• Cashing out?

    Mar 22 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Households, Money and Monetary Policy • 772 Views

    By Mira Korber, guest blogger.

    They say “cash is king.” But these days, perhaps cash was king.

    Sweden is becoming a “cashless society.” Commuters pay bus fees via credit card and text message. Religious institutions take electronically transmitted donations.

    The positives?  Certain crime statistics have decreased. In 2008, Sweden experienced 110 bank robberies. In 2011, that number had shrunk to 16.

    The negatives? Cybercrime has increased. In 2000, computerized fraud cases totaled 3,304. In 2011: almost 20,000.

    Being cash-free would certainly lead to a lighter pocketbook. Or might it lead to no pocketbook at all? What would happen to wallet sales? Money clips? Restaurant tips? Jewelry purchases (as in Italy, for example)?

    Read here to learn the implications of a cash-free America.

    The Economic Lesson

    Paying with cash or credit/debit represents a tradeoff. While a cashless society would remedy tax evasion and counterfeiting, it would diminish cash-dependent transactions.

    An Economic Question: When do you use cash and when do you use a credit/debit card? Why?

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    Burger Wars

    Mar 21 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Regulation • 1211 Views

    By Mira Korber, guest blogger.

    Times have changed. Wendy’s is now the second largest fast food chain restaurant in the US.

    This interesting Atlantic article describes how Wendy’s savvy marketing pushed BK from second place to third. By focusing on quality food instead of comic advertising, Wendy’s successfully finished 2011 with higher revenue than Burger King, though it claims 1,300 fewer restaurants.

    Wendy’s marketed their product as the freshest on the market, while BK attempted to lure in young men to their restaurants by using the “king” image in advertisements. It backfired.

    The numbers? BK end of year sales: $8.4 billion; Wendy’s end of year sales: $8.5 billion. Oh wait…McDonald’s devoured both BK and Wendy’s with total sales of $34 billion. That’s a lot of burgers.

    Read this Econlife post from 2011, before Wendy’s officially overtook BK in the final numbers.

    The Economic Lesson

    Wendy’s has differentiated itself by touting its healthy ingredients. Demand for Wendy’s burgers increased because healthy food also increased the utility of the product. With higher utility, more people purchased Wendy’s burgers, and it moved to the #2 spot.

    An Economic Question: How do advertisements affect your demand curve for fast food?

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    Health Care and Commerce

    Mar 20 • Demand, Supply, and Markets, Economic History, Government, Households, Macroeconomic Measurement, Regulation, Uncategorized • 621 Views

    How to define commerce?

    In 1824, the U.S. Supreme Court was asked to decide if New York State could give a monopoly to a steamboat operator. In his decision, Chief Justice John Marshall rejected the narrow “buying and selling” definition of commerce. Instead, he said that commerce included all economic intercourse. Consequently, New York could not confer an exclusive right to travel on interstate waterways because Congress had the power to regulate interstate transport.

    That 1824 decision, Gibbons v. Ogden, was only the beginning. Used to strike down New Deal legislation and to support Civil Rights law, the interpretation of the Commerce Clause has been varied. Now, starting on March 26 with 5 1/2 hours of oral arguments, again the Supreme Court will probably tell us what commerce means.

    The Commerce Clause directly relates to 1 of the 2 major sections of Obama health care legislation that the Court is considering. Called the individual mandate, beginning in 2014, most of us will be required to obtain health insurance coverage or pay a penalty. Does Congress have the authority to mandate coverage? The Commerce Clause will provide an answer.

    Interesting: Reflecting the importance of the issues, the Supreme Court has allocated an unusually long 5 1/2 hours to oral arguments. Also, they will make audio recordings available within hours of their presentation.

    Here, econlife describes the other Affordable Care Act issues that the Supreme Court will ponder.

    The Economic Lesson

    Hoping to promote a single national economy, the framers of the Constitution included a “Commerce Clause” that gave the Congress the power to, “regulate Commerce with foreign nations and among the several states, and with the Indian Tribes.” In Marshall’s Gibbons v. Ogden decision, he specifically says “commerce” includes trade and transportation.

    Here, in an econlife post, you can see historic definitions of the “commerce clause.”

    An Economic Question: How can opponents and supporters of the Patient Protection and Affordable Care Act each use the “commerce clause” to support their position?

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    The Apple I and the iPad

    Mar 19 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, International Trade and Finance, Labor, Uncategorized • 701 Views

    Steve Jobs had been pruning Gravenstein apple trees at the All One Farm and was on one of his “fruitarian diets” when he and Steve Wozniak tried to figure out a name for their new firm. Rejecting Matrix, Executek and Personal Computers Inc., Jobs explained to Walter Isaacson that Apple, “…sounded fun…” and “would get us ahead of Atari in the phone book.”

    In 1976, their first computer, the Apple I, was sold for $666.66 and cost them approximately $220 to make in the Jobs’s garage.

    Retailing for $629 (16GB), the new iPad 4G’s components cost $309.

    According to the BLS Inflation Calculator, $666.66 in 1976 has the same buying power as $2667.38 today.

    The Economic Lesson

    It is tough to quantify job creation in the U.S. but Apple recently tried.  With 47,000 employees, Apple says it has “created or supported” a total of 514,000 jobs (components makers, UPS drivers, apps developers, glass and plane makers…you see). One Harvard professor summarized the debate surrounding the specific numbers by saying, “Apple has a big effect and big is about as precise as I can make it.”

    Similarly, economists continue to debate the jobs impact of the 2009 American Recovery and Reinvestment Act.

    An Economic Question: Why might it be difficult to figure out how many new jobs a firm or a government program has created?

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    Unusual Economic Indicators

    Mar 18 • Behavioral Economics, Economic History, Households, Labor, Macroeconomic Measurement, Uncategorized • 888 Views

    If you see women in long skirts at “sit-down” restaurants, then the economy is probably expanding.

    Since 1926 when the hemline index was first expressed, economists have assumed that hemlines fall if the economy contracts and rise during prosperity. However, when economists at Erasmus University looked at fashion magazines and business cycle data from the NBER between 1921 and 2009, their conclusions were not exactly what everyone expected.

    They identified a delayed connection between skirt length and the economy. 3 to 4 years after the GDP rises, then hemlines go up. And, if the economy slumps, it takes 3 to 4 years for skirt lengths to drop. Reminding us that the recent recession ended in 2009, one CNBC reporter says we should not worry about longer dresses at 2012 Fashion Week.

    Financial journalist Floyd Norris was also upbeat. Because his “Where You Eat Index” for 1994-2012 shows that GDP and “sit down” restaurant attendance rise together, the January 2011 to January 2012 increase in “full service” restaurant business was good news.

    Our bottom line? To assess the economy, you can look at we wear and where we eat.

    Here, econlife looks at other uncommon economic indicators.

    The Economic Lesson

    Economic indicators can be categorized as leading, coincidental or lagging. Stock markets, reflecting investors’ perception of future profits, are leading indicators, the GDP, telling the current state of the economy, is coincidental, and the unemployment rate is a lagging indicator.

    An Economic Question: Thinking of the recession that lasted from December, 2007 to June, 2009, which daily life economic indicators have you observed?

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