Oct
28
2007
China rations diesel as record oil hits supplies | Markets | Reuters
As I headed into the city for dinner with friends on Saturday night, I witnessed an unusual site: as our taxi passed a petrol station, I saw about 25 or 30 blue trucks (the ubiquitous medium of transporting good from Shanghai’s factories to her ports) spilling out of the parking lot into the road, apparently queued, waiting for a spot at the pump. I’d never seen such a line at any of the petrol stations around Shanghai, and briefly wondered whether it was just a busy night or whether something else was amiss.
Well, reading the headlines in today’s news, I stumbled upon a clear economic answer to the petrol pump mystery. It appears that China has begun rationing diesel fuel at petrol stations in the East Coat provinces.
Truck drivers reported long queues at petrol stations along a national highway linking Fujian and Zhejiang provinces, with each truck getting 100 yuan ($13) worth of diesel, or around 20 litres, per visit at a state-run station and 40 litres at a private kiosk…
“What’s wrong with the oil market? Our drivers had to queue the whole night for only a small amount of fill, slowing the traffic by almost one day,” said Gao Meili, who manages a logistics company.
Continue Reading »
Oct
28
2007
Kremlin Secures Price Controls on Food Items Before Elections – New York Times
Okay, students. This article needs to introduction, no summary, no analysis, no passages quoted, I barely even glanced at the article myself! Read the headline… if you’re interested, read the article; but it should be nothing new to you at this point. It’s the same flawed economic thinking that led Zimbabweans to attempt to eat a poor giraffe, and the Chinese decision to freeze certain prices in the run up to the 17th meeting of the Chinese Communist Party Congress earlier this month.
What’s wrong with this sort of economic policy? Why do governments still attempt such policies, and why do people still fall for such tricks played by paranoid leaders obsessed with placating the masses through “generous” price controls? What do you expect will result from Russia’s price controls?
Hat tip to Greg Mankiw for the link.
Speaking of our old friend Robert Mugabe, the president of Zimbabwe has just announced he’s launching The Robert Mugabe Intelligence Academy. His stated purpose for opening this institute, which will train government officials from the greater Southern African region?
“The important role of defending our country cannot be left to mediocre officers incapable of comprehending and analytically evaluating the operational environment to ensure that the sovereignty of our state is not only preserved, but enhanced,” Mugabe said.
Before settling on the institutes’s official name, several options were tossed around, including the close runner up: “The Robert Mugabe Institute for People Who Can’t Do Economics Good and Want to Learn to Do Other Things Good Too.”
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Oct
26
2007
by Caleb Liao and Drew Venkatramen
Just how important is the caramel frappuchino to Starbucks? This podcast will explore the demand for a particular product from the ubiquitous coffee chain, a new branch of which has recently been opened across the street from Shanghai American School.
SAS students overwhelmingly favor the sweet, caramel goodness of the beloved Frappuchino, but how much would they really be willing to pay for already the steeply-priced beverage. At its market price of 32 kuai, customers seem to arrive in droves from the SAS campus; but could Starbucks do better by charging a higher price? What if they lowered the price, would it make a difference in their revenues? This podcast explores the market for the crowd’s favorite coffee beverage, the caramel frappuchino, and tries to learn something about demand, elasticity, and firm behavior in the process!
Oct
25
2007
Environmental Economics: 6th Grade Econ Question of the Day
Tim Haab at Environmental Economics pulls the following question from his 6th grade daughter’s “economics” homework assignment:
Suppose that a new Harry Potter book comes out and yet again becomes a bestseller. Thousands of people want to read this book. Stores will order more copies of this book from the company that makes it. To fill orders, the company increases the SUPPLY of these books in the marketplace. The increased supply has been made in response to an increased DEMAND for the book.
- If the supply of a new product is low and the demand is high, what will happen to the price?
- If the supply of a product is high and the demand is low, what will happen to the price?
Here’s the answer the teacher wants the 6th graders to give:
-
- Price will increase in response to a shortage.
- Price will decrease in response to a surplus.
My question for you is: what’s wrong with this picture? Is professor Haab’s 6th grade daughter being taught good economics? Without following the link and reading Dr. Haab’s entry, see if you can figure out what’s wrong with this question!
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Oct
24
2007
by Helen Chu and Angel Liu
How do brownies relate to economics? First, most people can agree that brownies are, in general, a “good thing†because, well, they’re yummy. And because they are commonly perceived as a “good thingâ€, we have chosen them to be the subject in our exploration of the law of DIMINISHING MARGINAL UTILITY. How can such a “good thing†transform into something revolting in less than ten minutes? Take a look at the results below and listen to our podcast – you’ll see.
Continue Reading »
Oct
23
2007
Asia Sentinel – A Falling Dollar Does Nobody Any Good
Many economists hail the decline in value of the US dollar as a boon to the American economy. It may sound counter-intuitive, but economic theory predicts that when a currency depreciates relative to other currencies, this could actually be good for the country’s economy? Why, you ask? Let’s consider an example:
In the last four months the value of a dollar in terms of euros has gone from 0.75 Euro cents to 0.69 Euro cents. For Europeans, that means that dollars are cheaper now than they were four months ago, therefore American goods are cheaper now than four months ago. Cheaper American products should mean more business for American companies as Europeans demand more of their stuff. Good for business, right? In the US, aggregate demand will shift out, unemployment should fall, and the price level should rise as more foreigners demand more American products. But what impact does the weaker dollar have on Americans? Continue Reading »
Oct
23
2007
Understanding the World Trade Organization
Below is an audio introduction to the World Trade Organization, courtesy of my year 2 IB Econ students here at SAS. Our current unit (IB Unit 4) examines free trade, global economic integration, and the WTO among other topics. As an introduction to the WTO, student were asked to record a two-minute podcast of the main ideas from a specific page on the WTO’s website. Below are their summaries of the basic functions and agreements of the organization, summarized and podcasted for your listening pleasure!
Oct
23
2007
Introduction to the WTO, continued…
Oct
22
2007
Shanghai Daily, Oct 22, 2007: How happy are we?-Let’s measure Gross National Happiness
When I first talked to Mr.Welker about a writing a blog entry about an alternative measurement of well-being to GDP and GNP, called the Gross National Happiness quotient, he gave me one those “looks”. I perceived the look to mean, “you are like a peace loving, hippy dippy gal from the East Coast, Ms. Close… this is economics we are doing here!” Of course, Mr. Welker would never admit that was what he was thinking because he is far too nice for that. But, I am happy to say that I am finally writing this entry because I finally have Oxford University and Cambridge University in England to back me up on this, Happiness Research.
These famous educational institution have their economists developing new ways to measure well being from an holistic economic perspective. Economists and sociologists all over the world, especially those interested in international development models are seeking to, “establish scientific methods for finding our what makes us happy and why”.
Happiness and well-being are complicated. Researchers cite many factors, like education, nutrition, freedom from fear and violence, gender equality, and perhaps most important, having choices, write Authur Max and Toby Sterling.
Continue Reading »
Oct
22
2007
By Nicole Wong and Katherine Yang
Podcast number 3 investigates the competitive market among groups selling baked goods here at Shanghai American School. The annual Relay for Life requires teams to raise 5,000 RMB (equal to about $650) in order to enter in the Relay. The most popular method of raising this entry fee is through bakes sales. This means that the month or so before Relay for Life SAS enters its “bake sale season” when countless teams try and push their products on teachers and students alike.
This podcast will explore the nature of the market for baked goods at SAS, determine the elasticity of demand for baked goods, and explore the prospects for increasing profits among teams hoping to make an easy kuai in the month leading up to the Relay for Life.
If the image is off, right click on the viewer and click “zoom” and “full screen”
Oct
21
2007
Gulfnews: Economies of scale should drive China’s auto market
Last week in AP Economics we introduced the concept of Economies of Scale. The graph below was created and added to our Wiki page by student Kevin Chiu to illustrate the concept, as well as two other concepts: constant returns to scale and diseconomies of scale. Notice that the section of a firms long-run average total cost curve over which ATC is decreasing is identified as the period over which the firm is experiencing economies of scale.
The idea is that as firms open new plants during these early stages of production, they increase their efficiency in production, thus experience a decline in their average costs. Click the “read the rest of this entry” link below to learn how the Chinese automotive market is struggling with economies of scale in their attempt to compete with each other and foreign car manufacturers…
Continue Reading »
Oct
20
2007
By Claire Moon and So Yeon Yoon
For our second installment of the SAS Economists Podcast, Claire and So Yeon survey 55 students to discover what determines where they prefer to get their coffee fix in the Shanghai neighborhood of Gubei. They discover through their research that consumers base their decisions on a variety of reasons, and that price, while important, is not the only factor that determines which particular products consumers will purchase. Location, tastes, size of the market, and various other factors all play a role in consumer’s decisions between two alternatives in a competitive market like that for coffee in Gubei, a trendy neighborhood with no shortage of coffee outlets.
Click below to hear this excellent and enlightening investigation into consumer behavior and the determinants of demand for coffee in modern Shanghai!
Determinants of demand for Starbucks vs. The Coffee Bean [5:24m]:
Download
Oct
19
2007
Seeing Sugar’s Future in Fuel – New York Times
“The sugar producers say whatever its costs, the new farm bill is needed to save their industry.”
We’ve all heard the news about this amazing new fuel that just might save the world from the perils of global warming… ethanol, food fuel, alternative energy, replacement for oil, the panacea to all of America’s energy, climate, and geo-political woes! Corn farmers in America’s grain belt have benefited hugely of late due to large subsidies bundled with America’s latest farm bill.
The new version of this bill, being debated in Congress now, contains a proposal to prop up the country’s 12,000 sugar farmers by promising to buy any surplus sugar resulting from cheap sugar imports from Mexico (themselves the result of market liberalizations accompanying the North Atlantic Free Trade Agreement) at a profitable price. The sugar lobby insists that sugar should play a larger part in the production of ethanol, currently which is made mostly from corn.
To effect that policy, the government would buy excess sugar and sell it at a loss to ethanol producers. They ferment corn starch to ethanol, but adding a little sugar can speed the reaction…
Mr. Keenum suggested that the Agriculture Department would end up buying sugar for 22 cents a pound and selling it to ethanol producers for 4 to 7 cents a pound. “You can easily do the math and look at the loss potential,†he said.
Continue Reading »
Oct
17
2007
Here’s an online special for my IB students. We’ve recently started our unit on International economics, and one of the first topics is free trade, protectionism, barriers to trade, and the arguments in support of and against such protection. Below are the graphs we discussed in our Smartboard lesson during today’s class.
If you click on each image it will take you to a full size version.
What to notice about the impact of a tariff: Domestic producers benefit at the expense of domestic consumers and foreign producers. The green triangles represent efficiency or welfare loss because that is consumer surplus that is forgone after the tariff. The yellow rectangle is not DWL because it is tariff revenue for the government.
Be sure to understand the indirect effects of such policies also. For example, any of the three forms of protection shown here will lead to a decrease in net exports for America’s trading partners, which means a decrease in Aggregate Demand and the possibility of higher unemployment, recession, lower income, thus less demand for American products abroad. So, not only does the tariff hurt American consumers through higher prices and lower quantity, but it could harm other American businesses whose products are no longer in demand from foreigners whose incomes have declined thanks to the American tariffs.
Note also the regressive nature of tariffs. Much like a VAT or an excise tax, tariffs place a greater burden on low income earners than high income earners, as a particular tax on imports represents a larger percentage of a poor person’s income. Continue Reading »
Oct
16
2007
US Trio Wins Nobel prize By Vinnee Tong, NEW YORK (AP)
It is very exciting that three Economics professors from the US have received recognition from the Nobel Foundation and have been awarded the Nobel Economics prize. All three professors, including, 90 year old Emeritus Professor Leonid Hurwicz, have been working the since 1960′s investigating “how people’s knowledge and self-interest affect their behavior in the market or in social situations such as voting and labor negotiations.”
While some of these ideas will sound familiar to you now as an “experienced” AP Economics students, their “mechanism design theory” will be new to you. This theory builds on another theory that we will discuss later on this year, Game Theory. What I appreciate about the these three professors is that they have been dedicated to developing economic theories in order to understand real life situations. One professor has even applied his formula in such a way that he has written about how it can be used to rebuild the government in Iraq. Essentially, the three men studied how game theory can help determine the best, most efficient method for decision-making.
Essentially, the three men studied how game theory can help determine the best, most efficient method for decision-making. Continue Reading »
Oct
15
2007
This week in comparative advantage | Free exchange | Economist.com
The writers at Free Exchange find the concept of comparative advantage to contain almost enchanting beauty and hope for a better world. Perhaps they romanticize it a bit much, but this is an interesting little piece, nonetheless:
The principle of comparative advantage is one of those ideas that can completely transform the way you see the world, once you really internalise it. That everyone, even those who are best at nothing, can benefit themselves and others through co-operation is a beautiful idea that points to the possibility of a benevolent world.
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Oct
15
2007
By Emily Yeh and David Xu:
Introduction: So today on SAS Economists podcast we come to examine the economic practices of our beloved catering service, Eurest. For the last several years Eurest has held our stomachs and their breaths, as they poured out food for the school community’s enjoyment. But how much does the community really enjoy the services provided by Eurest? Too often complaints about the variety of food or taste and appeal are expressed by students and teachers when the name “Eurest” is mentioned.
Today, we will examine the alleged gap between price and quality for Eurest’s food. We’ll try to find out whether the prices charged for cafeteria food truly reflect the costs to Eurest, or whether it is monopoly power that result in the prices many students consider to be unreasonable. Does a lack of competition result in x-inefficiency on behalf of Eurest? If students had the benefit of greater variety and the freedom to eat off campus, how would Eurest match up against greater competition? What can the company do to achiever a higher level of customer satisfaction? These questions and more in the first EVER SAS Economists podcast!
To play, click on the viewer below and wait a couple of minutes for the video to load. It will play automatically once it has buffered.
Oct
13
2007
SAS Sichuan Cycling Adventure – web album
The last two weeks I have been leading student trips outside of Shanghai, first to the Philippines where 16 juniors and seniors built a house for Habitat for Humanity, and just today I returned from Sichuan Province where 24 students road their bikes through the fields of the Chengdu Basin and along the foothills of the Himalaya for three days.
Along the way on our cycling adventure we visited the Panda breeding center, the 2300 year old Qin Dynasty irrigation project at Dujiangyan, and several ancient villages preserved into modern times. On our way to the airport this morning our bus found itself in the middle of a village street market that I swear looked like it could have been 50 years back in time. There was not a private automobile to be seen, only Chinese “Forever” and “Flying Pigeon” bicycles (based on the 1937 American Raleigh design). Half the villagers were wearing the “Mao” costumes of what I thought was a bygone era in China, but it turns out this communist fashion has simply become isolated in the poor countryside, which is where we spent most of this week! Continue Reading »
Oct
07
2007
Meet Jasper. Jasper is a resident of Saint Dominic Village, a Habitat for Humanity community made up of 65 houses (eventually 92), one as of yet un-staffed community center, 200 children (the average family has about six kids), one playground with a few rusty swings and a teeter totter.
Among the 200 children in Saint Dominic Village, only a handful attend school regularly. Almost all of the younger children live on their own for most of their days, as their parents head to the city to find work. Teenagers in the village attend school sporadically, often choosing to hang out in the village smoking pot, or to find work in the city to supplement their family income.
A typical family in Saint Dominic village will earn between 3 and 6 dollars a day, but only when there is work to be found. Some of the common jobs here include “tricycle” driver (these are motorcycles with side cars used as taxis in this part of the Philippines), jeepney driver, charcoal salesman, seamstress, laundry service, handicrafts, and the odd factory job (although these are scarce in this area as there is very little capital investment). Continue Reading »
Oct
06
2007
Shanghai American School Habitat for Humanity – Lucena City, Philippines. October 2007
This afternoon my wife and I returned to Shanghai after an amazing week in the Philippinese where we led 16 students on a Habitat for Humanity house building project on the island of Luzon (see map here). While this experience is still fresh in my mind, I wanted to share a few comments about how my thinking about Habitat for Humanity evolved over the last eight days.
A week ago right now, the 18 of us from SAS were bouncing scarily southward along Luzon’s main north-south highway, which is only a highway in the western sense for about 30 km outside of Manila, beyond which it turns to a two-lane, pot-holed, multi-use thoroughfare shared by buses, three-wheeled motorcycle taxis, lorries, a handful of personal automobiles and thousands of jeepneys. Three hours of nerve and bone rattling travel brought us to our lovely guest house near the southern Luzon city of Lucena, where we would spend five days building a house in a community on the outskirts of the city. Continue Reading »
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