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    Corn Counters

    Dec 6 • Businesses, Demand, Supply, and Markets, Developing Economies, Government, International Trade and Finance, Macroeconomic Measurement, Thinking Economically • 737 Views

    To estimate the size of the corn crop, the U.S. Department of Agriculture (USDA) hires corn counters. Calculating stalk stats and assessing cob size, they observe 15 foot sections in thousands of fields. Add to that weather predictions, yield trends, and other pertinent data and you get an estimate for how much corn will be harvested. Once you also know about stockpiles (corn in silos and other storage facilities), a picture of the supply side of the market emerges.

    What happens then? In corn (futures) markets, prices respond.

    According to the WSJ, inaccurate USDA forecasting has led to more corn price volatility. June 30, 2010 for example, when the USDA said stockpiles were smaller than expected, prices spiked and a rancher had to paid an extra $200,000 for his feed. When prices fell, China was observed “swooping in.” 

    Do you want to better understand futures markets? This is a clear explanation of how the orange crop affected prices in (Eddie Murphy’s) Trading Places wonderful climax. A more academic discussion is here.

    Our bottom line? Discussed in an econlife post, according to Michael Pollan, more than one-quarter of all supermarket items are affected by the price of corn.

    The Economic Lesson

    The three basic economic systems are tradition, command and the market. Reflected by corn futures, in reality, most economies are mixtures.

    An Economic Question: Name several economies you believe have much more of a market than government influence. Then check the Index of Economic Freedom to see if you are correct.

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    Do You Care If You’ve Got Mail?

    Dec 5 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Government, Households, Innovation, Labor, Macroeconomic Measurement, Thinking Economically • 657 Views

    In Canada, when postal workers went on strike because of wage cut proposals, many people were saying, “Who Cares?”

    In the U.S., Hallmark and Amazon have said that they do care about the future of the Postal Service. If asked, approximately 650,000 postal service employees would have agreed.

    The problem is money. Last year, the USPS lost $5.1 billion. And that total would have been double if Congress had not postponed retiree prefunding payments that were due.

    The USPS is a huge business. One of the largest US employers, they run more than 32,000 post offices and target 150 million points of delivery. And yet, the US Congress makes their big decisions. Just to decide the fate of Saturday mail delivery, a Senate bill has required 2 years of studies. (How long would FedEx have pondered the issue?)

    Here, here and here, other econlife posts discuss USPS problems.

    The Economic Lesson

    As Deputy Postmaster for the Colonies, Ben Franklin established our first home mail delivery system, diminished to a single day the letter delivery time between New York and Philadelphia, and to 6 days between Philadelphia and Boston. When the British fired Franklin for his rebellious political activity, the postal system was making a profit.

    Crucial for U.S. economic development, the information infrastructure that Ben Franklin initiated was only the beginning. For a history of The Information, this James Gleick book is superb. Also, this Teaching Company lecture (#28) ideally conveys the issues.

    An Economic Question: Why are USPS cutbacks such a dilemma?

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    Why Can’t the U.S. Postal Service Think Outside the Box?

    Dec 5 • Behavioral Economics, Economic Debates, Government, Households, Innovation, Labor, Regulation, Thinking Economically • 574 Views

    Do you wear a Yankee hat or a college sweatshirt? Our society approves of adopting a superior team or attending an elite college. According to NY Times journalist David Brooks, for sports and schools, we can aspire to the top. In addition, inequality is okay for physical fitness and

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    Jell-O, Gillette, and the Kindle Fire

    Dec 4 • Businesses, Demand, Supply, and Markets, Developing Economies, Innovation, Thinking Economically • 604 Views

    At first no one wanted to buy Jell-O. The year was 1902, the product was jiggly, and people had no idea how to serve it. Then, its producers went door-to-door with free cookbooks. And the rest of the story is history.

    By contrast, from the start, King Gillette was able to sell his invention. With disposable razor blades an attractive alternative to keeping used blades sharp, he did not have to worry about “free” until his patent expired in 1921. However, more competition meant he had to get loyal razor users who would continue buying the blades. So, at a steep discount, he provided the US Army with Gillette razors and also sold them cheaply to banks for their “save and shave” campaigns.

    You see where we are going. Called the “razor and blade” strategy, price your product as a loss leader and then make money on its complement(s).

    And that takes us to the Kindle Fire. With its manufacturing cost higher than its selling price, Amazon is using the “razor and blade” strategy.

    The Economic Lesson

    For goods and services such as cookbooks and Jell-O, razors and blades, or the Kindle Fire and apps, when you increase the quantity demanded of one product through a low price, you can stimulate demand for its complement. The route to profits is just a bit indirect.

    An Economic Question: Using 2 demand and supply graphs, how might you illustrate the impact of a low price for one product on its complement?

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    Locavore Legislation

    Dec 3 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Environment, Macroeconomic Measurement, Regulation, Thinking Economically • 556 Views

    Being a locavore can be confusing. Eating broccoli from the local farm stand tastes good and makes many of us feel good. It is a pleasure to support local farmers and get vegetables the day they were picked.

    On the other hand, inefficiency is one huge problem.

    Specializing makes economic sense. Almonds, strawberries and grapes should come from Californians because their weather and soil conditions optimize output. Warm days, cool nights and fertile volcanic soil make Idaho one of the best places to grow russet potatoes. Concerned about carbon emissions? It is likely that the inefficiencies of local production more than offset the carbon emissions from long distance transportation.

    And yet, proposed legislation from an Ohio Senator and a Minnesota Congresswoman, The Local Food, Farms and Jobs Act, supports small farm production. Or as one of the bill’s sponsors said, “Making it easier for farmers to sell food locally and easier for consumers to buy it translates directly into a more healthy economy and more jobs in our communities.” By contrast, one researcher estimates that it means much less food production per acre and additional use of fertilizers and chemicals.

    Do you support The Local Food, Farms and Jobs Act?

    The Economic Lesson

    Specifically linking Albany and Buffalo, the Erie Canal facilitated a national market in the U.S. As an inexpensive way to transport Midwestern farm produce, it let the Northeast focus on manufacturing.

    As the efficiencies of specialization fueled economic growth, economist David Ricardo (1772-1823) would have been delighted.

    An Economic Question: How did impact of the Erie Canal illustrate David Ricardo’s principle of comparative advantage?

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