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.
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!
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.
In IB Economics we’ve been studying concepts relating to balance of trade and exchange rates. The Marshall-Lerner Condition and the J-curve are two concepts that explain the relationship between a the exchange rate for a nation’s currency and the country’s balance of trade. (click on the graph to see a larger version)
Common sense might indicate that if a country’s currency (let’s say the US dollar) depreciates relative to other currencies, then this should lead to an improvement in the country’s balance of trade (economists call this the current account). The reasoning goes as such: a weaker dollar means foreigners will have to give up less of their money in order to get one dollar’s worth of American output. At the same time, since the dollar is worth less in foreign currency, imports become more expensive, as Americans have to fork over more dollars for a certain amount of another country’s output; hence, imports should decrease.
Fewer imports and more exports means an improvement in the country’s balance of trade, right? Well, not necessarily. What matters is not whether a country is importing less and exporting more, rather, whether the increase in income from exports exceeds the decrease in expenditures on imports. Here is where the Marshall-Lerner Condition can be applied. Continue Reading »
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.”
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?
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 »
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.
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.
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!
The article above gives a great introduction to and several examples of price discrimination among firms with market power. Read the excerpt below then discuss the questions that follow in your comments:
For any product or service, different people have different prices they are willing to pay. If you ever took an Economics course you surely remember the downward sloping demand curve, which is a graphical way of saying that you’ll get more buyers at a low price and fewer buyers at a high price. For a business that cannot price discriminate, this poses a problem. What price to offer?
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