Archive for October, 2007

Oct 19 2007

Protection in the sugar industry- don’t taste so sweet no more!

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.

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Oct 17 2007

IB – Graphing and understanding the economic impacts of protectionism

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.

unit-4-international-economics_9.png

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 »

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Oct 15 2007

Comparative advantage as the basis for trade – oh, what a beautiful concept!

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

SAS Economists Podcast #1: Demand for Eurest cafeteria food at SAS

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.

12 responses so far

Oct 13 2007

“Meet the new boss, same as the old boss” – observations on my visit to the “other China”

SAS Sichuan Cycling Adventure – web albumWhat century am I in?

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 »

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