Archive forSection 03

Coffee Growth in World Consumption

Americans’ Coffee Guzzling Is Pushing Bean Prices Higher

Coffee consumption around the world is at its highest and is continuing to rise, increasing the demand for coffee beans. The increase in demand for the bean is leading to higher prices for coffee and sending a signal to increase the quantity supplied, which in turn is leading to an increase in the price of coffee futures. As the leading consumer of coffee, any change in demand by the United States causes a change throughout the global coffee industry. New markets/increasing consumption in other countries such as China and Japan are further increasing the demand of for coffee and with demand on the rise one can expect the price of coffee to continue to increase.

 

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Sending Potatoes to Idaho? How the Free Market Can Fight Poverty

http://www.nytimes.com/2016/10/09/upshot/sending-potatoes-to-idaho-how-the-free-market-helps-food-banks.html?ref=economy&_r=0

Until 2005, groups like Feeding America distributed foods and goods to food banks in a fairly normal way. Food donations would be offered to individual food banks one at a time until a taker could be found. Problems would often occur when donations were not accepted as food banks would already have stocks full of the food being offered to them. Other times, food banks would receive a call saying that their shipment of food that they ordered was sent to the wrong place and instead they received a good that they did not need.

To combat these inefficiencies, food distributors and food banks began operating in a free market system. Unlike a typical market though where the wealthiest would have the greatest purchasing power, credits would be distributed to food banks with the highest need. Combining this system of equality with a free market made it so that the system worked efficiently but also that the food banks with the highest needs had the ability to get what they needed.

Donations began falling in two categories. Some food banks sought to bid on more expensive goods like diapers, which were “sold” at relatively high prices. This in return caused a decrease in demand for staple goods like produce. This downward shift in demand for staple goods caused a downward movement of the equilibrium price for those goods along the supply curve, making those goods cheaper. As a result, food banks with the highest need of those staple goods were able to buy them at bargain prices.

Additionally, useful information about the market was reflected in the prices of goods. Feeding America was surprised to see that at one point, pasta was trading at prices significantly higher than the price of fresh vegetables. They soon discovered that this was because pasta was a much rarer commodity in food banks and therefore had a much higher demand. Vegetables, which do not have a very long shelf life and spoil easily, are not as greatly demanded and therefore are given away freely. The price information gathered from this market allowed food donors to know which foods were in higher demand and as a result supply more of it to food banks. In return, more donors began supplying markets with goods that had higher prices which pushed down the equilibrium price of such goods considering that food banks no longer had to outbid their competitors in order to obtained the good that they needed/

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The Advantages of Comparative Advantage

Comparative advantage is a concept that is difficult to grasp. However, the following article clearly explains its mechanism. The supporting idea lies in opportunity cost which is a topic that does not come to mind instantly.

http://www.washingtonexaminer.com/will-no-american-politician-speak-for-free-trade/article/2603917

The article provides a very good example with Winston Churchill. Churchill was amazing in both writing and building. But, because his opportunity cost of building (i.e. not enough good writing about politics) was much higher than the opportunity cost of writing (i.e. a moderately built wall), it was better if he invested his time in writing. In the very example, there is also another advantage which is to the bricklayer that is hired to build Churchill’s walls. The brick layer is employed and thus receives economic benefits. Similarly, the consumers are receiving high quality writing content because of Churchill’s focus on writing.

We could conclude that comparative advantage is beneficial to both parties who participate in it because it takes the opportunity cost (which is taken for granted most of the times) and applies it to the most efficient way of producing something.

Similarly, the article uses other examples like Hong Kong, Singapore, Britain, NAFTA and explains how comparative advantage have benefitted or will benefit them or the parties involved.

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Chinese leader said Chinese carbon emissions will peak around 2030

Chinese leader Xi Jinping and President Obama struck a deal on November 12, 2014 to limit greenhouse gases, with China committing for the first time to cap carbon emissions and Obama unveiling a plan for deeper U.S. emissions reductions through 2025. Mr. Xi said China would break the rapid rise in its carbon dioxide emissions, so that they peak “around 2030” and then remain steady or begin to decline.

The second sector is basically manufacturing industry. The basic characteristic of this sector is the production of services instead of end products. Power planets and automobiles are the two great examples of the second sector industry. This sector is often divided into light industry and heavy industry. Many of these industries consume large quantities of energy and require factories and machinery to convert the raw materials into goods and products. The second sector takes more proportion means there will be more factories. Since the number of factories increases, the exhaust will be more. So there will be more carbon emission.

The tertiary sector is service industry. The basic characteristic of this sector is the production of services instead of end products. The waiters and cooks are the two examples of it. The tertiary sector taking more proportion means the second sector getting less. So there will be less factories and the carbon emission will be less.

Since China’s GDP is mainly depended on the tertiary sector, it means the carbon emission in China will decrease. It is because the tertiary sector does not produce too much carbon dioxide. The tertiary sector is mainly produce service and entertainment, such like movies, reservation and restaurant. So when China’s GDP is depended on this low carbon emission industry. They will not produce too much carbon emission. However, the second sector is mainly about factories, cars and steel-consuming products. They will definitely produce a lot of carbon emission. When the second sector takes less part in China’s GDP, China does not need to sacrifice the environment to increase GDP.

Why does second sector take too many proportions is not good? It is because it will cause the market failure. In the real world, markets are not perfect. That is, they are not allocatively efficient, which means suppliers are producing the optimal mix of goods and services required by consumers. There are a number of things that prevent market from being perfect and, therefore, from allocating resources in an optimal manner. If this is the case, then community surplus is not maximized and we said this is a market failure. When markets fail, governments are often expected to intervene in order to attempt to eliminate the market failure and move towards the optimal allocation of resources.

One type of market failure is negative externalities of production. These occur when the production of a good or service creates external costs that are damaging to third parties. These relate mainly, but not exclusively, to environmental problems. For example, when a firm produces a lot exhaust gas, which is harmful to people, to the community, then there is a cost to the community. However, we know that the second industry will produce a lot of carbon emissions which are harmful to the environment, some developing countries are still focusing on the second sector. It means their governments may fail.

https://www.washingtonpost.com/business/economy/china-us-agree-to-limit-greenhouse-gases/2014/11/11/9c768504-69e6-11e4-9fb4-a622dae742a2_story.html

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OPEC Deals and Oil Prices

At the intersection of political policy and economics lies the crude oil market. As economics students we are aware that alterations in either the supply or demand curve shifts the equilibrium quantity or price. As outlined by the Wall Street Journal, a deal between a Saudi royal and rival Iran sparked an upward surge in U.S crude oil prices as barrels traded for over $50 for the first time since late June. The agreement slashed 1% to 2% of  the 33.2 million barrels a day production from OPEC’s 14-nation cartel. This the first time in eight years that OPEC has agreed to limit output on crude oil. The limit in supply shifts the supply curve upward as seller require a higher price for crude oil at the same quantity. With some exceptions, the demand curve remains unchanged as we observe the large price surge.

The crude oil market is greatly impacted by the political stance of OPEC as seen in the graphic below. Due to the fact that OPEC controls a large percentage of the overseas crude oil supply, and alteration in the exportation of crude oil has a great impact on price.

OJ-AQ046_SAUDIO_16U_20161006123322

Source: http://www.wsj.com/articles/how-a-saudi-royal-sparked-an-opec-deal-and-sent-oil-prices-past-50-1475763151

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Your PSL Now Contains Real Pumpkin

The pumpkin industry has really taken off over the past few decades. As the traditions of going pumpkin picking and carving jack-o-lanterns have become ingrained in our society, farmers have had to grow more and more pumpkins each year to keep up with the increasing demand. The biggest influence, however, on the pumpkin market has been the introduction of pumpkin spice over the past decade.

In the past, the Pumpkin Spice Latte (PSL) Starbucks is so famous for, has been flavored with artificial pumpkin spice, but as of 2015 the company has made the switch to using real pumpkin in their recipes. Since the illusion of pumpkin has been replaced with the real thing it may not seem like the pumpkin market has gotten any larger, but, in reality, farmers are experiencing huge spikes in demand as a result of the new influx of buyers. Because of this increase, farmers all over the United States are now planting more pumpkins, increasing the supply of pumpkins alongside the demand so that families can still afford to buy pumpkins as well as corporate organizations.

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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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National Milk Producers Federation (NMPF) Lawsuit

Recently, the Legal Reader published an article describing the settlement from a class action lawsuit against the National Milk Producers Federation. From 2003 to 2010, the NMPF was purposefully creating a shortage in cows so dairy companies could charge more for their products. This was done through paying off farmers to cease their production of milk and/or send their herds off to premature slaughter. Roughly 609 millions pounds of milk was withheld from the market during this time, costing the livelihoods of thousands of farmers and the extended lifespan of thousands of cows. The industry was led to do this to obtain higher profit margins. Recent trends have shown their revenue declining, as many health professionals are beginning to question the true benefits of dairy and encourage plant-based milks as a more viable option. For their actions of intentionally creating an economic shortage against consumers and farmers within the affected 16 states and territories, the NMPF now owes a claim.

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Welcome!

Welcome to the class blog for Econ 111-03 and 111-04. We will use this blog to share current examples of concepts you are learning in class.

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