• The econlife.com Weekly Roundup

    Weekly Roundup: From Nibbling Nachos to Sipping Starbucks

    Jul 18 • Uncategorized • 68 Views

    Our Posts Roundup

    Disaster economics indicate that developed nations tend to lose more property and developing nations more people when a natural disaster strikes. Sunday 7.12.15

    How a quake made cheese crumble…more

    Everyday economics and how prices differ in the U.S. Monday 7.13.15

    Where we can spend less…more

    everyday economics and complementary goods Tuesday 7.14.15

    Why we can’t stop eating chips and cheese…more

    The everyday economics of hanging supply and demand, streaming music meant new kinds of contracts with record companies and new relationships with consumers. Wednesday 7.15.15

    The reason Apple changed its mind…more

    everyday economics and the design of money, its texture and its denominations all create spending incentives. Thursday 7.16.15

    How the newest nation designed its money… more

     

    As an innovation the bicycle has had many positive externalities. Friday 7.17.15

    A new spin for the bicycle…more

    Ideas Roundup

    • risk
    • negative externalities
    • disasters
    • purchasing power
    • change in demand
    • complementary goods
    • capitalism
    • circular flow model
    • money supply
    • currency
    • human capital
    • innovation,
    • positive externalities

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  • As an innovation the bicycle has had many positive externalities.

    The Wright Moment for the Bicycle

    Jul 17 • Demand, Supply, and Markets, Economic Growth, Economic History, Innovation, Labor, Lifestyle, Macroeconomic Measurement, Tech, Thinking Economically • 95 Views

    The story of the Wright brothers begins with the bicycle. In 1893, Wilbur and Orville began selling and repairing bikes in their new business, the Wright Cycle Exchange.

    With a bicycle craze grabbing the nation, they were in the right place at the right time.

    Where are we going? To how the bicycle propelled more innovation.

    The Wright Bicycles

    In business only three years, they already could expand to a space with a downstairs showroom and an upstairs machine shop in which they made and designed their own bikes.

    The Wright Brothers built and named the Van Cleve Bicycle (below):

    Wright brothers human capital development

    From: Air and Space Museum

     

    One of their ads said that their bicycles, “…will have large tubing, high frame, tool steel bearings, needle wire spokes, narrow tread and every feature of an up-to-date bicycle. Its weight will be about 20 pounds. We are very certain that no wheel on the market will run easier or wear longer than this one, and we will guarantee it in the most unqualified manner.”

    And it sounds like Orville especially liked what he did. Historian David McCulloch tells us that Orville’s face lit up whenever anyone would, “Bring up the subject of the shapes of handlebars or types of pedals…”

    The Plane Connection

    You can see where we are going. Some of the bike’s technological requisites resemble the airplane’s. Or, as one writer said in 1896,“It is not uncommon for the cyclist…to remark, Wheeling is just like flying!… To learn to wheel one must learn to balance; to learn to fly one must learn to balance.”  Similarly, just like the bicycles they built, for their flying devices the Wright brothers needed lightweight materials that were strong, they had to grasp a chain and sprocket mode of propulsion, and they had to diminish wind resistance.

    Our Bottom Line: Human Capital

    The bicycle is a perfect example of how innovation unfolds. For the Wright brothers and Henry Ford who also had been a bicycle mechanic, the bicycle was a springboard for developing their human capital. Because of the bicycle, we got the development of hollow steel tubing for frames, air inflated rubber tires, ball bearings and differential gears that spun at different speeds. Even including a highway system, the list of positive externalities that developed from the bicycle would be rather long.

    Below, Steve Jobs tells us that computers are like bicycles for our minds.

     

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  • everyday economics and the design of money, its texture and its denominations all create spending incentives.

    What Money Should Look Like

    Jul 16 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Financial Markets, Government, Money and Monetary Policy, Thinking Economically • 83 Views

    As a new nation, designing your currency would be near the top of your To Do list.

    Where are we going? To how the best money looks.

    What To Think About When You Design Money

    Four days after declaring independence on July 9, 2011, the world’s newest nation, South Sudan, got its first bank note delivery when planeloads of cash arrived. Months earlier they had decided their denominational structure, the design of the bills, and the quantity that would enter circulation. Not yet appointed because there was no country, the Minister of Finance had to sign the bills. Although he left his office soon after independence, still, his signature remained on the bank notes.

    Money supply of South Sudan

     

    In the beginning, the South Sudanese currency had six types of pound notes: 1, 5, 10, 25, 50, 100 and smaller denominational pilaster bills. However, they so resembled the larger pound bills that none could be circulated because of the confusion. It took until now for new 10, 20 and 50 piaster coins (100 to the pound) and one and two pound coins to be released.

    You can imagine the problems that no change was creating. Lacking smaller denomination coins, merchants had to round all sales up or down. A loaf of bread that was priced at SS£5.67 (USD $.95) was sold for £6 because no change existed. As one bank official explained, “If you go to Konyo-Konyo to get one onion, you will not buy it because there is no change.”

    Reflecting how currency can display a national identity, the South Sudanese pound note (below) has a picture of the father of their independence.

    the money supply is composed partially of a nation's currency.

    Good Currency Design

    One expert suggests that good currency design involves size, color, functionality, composition and symbolism. With Australian currency, just by feeling your bills you know how much you have because their denomination determines their size. Colorful, their 5 dollar note is sort of lavender, the 10, bluish, the 20 is orange and the 50 is green and yellow. Instead of some linen and cotton, the Australians use a plastic-like polymer that lasts 4 times longer.

    Our Bottom Line: Characteristics of a Money Supply

    Even when currencies are well-designed, they need three basic characteristics to function successfully as money. If South Sudan’s currency is accepted as a medium of exchange, a yardstick of value and a store of value, then we will know it is really money.

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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.

    Taylor Swift Gives Apple a Little Taste of Capitalism

    Jul 15 • Demand, Supply, and Markets, Entertainment, Gender Issues, Innovation, Labor, Lifestyle, Media • 119 Views

    On June 21, in a letter to Apple, Taylor Swift said, “We don’t ask you for free iPhones. Please don’t ask us to provide you with our music for no compensation.”

    Where are we going? To how Taylor Swift understands capitalism.

    Why Apple Changed Its Mind

    Her concern was Apple’s new music streaming service with a free three-month trial period. During the time that fans could listen for free, the recording artists were not going to be paid. Objecting, Taylor Swift said her new album, “1989,” would not be available unless Apple changed its policy.

    Her reason, as she further told readers, was the artists who, unlike her, could not afford to give out what they had created without receiving a royalty in return. She might have continued with what she said to Spotify last year when she removed her music from their free playlist. “… I just don’t agree with perpetuating the perception that music has no value and should be free.”

    The next day an Apple executive replied…

    Taylor Swift and capitalism

     

    And said they had reversed their decision.

    Taylor Swift and capitalism

    Taylor Swift replied:

    Capitalism, Apple and Taylor Swift

    Changes in the Music Industry

    You can see below that the flow of cash in the recording industry has changed. Based on CD sales only 12 years ago, artists’ pay now relates to digital downloads.

    A new circular flow model in the recoding industry

    From: WSJ

     

    Our Bottom Line: Circular Flow Model

    Simplified, we can use a circular flow model to see why Taylor Swift understands capitalism.

    Tracing the circular flow of goods and services through a Taylor Swift album, we could start with “businesses.” The place where albums are created, the “businesses” sector then sells her album to households in the upper loop. In return, she receives consumption expenditures from listeners or providers like Apple. Meanwhile, in the lower loop, a business uses the money it has received to pay the wages, salaries, rent, interest and profits it owes its employees and others who helped it produce the recording.

    The circular flow model illustrates Taylor Swift's capitalism.

    When Apple or Spotify say they will give away Taylor Swift music, they have stopped the circular flow of goods, services and money that interact productively.

    But even when they pay most artists, the flow is really a trickle. Below, in my partial copy of a David McCandless infographic, you can see the numbers. The tiny amount paid by Apple Music is at the bottom. Do go to his website at Information is Beautiful to see the entire infographic.

    Royalties for online musicroyaltiesRoyaltiesroyaltiesroyalties

    streaming royalties

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  • everyday economics and complementary goods

    Chips and Cheese Insight

    Jul 14 • Businesses, Demand, Supply, and Markets, Economic Humor, Lifestyle, Thinking Economically • 93 Views

    Cheese and chips are complementary goods.

    From: xkcd

     

    Our Bottom Line: Complementary Goods

    When you see retailers selling sofas and throw pillows, do think about how they are increasing their sales by providing goods that go together.

    Like cheese and chips, sofas and pillows need each other. When demand for one increases, its partner also becomes more popular. Thinking economically, we can use supply and demand graphs to show the boost in demand.

    An increase in demand for cheese…

    Increase in demand because of complementary goods

    creates an Increase in demand for chips.

    Increase in demand because of complementary goods

    So, when you see retailers selling sofas and throw pillows, do think chips and cheese.

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