others the teachers are not good teachers. On top of this, we judge our teachers on how their students perform on tests, which is not always the best way to evaluate teachers’ performance. Criticizing our teachers and paying them low salaries is not the way to convince more people to become teachers. It may be worth it to reevaluate how we treat our teachers because the costs to the students’ education are rising higher than we think.

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Indonesian Airline Price Floors

After years of Indonesian Airlines suffering from various accidents, the Jakarta Post came out with an article describing the Indonesian government’s recent debate to change price floors within their airline industries. But what do price floors have to do with the safety of Indonesian Airlines?

By installing price floors, governments make it illegal for products to be sold underneath the regulations. Price floors would create competition between airlines to offer passengers the best quality; by creating price floors within their airline system, Indonesia could be insuring safer and high quality carriers, resulting in less accidents. The current floor calls that airline fees must be within 40% of the already established price ceiling, but the CEO of Air Asia is calling for a 30% reduction of that minimum price.

Some Indonesian economists still argue that accidents will continue to occur despite the price floor, and that more extensive measures must be taken. But whether safety is completely insured or not, the floors would still prevent “predatory pricing” from the lower-end airlines. Regulating prices doesn’t always result in killing healthy competition, but the industry will continue to make their argument until the government makes a final decision.

 

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