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    Health Care Costs

    Mar 10 • Behavioral Economics, Demand, Supply, and Markets, Economic Debates, Uncategorized • 668 Views

    Looking forward to your daily Double Chocolaty Chip Frappuccino, you see that the calorie count sign says 500 calories. Change your mind? Most studies indicate that knowing a calorie count has little if any impact on purchasing decisions.

    Then, you stroll to your local Whole Foods to pick up some fruit juice flavored carbonated drink. Defined by legislators as sugary, the beverage’s price includes a 7% “soda” tax.  The 7% extra does not dissuade you from making your purchase. Researchers have concluded that the threshold is a penny an ounce tax. Any less and people still buy.

    Next stop, the doctor’s office where you happily notice that those thick folders of paper records are gone. The practice has fully digitized and now will save all of us money by following the cost saving precepts of the Affordable Health Care Act. Yes? Maybe not. One study from Harvard says that physicians who have fully digitized tend to order more medical tests, thereby increasing costs.

    Mandating calorie count information, taxing sugary drinks and digitizing health records… each is supposed to pull down health care spending. But they might not work.

    The Economic Lesson

    Stanford University health policy expert Victor Fuchs says we need massive policy change to depress health care spending that averages $8000 a person, double Europe’s average. Why so high?

    • Too many specialists.
    • Equipment with excessive “standby capacity.”
    • Inadequate support for the poor who are chronically ill.
    • Drug prices.
    • Physician income.


    A NY Times bubble interactive for President Obama’s 2013 budget shows perfectly where health care spending is going. Look at the 8.4% increase Medicare and Medicaid.

    An Economic Question: Would you support Dr. Fuchs’s solution of a dedicated value added tax that funds universal coverage?

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    The Best Places to be a Woman

    Mar 9 • Developing Economies, Economic History, Gender Issues, Households, Labor, Regulation, Uncategorized • 607 Views

    In colonial Massachusetts, the law required boys to attend school while girls were primarily educated at home. Because it was illegal for a married woman to own land, Abigail Adams had to use John’s name anytime she bought or sold land. And Abigail could not attend Harvard but John did.

    Fast forward to 2012. In varying degrees around the world, still, women lack economic opportunity. In a recent report, The Economist tells us where and how.

    First, a quick look at their criteria. Focusing on 5 broad categories, they looked at labor policy, finance, education, legal status and general business conditions. More specifically, variables included pay discrimination, ability to create a credit history, access to education, protection from violence, and property rights.

    Next, the results.

    Overall, ranking 128 countries, Sweden is first and Sudan last. The U.S. is #14.

    Also dividing the world by affluence, researchers looked at 4 income groups. Among the 32 wealthiest nations, Sweden provides women with the most opportunity and Saudi Arabia with the least. For the next group, Lithuania tops the list and Algeria, #31 is last. The Lower Middle Income Group is led by Thailand while Sudan, #39, is at the bottom. And finally, among the poorest nations, Kenya gives women a lot more opportunity than Chad, #20.

    The Economic Lesson

    Why do women’s opportunities matter? One reason is economic growth. As one World Bank report concluded, “Societies that have a preference for not investing in girls pay a price for it in terms of slower growth and lower income.”

    An Economic Question: Just referring to education, at home and at work, how might a women’s productive impact on economic growth change? Being able to drive a car? Owning property?


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    Giraffes and Levis

    Mar 8 • Demand, Supply, and Markets, Households, International Trade and Finance, Macroeconomic Measurement, Uncategorized • 653 Views

    French fashion, food, wine and now a French giraffe.

    Most French moms buy Sophie for their newborns. Seven inches tall, with brown spots, black eyes and pink cheeks, she is just a rubber toy giraffe that squeaks. In French supermarkets, her price is $12.

    In the U.S., Sophie is a $25 giraffe with cachet. Exactly the same as her French sisters, her “Made in France” label, her natural rubber body, and her small-scale production differentiate Sophie from mass produced Chinese baby toy imports like Elmo and Big Bird. In the U.S., because Sophie is special, her sales are soaring.

    Sophie reminds me of Levi’s in Communist Russia. Patented in 1873, Levi’s have always been utilitarian. However, in the former Soviet Union approximately 20 years ago, their “made in the U.S.A.” label made them a fashion icon .

    The Economic Lesson

    Looking at the total value of toy, doll and game imports from January to September, 2011 for 25 countries, France is #19 at $6 million. At the top of the list is China, then Japan and Mexico.

    Because numbers from the St.Louis Fed indicate the U.S. imports more from France than we export to France, our trade balance is negative.

    An Economic Question: Discussing trade, economists typically mention David Ricardo and the law of comparative advantage. Might French toy manufacturers have a comparative advantage over China?


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  • Eye looks through a hole in the paper - spy

    Wait, you actually read the privacy policy?

    Mar 7 • Uncategorized • 670 Views

    By Mira Korber, guest blogger.

    How often do we see “Privacy Policy” at the bottom of a web page? All the time. How often do we read beyond the alliterative title? At least for me, almost never.

    And thankfully so, because those privacy policies would surely be gobbling up a lot of time. According to this entertaining article from The Atlantic, a pair of researchers from Carnegie Mellon University decided to determine all the time we would spend responsibly reading all the privacy policies we encounter in a year.

    Here are the numbers:

    • Median length of a privacy policy: 2,514 words
    • Time required to read: approx. 10 mins
    • Number of sites we visit with unique privacy policies: approx. 1,462
    • Individual time required to read all these policies: 25 days straight or 76 business days
    • Aggregate time required for reading: 53.8 billion hours


    Next, those clever researchers decided to calculate the opportunity cost of spending all that time with your nose in a privacy policy. Their answer: $781 billion (which is larger than Florida’s GDP).  Check out their official study here.

    So it’s evident to everyone by now that reading privacy policies keeps us from doing other big important things.


    Curiosity finally overcame my general laziness regarding reading Google’s new “This Stuff Matters” privacy policy. It’s controversial because it tracks your online activities, YouTube searches, and web queries more closely than ever before. Incidentally, users can’t avoid Google’s omnipresent eyeball.

    Here are some creepy consequences of this new privacy policy’s power.

    The Economic Lesson

    Every decision comes with an opportunity cost. It’s what you sacrifice when you choose to do anything at all.

    For example:

    (1) Your opportunity cost of watching a horror movie may be getting a restful night’s sleep. (2) Your opportunity cost of reading a privacy policy may be searching for that suitably scary horror movie online.

    (By the way, Google will probably know if you choose to search for either privacy policies or horror movies, due to the company’s new privacy policy itself.)

    An Economic Question: Have you ever considered the opportunity cost of other mundane daily activities similar to reading privacy policies?

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    Everyone Hates Free Parking

    Mar 6 • Uncategorized • 660 Views

    By Mira Korber, guest blogger.

    Last Friday evening, two unexpected things happened at the highly attended Palm Beach International Equestrian Center (PBIEC) “Nations Cup” event.

    1. I saw Donald Trump in the flesh — he’s very tall — from about two feet away.

    2. I noticed an unusual parking situation. The “free” lot held 12 cars. The $20 parking fee lot housed (from my best guess) between 1,000 and 1,500 vehicles.

    I would have expected the free lot to be full; a shiny complimentary shuttle bus carted me to the event and back while paying customers eked in and out of full “lots” (riding arenas at the showgrounds) at a painfully slow rate.  In fact, my sleek “free parking” shuttle bus followed Donald Trump’s top of the line Mercedes right out of the horseshow.

    Why weren’t more people on that “free” shuttle efficiently following Mr. Trump off the premises?

    “Free parking,” on principle, sounds “worse” than parking you have to pay for. The old maxim, “You get what you pay for” seems to have caused the sparsely-populated free lot. Demand was higher for a more expensive service because the consumer automatically expected it to be better.

    This fascinating paper from Wharton School of Business (“When Do Higher Prices Increase Demand? The Dual Role of Price in Consumers’ Value Judgments”) explains the idea with case studies and experiments. Though the paper states that “an unequivocal positive relationship between price and perceived quality is yet to emerge,” it cites some situations that reflect the scenario where high price leads to high demand.

    A parallel to my parking story emerges with the following case study (pg. 3): a $79 piece of technology called the Minivac 601 gained a strong customer base in schools and home users. Large corporations, however, dissed the product. But when Minivac 601 became Minivac 6010, and its price went up to $479, suddenly the product had purchasing appeal to large companies. The new, expensive Minivac was simply a different color and slightly modified design, but nothing more.

    For some people, free parking costs too much.

    The Economic Lesson

    Demand reflects decision-making. In the case of parking at PBIEC, I witnessed a greater demand for paid parking than free parking. Attendees determined that paid parking had a greater utility because it validated their status as wealthy spectators.

    While one might expect the demand curve for free parking to be horizontal and almost infinitely long, it turned out to be shorter than the paid parking curve because it offered lower utility (status) to consumers.

    While this doesn’t really make a lot of sense, it turns out our human behavior doesn’t follow rational economic theories. Daniel Kahneman, 2002 winner of the Nobel Prize, explains our irrationality, quite rationally.

    An Economic Question: Have you ever dismissed something as “too cheap” to be any good?

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