• The econlife.com Weekly Roundup

    Our Weekly Roundup: From Free Music to Cheap Oil

    Nov 22 • Behavioral Economics, Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic History, Economic Humor, Entertainment, Environment, Gender Issues, Government, Innovation, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement, Media, Regulation, Tech, Thinking Economically • 260 Views

    Our Posts Roundup

     

    Everyday Economics and the opportunity cost of eliminating gestation crates is less than what we sacrifice by keeping them.Sunday 11.16.14 When humane treatment is about more than kindness…more

     

    Everyday economic of lower gas pricesMonday 11.17.14 Why cheap oil might be costly…more

     

    Everyday economics and automationTuesday 11.18.14 Where robots will enter our lives…more

     

    Women experience appearance discrimination.Wednesday 11.19.14 The downside of beauty…more

     

    The everyday economics of hanging supply and demand, streaming music meant new kinds of contracts with record companies and new relationships with consumers.Thursday 11.20.14 The economic side of Taylor Swift…more

     

    Productivity rises from output targets that increase self-control.Friday 11.21.14 How Fitbits and factories are similar…more

     

    Ideas Roundup

    • opportunity cost
    • regulation
    • behavioral economics
    • GDP growth
    • international trade
    • automation
    • innovation
    • appearance discrimination
    • supply and demand
    • productivity
    • self-control

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  • Productivity rises from output targets that increase self-control.

    How to Become More Productive

    Nov 21 • Behavioral Economics, Businesses, Economic Humor, Economic Thinkers, International Trade and Finance, Labor, Thinking Economically • 308 Views

    Telling about his “Fitbit Life,” comedy award winning writer David Sedaris says a friend first explained the Fitbit as, “…a pedometer…But updated, and better. The goal is to take ten thousand steps per day, and, once you do…” your rubber bracelet vibrates.

    Fitbit Targets

    During the first day he wore a Fitbit, Sedaris decided to pace at the airport rather than sit. Feeling a tingle from his bracelet at 10,000, he added another three thousand steps. (13,000 steps are close to 5.2 miles for someone who is 5’5″.) Feeling compelled by his Fitbit, Sedaris tells us he was at 15,000, then 25,000. “I look back on the days I averaged only thirty thousand steps, and think, Honestly, how lazy can you get? When I hit thirty-five thousand steps a day, Fitbit sent me an e-badge, and then one for forty thousand, and forty-five thousand.” Ultimately, Sedaris tells how he wound up doing nothing in his life but walking.

    Where are we going? To how targets make us more productive.

    Workplace Targets

    In one study, Harvard researchers offered Indian data entry workers the opportunity to select an output target for their workday. If they reached or exceeded their target, as always, they would earn 2 rupees for every 100 fields of data they accurately entered. Missing the target, though, halved earnings to one rupee per 100 fields of data.

    I was surprised that many workers requested the daily target until I learned that they produced more and earned more than the group that had none. Trying to figure out why workers boosted output when they had a target, the Harvard economists said it was all about better self-control.

    The second half of the supply curve below shows the workers’ production/wage increase.

    Productivity for self-control created by targets.

    From: “Self-Control at Work: Evidence From a Field Experiment”

     

    Our Bottom Line: Targets and Self-Control

    At home and at work, targets can raise our productivity because they increase self-control. Sadly though, targets can also create unintended consequences….like spending your entire day walking.

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  • The everyday economics of hanging supply and demand, streaming music meant new kinds of contracts with record companies and new relationships with consumers.

    Hey, Spotify. Taylor Swift called. She wants her money.

    Nov 20 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Entertainment, Innovation, International Trade and Finance, Labor, Lifestyle • 340 Views

    In China they are telling people it’s because of copyright reasons. But really, Taylor Swift has removed her music from free streaming because, ”I think there should be an inherent value placed on art.”

    Much bigger than saying her new album, 1989, is not available through Spotify in the U.S. and Alibaba in China, Swift’s decision is about supply and demand in an entire industry.

    But first…

    Our story starts in Sweden during October, 2006. Retired at age 23 and independently wealthy because of an internet ad firm, Daniel Ek said his lifestyle was depressing him. So, he sold his red Ferrari, moved into a cabin to meditate, and decided his next venture was providing access to music. The big challenge was the pirates. Recognizing the allure of free music, his solution was free availability, higher quality and complementary services. And, his affluence and connections provided the time to be patient and the entree to the four big music companies.

    Although it took several years to establish Spotify, ultimately Ek was able to sign contracts with Sony, Universal, Warner Music and EMI.

    His deal became a part of the huge revolution that was transforming the music business. You can see below that as recently as 11 years ago, CD sales dominated the revenue stream:

    Supply and demand changes in the music industry

    From: WSJ

    Spotify and the Supply Side

    Now instead of CDs, downloads and streaming from Pandora, iTunes, Rhapsody and Pandora are dominant. On the supply side, a firm like Spotify pays the music companies with royalties, lump sum payments, and equity (a piece of themselves). For the royalty part of the deal, I have read that Spotify’s formula involves dividing an artists’ monthly streams by its total number of streams and then multiplying the answer by total monthly revenue. Spotify then allocates 70 percent to the labels who pay the artists and keeps 30 percent for itself.

    Okay, even if we know that real life is much more complex than a fraction, still you can see the difference between now and a CD dominated music industry. In terms of the dollars, these are the estimates from Time for what the labels have gotten from Spotify:

    Supply and demand for music industry revenue

    Supply and demand for music industry revenue from Spotify

     

    Spotify and the Demand Side

    Meanwhile, on Spotify’s demand side, you have free streaming funded by ads and a second tier for which listeners receive additional services because they pay $9.99 a month. And you have Taylor Swift who might not have taken economics but knows she wants more of an equilibrium price than zero.

    Our Bottom Line: Supply and Demand

    Like a supply and demand earthquake, the tectonic plates in the music industry are shifting. With new incentives that influence performers, providers and artists, the only constant is Adam Smith’s invisible hand. Firms and performers want profits while listeners want low prices.

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  • The Economics of Winter

    Ice Cold Economics

    Nov 19 • Perspectives • 334 Views

    By Isabelle Vicens with Elaine Schwartz

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  • Ask Alexa Economic Advice from econlife.com

    Refrigerator Refill

    Nov 19 • Ask Alexa • 347 Views

    Dear Alexa,

    By the time Sunday rolls around, my husband and I are extremely tired from a week’s worth of work. But, one of us has to go to the supermarket to restock the fridge. Who should it be?

    Sincerely, Tired Tiffany

    Dear Tired Tiffany,

    Have no fear, your supermarket stress is not very difficult to resolve! The first thing to address is how you or your husband could have used the time that it takes to run to the grocery store. What do you give up by buying the groceries? Say, for example, that your husband wants to watch the latest sports event, while you were planning on walking the dog. This sacrifice, walking the dog, is your opportunity cost.

    Once you have identified the most desirable thing that you give up, your decision becomes very simple. Just keep in mind that the opportunity cost is always something positive. So, the opportunity cost of preparing for an important presentation would be more sleep or watching a movie.

    From an economist’s perspective, the person with the lower opportunity cost should always be the one to do a task. Instead of debating who is more tired, decide who sacrifices less. Therefore, because walking the dog is arguably more important than watching a sports game, your husband should be the person to run to the supermarket.

    Keeping the idea of opportunity cost in mind can help you make all kinds of decisions in your life, from who should pick up kids from school to who should take out the trash.  The person not doing these chores is always the one whose time is being used to do something more valuable.

    I hope this helps you become less tired!

    Best of luck,

    alexa-sig

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