Shanghai American School Employment – Available Positions

No article here, just some food for though about a meeting all SAS teachers attended today during lunch. Our director, Dennis Larkin, announced the changes being made to teachers’ salary and compensation packages for next school year. As anyone in international education knows, the market for teachers is a very competitive one these days. When I say competitive, I mean schools are forced to compete with one another for a rather scarce supply of teachers who are out there looking for work.

SAS has set as a goal to rank among the top five international schools in Asia with regards to compensation for teachers. It dawned on me during the meeting today that Dr. Larkin’s presentation illustrated a clear example of an imperfectly competitive labor market, the characteristics of which are a few large firms (in this cases schools) competing with one another to attract workers (teachers) to their firm, in order to meet a growing demand for the product being provided (students’ education). In East Asia, where schools all over China, Korea, and Japan continue to grow as more and more employees sent by foreign firms to oversee company operations in the region arrive with their families in tow, demand for more international school seats leads to demand for more international school teachers (remember, resource demand is derived demand). Rising tuition fees (price of the product) cause the marginal revenue product of teachers to increase (remember, MRP = PxMP), and since MRP is synonymous with demand, schools’ demand for labor also increases. Continue Reading »

New York Manhole Covers, Forged Barefoot in India – New York Times

In the revealing story above, the NYT reports on the manufacture of the New York’s thousands of manhole covers, which it turns out come primarily from a foundry in the Indian state of West Bengal. An NYT photographer discovered the Indian factory, and his photos prompted the report here:

Eight thousand miles from Manhattan, barefoot, shirtless, whip-thin men rippled with muscle were forging prosaic pieces of the urban jigsaw puzzle: manhole covers.

Seemingly impervious to the heat from the metal, the workers at one of West Bengal’s many foundries relied on strength and bare hands rather than machinery. Safety precautions were barely in evidence; just a few pairs of eye goggles were seen in use on a recent visit.

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Recently our AP Economics class wiki (located at http://welkerswikinomics.wetpaint.com and http://welkerswikinomics.wiki.zoho.com) was nominated for a “Best Educational Wiki” award by the Edublog Awards. For this honor I am very proud of our econ students here at SAS, both this year’s and those from last year who helped get the wiki off the ground and build it into what it has become: a comprehensive online, student created study guide for the entire AP Micro and Macro course. If we wish to win this prestigious award, we need YOUR votes! Follow the link to the left and vote for Welker’s Wikinomics for the “Best Wiki 2007″ Award!

If you’re in China, click here to vote.

Holiday weekend retail sees big crowds, but no splurging – Nov. 25, 2007

Black Friday; a most interesting phenomenon of American culture. A day when consumer demand in retail product markets is at its strongest, the day after Thanksgiving when, still lightheaded from excess tryptophan and mashed potato intakes and an NFL overdose from the previous day, millions of Americans stumble full-bellied from their beds and flock to the malls and big box retail outlets of suburban America to give thanks to the gods of consumerism: Wal-mart, Target, JCPenny, Nordstroms, Macey’s… all the holy temples of our sacred religion open their golden gates to the hoards of consumption-crazed pilgrims, all hoping to pay tribute to their beloved deities with their almighty dollars.

Although deep discounts brought out much bigger crowds of holiday bargain hunters, a major retail trade group said Sunday that shoppers actually spent less money this year over the crucial Thanksgiving weekend.

The National Retail Foundation’s (NRF’s) 2007 Black Friday Weekend Survey said more than 147 million shoppers hit the stores over the Black Friday weekend, up 4.8 percent from last year.

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Foreign Policy: Why We Trade

Professor Russ Roberts, host of the EconTalk podcast, has an essay in the latest issues of Foreign Policy journal titled “Why We Trade”. In this piece, Roberts defends the benefits of trade from a broad perspective, beyond the popular political view of trade, usually along the lines of “exports, good – imports, bad”. Roberts compares this line of thinking (characteristic of presidential candidates of both the Republican and Democratic parties), to the 14th century, pre-Adam Smith view of world trade, known as mercantilism.

Mercantilism was a view of global economic interaction that placed emphasis on the accumulation of gold and other precious metals from abroad in exchange for your country’s exports. The doctrine failed to recognize the importance of imports from abroad, as this was viewed as a loss of wealth to foreigners. Mercantilists viewed wealth in terms of bullion or the amount of precious metals a country owned. Today, of course, our understanding of wealth has evolved to account for the amount of output, or products (goods and services), we are able to consume. Herein lies the flaw in the rhetoric of modern politicians who, “are always talking about the necessity of other countries’ opening their markets to American products. They never mention the virtues of opening U.S. markets to foreign products.”

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China Mobile negotiating with Apple to carry iPhone

Try try as he might, Steve Jobs and Apple can barely launch their hottest new product, the iPhone, before the Chinese have copied it and put a knockoff on the market as quickly as you can say “can you hear me now?” But what is Apple doing making a cell phone anyway? Isn’t the mobile phone market pretty much dominated by a few big name companies already? How will apple ever survive in a market with such well established firms as Nokia, Samsung, and Motorola?

The answer is through product differentiation. The iPhone is truly an innovative little gadget. More than an MP3 player, more than a cell phone, the iPhone has features that differentiate it from most products available from the established firms in the mobile phone market. Like any firm, Apple advertises its iPod through commercials and other media in order to inform consumers about what makes its product special. What message does the following advertisement send about the iPhone?

The table below shows the market shares of the larges mobile phone makers as of late last year (before the release of the iPhone). A simple calculation finds that the four firm concentration ratio in the mobile market was 75.6%, clearly putting the market in the realm of an oligopoly (a market in which the four firm concentration ration is 40%).

With 75% of the market being controlled by Nokia, Motorola, Samsung and Sony Ericsson, the question arises whether Apple will be able to overcome the barriers to entry in the mobile market and establish itself as one of the big boys. Apple’s strategy for profits and market penetration certainly leverages the power of product differentiation and non-price competition, both firm behaviors common among firms in oligopolistic markets.

To make matters worse for Apple, only months after the iPhones release, and in the midst of negotiations between Apple and China Mobile to officially launch the product in China, a cheap, 4 GB knock-off of the fancy device comes along to entice Chinese consumers away from the 5,000 RMB (nearly $700) real deal. Check this thing out… would you be able to tell the difference?

Discussion Questions:

1. What barriers to entry exist in the market for mobile phones?
2. Why do you think so few firms produce mobile phones?
3. Do you think Apple will be able to successfully penetrate the mobile market?
4. What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?

BBC NEWS | Technology | Nintendo warns of Wii shortages

Looks like Brits dreaming of the Wii from Nintendo may have to wait a while longer this holiday season, as British retailers are finding it nearly impossible to fill customers’ orders. It turns out there is quite a shortage for the hot new gaming system from Nintendo!

“Although we’re receiving regular deliveries from Nintendo, Sony and Microsoft and getting the products onto the shelves as fast as we can – it’s possible that demand will outstrip supplies on some products, for example the Nintendo Wii, which has been hugely popular all through the year,” read a statement from high street gaming specialist Game…

“The Nintendo Wii consoles have proved extremely popular with our customers and have been flying off the shelves whenever we get new stock in,” said a spokeswoman.

It seems like the shortage of Wii’s in the UK should send a message to Nintendo and its retailers: RAISE THE PRICE!! One way retailers have tried to do this is by bundling the consoles with up to three or four games, meaning to take home a console shoppers would have to fork over 300 GBP. This seems like a great strategy for retailers faced with strong demand from customers, given that they are probably not allowed to charge above Nintendos suggested retail price for the console itself. Continue Reading »

FT.com / Asia-Pacific / China – China sees fatal twist to inflation debate

Inflation is a serious worry among Chinese consumers right now. With increases in the price level hitting 6.5 percent, reaching an 11 year high this week, consumers nationwide can expect the price of commodities such as cooking oil to continue to rise. As we have learned, expectations of future prices is a determinant of demand, and when consumers expect prices to rise tomorrow, the tend to demand more today.

So what happens when, in a country where inflation is at an all time high, retailers announce sudden reductions in price on essential products like cooking oil? Well, here in China, it seems the price sensitive masses are quite the bargain hunters:

A Tesco supermarket in a suburb of Shanghai announced two weeks ago it would sell 3,000 bottles of cooking oi at half price. Hundreds queued and when the doors opened, there was a stampede. Nineteen people, most of them housewives, needed hospital treatment.

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What’s sinking the dollar? – November 26, 2007

The US dollar has continued its downward spiral against the currencies of many of its trading partners. Today an American wanting to exchange his or her dollar for a Euro would have to fork over $1.46; for a British Pound, $2.07, and for a Canadian dollar, $1.05! It’s been 35 years since the Canadian dollar was even near parity ($1US = $1CA)! But what are the real forces behind this continually sinking dollar? This article lays it out straight and clear:

The forces behind the dollar’s weakening have been building for years but didn’t have much effect until recently. Most fundamentally, we Americans have been living beyond our means, buying more from the rest of the world than the world buys from us (that’s the trade deficit); to do that, we have to give foreigners claims on our assets in the form of government bonds and corporate bonds, or sometimes the assets themselves. A country as rich as America can do that for a long time, but eventually the world ends up holding more dollars than there is dollar-denominated stuff they want to buy, so they start offloading dollars. They also worry that any country with loads of debt–even the U.S.–may be tempted to inflate its currency, and that fear reduces its value.

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by Hansen Gu and Elaine Lung

Economics is not just for people living in the “real” world, you know! No it’s not. For some of us in high school, we actually prefer the fantasy life of the World of Warcraft. And yes, there is a real economy in our world too. And yes, it does exhibit characteristics of pure competition, and YES, workers do specialize their production based on their own comparative advantage!

Jeeze, why do I feel like I’m always having to defend myself here? Anyway, to learn more about the economy of our favorite fantasy world, watch this video!

by Alice Su and Jessica Ng

Is it true what they say about the DVD market in China? Can you really buy fake DVDs on the streets for ONE DOLLAR? Come on, that’s a bit extreme, isn’t it? In fact, it’s not just under bridges and in dark alleys where you can buy pirated DVDs in Shanghai, but in respectable shops all over the city that on the outside and in look just like a legitimate DVD shop in the states or Europe.

This podcast will explore the economic characteristics of the market for fake DVDs in Shanghai and determine what it would take for the makers of real DVDs to be able to compete with the well established market for fakes.

by Annie Sung and Kristie Chung

Which do you prefer, the Wii? the XBox 360? the PS3? How about other video game consoles? Can you even think of any other video games consoles? Hmm… let’s see… how about the Sega? Wait, no, haven’t seen any of those in a while… what about the Atari? Oh, shoot, nope! Oh yeah, don’t forget the Caleco Vision (for the record, Mr. Welker’s earliest video game memory was of playing Smurfs on a Caleco Vision).

The fact is, today, the market for video game consoles has shrunk to three dominant firms: Nintendo, Microsoft and Sony. This podcast will investigate the video game console market, examine its characteristics, including the elasticity of demand for the different consoles, and conclude whether it exhibits the features of an oligopoly.

The links below will take you to an overview of several theories relating to exchange rates. These include:

• Foreign Exchange Markets – James and Wan Jin
• Fixed exchange rates - Marco and Danny
• Floating exchange rates - Enno and Dennis
• The Marhsall-Lerner Condition – Manon, Kaj, Daniel
• The economic effects of a devaluation – Carlos and Lucas

Your assignment in today’s class is to work with your partner to read and prepare a short presentation of your assigned topic. You will come to the front and explain your topic halfway through class.

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BBC NEWS | Business | Supermodel ‘rejects dollar pay’

Currency speculators should take note… the world’s highest paid supermodel has sent a clear signal to those buying and selling currencies in the foreign exchange markets: The US dollar is NOT a good buy!

How does a woman who made $30 million in the first six months of this year send such a signal? By refusing to accept modeling contracts offered in US dollars, insisting she be paid in Euros.

The question is, why does she care what currency she’s paid in; can’t she just convert it to whatever currency she wants once she’s paid? According to Tim Harford, the “Undercover Economist”:

It seems she believes that the dollar is likely to fall in the short term, between the time a contract is agreed and the money is paid. (In the long term, who cares? She can convert her cash to any currency she likes.)

The weak dollar is clearly of concern to Americans consumers and foreign producers alike, but it’s more than likely that Gisele, while she may be the queen of the catwalk, probably knows more about striking the perfect pose than she does about behavior of foreign exchange markets.

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The Big Mac index | Economist.com

In IB Economics we’re studying the theory of exchange rates. A floating exchange rate system should be in equilibrium when the rate enables people in different countries to buy the same basekt of goods with an equal amount of money. In other words, If I walk into McDonalds in the US and have to pay $3.00 for a Big Mac, then board a plane, land in Shanghai and walk into a McDonalds there, the price I pay in Shanghai should, given current exchange rates, be the same as what I paid in the US. In reality, a Big Mac in Shanghai costs about 56% less than one in the US. This tells economists something about the value of the Chinese RMB. Continue Reading »

Wetpaint, the free online wiki service, has stepped up its use of non-price competition in an attempt to increase its market share in the wiki market. In addition to releasing several Mac vs. PC parody videos meant to showcase the user-friendly, customizability of Wetpaint’s wikis vs. its rivals, the company also announced this morning that it would be offering ad-free wikis to educators!

As a user of Wetpaint since early this year, the distracting presence of advertisements bothered me; the decision to provide educators with ad-free wikis is huge, and makes Wetpaint even more attractive as a platform for hosting online learning communities for teachers of all grade levels.

You may be thinking, “Huh? There’s a market for wikis?” Well sure there is. Just because something’s free for us consumers does not mean it’s not a profit oriented business. Wetpaint and its rivals compete for consumers in an oligopolistic market in which competition is not based on price (since its products are essentially free), rather on product differentiation based on features and communicated through advertising and public relations.

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Oil worker shortage could lead to supply squeeze – Nov. 2, 2007

Lately I’ve blogged about the impact of higher oil prices on the petrol market in China (here and here). As the main input in petroleum products such as gasoline and diesel, the price of oil affects the costs of fuel producers, such as China’’s SinoPec and PetroChina, the two large state-owned petroleum companies, as well as the scores of smaller competitors in that provide fuel to China’s thirsty economic machine.

As the price of oil has approached $100 per barrel, fuel manufacturers have had to cut back output as their costs have soared, putting upward pressure on the market price of fuel here in China. But what determines the price of a barrel of oil? Is the increase in the price of oil due to an outward shift of demand or an inward shift of supply? Actually, it’s probably both. This article helps answer part of our question, and it does so by discussing one of the determinants of supply of oil, resource costs. Continue Reading »

FT.com / Asia-Pacific / China – Pressure builds over renminbi

In IB Economics, we’re currently studying the determinants of exchange rates. One important factor in determining the demand for a particular currency is the interest rates in the country whose currency is in question relative to that of other countries.

The recent cut of the federal funds rate in the US of 25 basis points to 4.5% brought the US rates closer to China’s recently increasing interest rate of 3.32%. The upward trend of Chinese rates (up 50 basis points this year) and downward trend of American rates (down 50 basis points this year) should diminish the appeal of dollar denominated financial assets and increase the demand for those in Chinese RMB. In the currency market, we should see weakening demand for dollars and strengthening demand for RMB, as US savings and government securities are relatively less appealing due to the declining returns on those investments. With further increases in Chinese rates expected (due to high inflation), the RMB should be in greater demand, as returns on Chinese investments looks to increase as rates rise. Continue Reading »

xkcd – A webcomic of romance, sarcasm, math, and language – By Randall Munroe

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Well, not exactly, but that’s kind of a dramatic headline, isn’t it? The other day I blogged about the shortages experienced in the petrol market in eastern provinces, evidenced by the long queues at gas stations around Shanghai last weekend.

Petrol stations resorted to rationing their product in small doses (between 20 and 40 litres) as the price of oil hit $92 and Chinese refiners scaled back production due to rising costs that they were unable to pass on to their customers. Beijing had previously imposed a price ceiling on fuel in an attempt to keep inflation low and Chinese consumers content; the actual impact of this price control was predictable: not enough fuel to go around as the quantity demanded exceeded the quantity supplied, leading to shortages and rationing at the pump.

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