Archive for the 'Substitutes' Category

Nov 12 2007

SAS Economists Podcast #6: The oligopolistic nature of the video game console market

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.

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6 responses so far

Sep 07 2007

Supply and demand shifters and the price of pork in China – Ethanol affects price of pork, China’s staple

What does the biofuel we put in our cars have to do with the meat we eat with our noodles and rice? Economics has an answer to this question! This week in AP Economics we learned that market supply of a product is determined not only by the price of the product but also by several “non-price determinants of supply”. To help remember these we learned an acronym:

S- subsidies and taxes
T- technology
O- other related goods prices
R- resource costs
E- expected future prices
S- size of the market (# of firms)

The article above talks about the relationship between the demand for ethanol, which is a corn-based biofuel being manufactured in record quantities all over the world, and the price of China’s staple protein source, pork.

Read the article, and discuss which determinants of supply are being affected, and describe the impact on the pork market (think of the supply and demand curves and equilibrium price).

Discussion Questions:

  1. As the price of pork goes up, what do you think is happening in the market for substitutes in consumption, such as chicken?
  2. How will the rising pork prices affect demand for chicken?
  3. Assuming that pork and chicken are also substitutes in production, how will the changes in the pork market affect the supply of chicken?
  4. What can we expect to happen to the price of other related goods as pork prices continue to rise?

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11 responses so far

Jun 07 2007

Rough necks and rig hands: Wyoming’s booming gas industry

Natural gas in Wyoming | Boom and doom |

From the latest Economist: an article about the booming natural gas industry in rural Wyoming (as if there’s such a thing as urban Wyoming) and the impact it’s having on the economy of one small town.

You’d think a booming industry offering high wages for low-skilled workers would be a godsend for a remote Western town like Pinedale, Wyoming. Think again; this article points out some of the downsides resulting from the natural gas boom since 2000, when oil shortages led to an increase in the price of gas and lots of new drilling in Wyoming, America’s least populated state.

Pinedale is at the centre of a Rocky Mountain gas boom that began in 2000 and accelerated five years later after Hurricane Katrina knocked out Gulf supplies, forcing up prices. On a mesa south of Pinedale, Wyoming’s busiest field is laced with dirt roads and pock-marked with well-heads and drilling rigs.

The influx of gas workers has increased the population of the area by 40% since 2000. The new business has meant more tax revenues for the county, “In 2001 Sublette county raised $16m in sales and other taxes. Last year it took in $53m.” What does all this mean for residents of Pinedale and the surrounding county? Higher wages and low unemployment.

Next year Pinedale’s school district will pay newly qualified teachers a base salary of $43,000—about the same as in Chicago.Teachers nonetheless earn less than rig hands, most of whom have no more than a high-school education. They are paid at least $49,000 plus overtime, according to a survey last year. The ready availability of well-paid work, albeit hard and dangerous, means that unemployment has almost disappeared (see chart). So have seasonal fluctuations. Jobs used to disappear when the snow fell. But the gas rigs now keep going through the winter.

The wage hikes enjoyed by government employees and gas workers, while good for some, means doom for local businesses not directly linked to the gas business, for whom the tight labor market makes it increasingly difficult to operate. The housing market has also experienced a shock since the gas boom, as properties away from the gas fields have barely increased or even decreased in value.

The interesting connection I see in this article to our Economics course lies in the affect of low unemployment and high wages on the business environment. See if you can identify the connection through the questions below.

Discussion Questions:

  1. What led to the increased drilling for natural gas in 2000? Which determinants of demand and supply led to the changes experienced in the oil and natural gas industries?
  2. What kind of labor market is the Wyoming gas industry most like, perfectly competitive or monopsonistic? How do you know?
  3. Are gas companies in Wyoming wage takers or wage makers? What’s the difference?
  4. If low unemployment and high wages are assumed to be good, then why does the article indicate that they are actually bad for some in Pinedale?
  5. Why has “the number of retail and entertainment outfits in Sublette county” fallen “even as disposable income soared”?

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Jun 04 2007

“Monster Hog” and the price of pork in China

National Geographic News Photo Gallery: Week in Photos: Monster Hog

Near Delta, Alabama, May 3, 2007—Hogzilla may be headed for horror-movie heaven, but the massive swine that became an Internet sensation in 2004 may have been bested, size wise, by this reportedly wild pig killed May 3 by Jamison Stone, 11, and reported by the Associated Press on Wednesday.

From tip to tail, the newfound hog—dubbed “Monster Pig”—measures 9 feet, 4 inches (284 centimeters) and weighs in at 1,051 pounds (477 kilograms), according to Stone’s father.

At a 150-acre (60-hectare), fenced hunting range, Stone said, he shot the huge beast eight times with a revolver before tracking it with his father and guides for three hours. Finally, the boy shot the hog at point-blank range, killing the animal, the AP reported.

While hunting by children is legal in Alabama, officials are investigating whether anyone had transported and released the live feral pig into the hunting preserve, which would violate state law.

Okay, so maybe this one’s a stretch for a blog about economics, but sometimes when you see something in the news this amazing, you just have to share it with the world! Let’s see if I can come up with some questions about this one!

Discussion Questions:

  1. What impact would “monster hog” have on the price of pork (assuming it goes to market)?
  2. What will happen in the beef market once “monster hog’s” meat reaches the market? Explain.
  3. Can you think of a product that might be a compliment to pork? Describe
    what will happen in that product’s market thanks to “monster hog”.

Looks like China could use a few monster pigs of its own to relax the steep increase in pork prices recently!

Tighter supplies lead to big price rises for pork,

THE prices of pork and eggs have soared in past weeks across China due largely to tighter supplies and increasing production costs…Food products account for 33 percent of the CPI in China with meat, poultry and related products making up about 20 percent.

According to the Ministry of Agriculture, live pigs nationwide were 71.3 percent more expensive than a month earlier, and pork, 29.3 percent higher.

In Beijing, the price of slaughtered pigs went up more than 30 percent in recent days…

An outbreak of blue ear disease, also known as Porcine Reproductive and Respiratory Syndrome, among pigs in Guangdong Province and the Guangxi Zhuang Autonomous Region, causing many deaths and a large amount of pigs to be culled, according to the National Development and Reform Commission…

“This sent a strong signal for distributors to jack up prices,” said Xu, adding that this exacerbated the unbalanced supply and demand.

“Pig raisers have lost money in the past couple years and they are reluctant to raise pigs. This led to a marginal decline in live pigs this year.”

Still worse, edible oil and grain prices rose at the beginning of this year, and feed prices followed suit.

Grain prices have risen largely due to an anticipated decline in output this summer and will continue to increase slightly in the coming weeks, boosting the prices of pork

Discussion Questions:

  1. What is the “CPI” and why has it risen in China recently?
  2. Does this article discuss the determinants of demand or the determinants of supply? Which determinant is being affected in the pork market?
  3. What is happening in the market for pork in China? Which curve is shifting, supply or demand?
  4. What “strong signal” led pork distributors to “jack up prices”?
  5. If the price of pork continues to rise, what should happen to the supply of pork? Explain.

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May 22 2007

Hog Heaven!

High corn price mean pigs eat candy bars, french friesAnother Reeces, please!

Oh, the life of a pig… Due to the rising price of corn (thanks to increased production of corn ethanol), farmers all over America are substituting relatively cheap junk food to keep their porkies plump!

“Besides trail mix, pigs and cattle are downing cookies, licorice, cheese curls, candy bars, french fries, frosted wheat cereal and peanut-butter cups. Some farmers mix chocolate powder with cereal and feed it to baby pigs,” writes Lauren Etter.

My wife calls that last one “puppy chow” when she makes it! It’s mmm… good!

“California farmers are feeding farm animals grape-skins from vineyards and lemon-pulp from citrus groves. Cattle ranchers in spud-rich Idaho are buying truckloads of uncooked french fries, Tater Tots and hash browns.”

Mom’s, don’t let your kids read this article, you’ll never hear the end of it: “But MOOOMMM, even FARMERS let their animals eat french fries, peanut butter cups and licorice for dinner, why can’t you let ME??!!”

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