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    BRIC Cell Phones

    Mar 12 • Businesses, Demand, Supply, and Markets, Developing Economies, Households, Macroeconomic Measurement, Money and Monetary Policy, Uncategorized • 1124 Views

    The Tibetan town of Namche Bazaar has yaks, donkeys and cell phones. Located along the route to a Mt. Everest base camp, the town attracts local traders who provision climbers. With the former carrying products and the latter, market information, the animals and phones are an interesting combination.

    Between 2001 and 2012, cell phone subscriptions in India and China have soared. Currently approaching one billion in these 2 BRIC countries, the increase far exceeds the minimal upward trend in developed nations like the U.S.

    The Economic Lesson

    By “moving” information, cell phones enable people to share prices and negotiate transactions. Cell phones have also become the foundation of mobile banking networks. Instead of cash, text messages are used to make purchases at local stores, to make deposits, and to transfer money. Because cell phones create information and financial infrastructures in 21st century developing economies, they propel economic growth.

    Another growth yardstick? Beer consumption.

    An Economic Question: In addition to facilitating market transactions, how might cell phones contribute to economic growth in an emerging economy?

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    Becoming An Eco-Driver

    Mar 11 • Behavioral Economics, Demand, Supply, and Markets, Economic History, Environment, Macroeconomic Measurement, Thinking Economically, Uncategorized • 677 Views

    With the price of gas marching skyward, more of us might become eco-drivers. Based on a report from the University of Michigan Transportation Research Institute (UMTRI), here are some (slightly irreverent but accurate) rules for eco-driving:

    1. During warm weather, don’t use the air conditioner and don’t open the windows. At certain speeds, the wind is a drag that uses up more fuel.
    2. Occupy every seat with short skinny people. Weight and occupancy make a big difference.
    3. Avoid hills.
    4. Only drive on highways, preferably at 50 mph. Sort of like the porridge from Goldilocks and the Three Bears, driving too slowly and too fast use more fuel while a medium speed is just right.
    5. Don’t drive aggressively.
    6. Keep an eye on your oxygen sensor, your tires and your engine oil.


    However, even if you violate every suggestion, by driving one of the most fuel efficient cars you will still receive a higher eco-driver rating than being eco-observant in the least fuel efficient cars.

    So, what really counts? The car.

    And this takes us to where economists always go: Incentive. Is price enough of an incentive to affect how and what we drive?

    The Economic Lesson

    Economists hypothesize that at more than $4.00 a gallon, we are close to a gasoline price that provides the incentive to conserve more and drive less. When buyers have a considerable response to a price change, economists say that their response is elastic. Our minimal reaction to the rising gasoline price indicates that thus far, our quantity demanded has been inelastic.

    An Economic Question: If, in 1923, average mpg were 14.0, why has gas mileage not improved substantially since then?

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    Health Care Costs

    Mar 10 • Behavioral Economics, Demand, Supply, and Markets, Economic Debates, Uncategorized • 700 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 • 636 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 • 680 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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