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    Aspirational Pecans

    Apr 20 • Businesses, Demand, Supply, and Markets, Developing Economies, Households, Innovation, International Trade and Finance, Macroeconomic Measurement • 570 Views

    Our story starts with the walnut. Loved in China, and always cheaper than pecans, during 2007, suddenly, the walnut became relatively expensive. Following the law of demand, Chinese consumers bought fewer walnuts and more pecans.

    And that was when they decided they not only liked pecans better but also that they were better for you. Chinese nut eaters believe that pecans nurture the brain. And beyond that, across Asia, pecans have become an aspirational nut, associated with middle class living. 

    Meanwhile, in the US, pecan ice cream eaters, pecan pie eaters, and Stuckey’s “gourmet” pecan buyers–even Christmas fruitcake lovers (27% pecans) are experiencing price increases or, with Stuckey’s, smaller cans. Correspondingly, the entire supply chain–from the farmer to the seller of tree shaking harvesting machines, to the sheller–is adjusting to a transformed market.

    The result? The price of “junior mammoth halves,” which the Chinese prefer, soared from $3.35 in 2008 to $6.95 in 2010.

    The Economic Lesson

    Developing nations are affecting world prices. With the growth of a middle class, eating patterns change. More meat, oil, cars, and now, pecans are shifting demand and supply curves.

    Professor Timothy Taylor’s Teaching Company explanation of the race between supply and demand conveys an ideal explanation of why world commodity prices fluctuate.

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    Who Does the Housework?

    Apr 19 • Demand, Supply, and Markets, Developing Economies, Economic Debates, Gender Issues, Households, Labor, Thinking Economically • 444 Views

    Who makes dinner in your home? Walks the dog? Goes to the supermarket?

    A study from the Organization for Economic Cooperation and Development (OECD) compared unpaid work in 29 countries. Predictably, they concluded that women do a lot more than men.

    But, where do men do the most? Denmark. The least? India. Specifically, in Denmark, women devote an hour more per day to “household jobs.” In India, the difference is 5 hours.

    The 30 page study, “Cooking, Caring and Volunteering: Unpaid Work Around the World,” focused on 1998-2009. The paper presents fascinating facts comparing division of labor at home between women and men (women cook more while men do the gardening). Totally, people average 3.4 hours per 24-hour day on unpaid work. They also found that when women do more paid work, men’s household tasks increase.

    The Economic Lesson

    An important source of productive activity, household work is excluded from GDP calculations. People who believe it should be excluded point out that quantifying the value of work at home is difficult because the market has not priced it. Those who disagree say it is too massive a part of production to ignore.

    With which group do you agree?

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    A “New” World Bank

    Apr 18 • Developing Economies, Economic History, Financial Markets, International Trade and Finance • 448 Views

    What if you made a huge amount of money available for projects in Northern Africa and the Middle East? Let’s say you successfully expanded airport capacity in Cairo or raised incomes in rural Tunisian communities? The World Bank can claim these successes.

    And yet, they are saying that their development mission has to involve more. In an NPR/Marketplace interview, World Bank president Robert Zoellick said the World Bank’s challenge was to “connect citizen involvement with the development challenge.”

    Adding specifics during this past weekend’s World Bank spring meetings, Mr. Zoellick named soaring food prices and joblessness in Northern Africa and the Middle East as primary concerns. Also, citing the “youth bulge,” that would require 40 million new jobs during the next 10 years, he expressed support for short-term job creation.

    The Economic Lesson

    Not really a bank, the World Bank is still a financial intermediary. Borrowing in world financial markets, it raises money. Then, it loans its funds to developing nations. Technically called the International Bank for Reconstruction and Development (IBRD), it was created in 1944.

    You might want to look here to see a fascinating graph of the different national currencies that fund their projects.

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    Chinese Marriage Markets

    Apr 17 • Behavioral Economics, Demand, Supply, and Markets, Developing Economies, Economic History, Gender Issues, Households, Thinking Economically • 488 Views

    A typical young Chinese woman is looking for a husband who owns a home. Probably, she will find one because China’s single child policy and tendency toward male preference have resulted in massive gender imbalance. With so many more marriageable men than women, the husband-hunting female wields a lot of power.

    Telling us more about the results of a survey of 32,000 people from 2 Chinese research groups, the NY Times explained that the real estate boom in China has divided the young male population into the haves and have-nots. The majority of women surveyed would select men with “deeds.” Yes, Chinese women care about good morals and personality, but not as much as finance. As a result, 24 million men might remain unmarried during the next decade.

    The Economic Lesson

    Nobel prize winning economist Gary Becker tells us that marriage is about a lot more than love. Instead, we can best understand marriage by looking at utility functions and marriage markets.

    People marry because they expect to, “raise their utility level above what it would be were they to remain single.” (The Essence of Becker, p. 273) Looking for their best mate, they compete in marriage markets that have demand and supply curves. To see Dr. Becker’s descriptive and quantitative explanations, you might want to look at The Essence of Becker, pp. 273-328.

    What marginal utility might marriage provide to newlyweds?

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    Coupon Economics

    Apr 16 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Thinking Economically • 517 Views

    When Starbucks raised its prices during the beginning of 2010, it lowered the price of a tall regular to $1.70. But, if you wanted a splash of foam, a shot of espresso, or a touch of flavor, the addition could be expensive. For a triple grande soy vanilla latte, you would have paid a whopping $6.25.

    Their goal, I suspect was to attract coffee lovers who would spend a little and those who would spend a lot. For a basic cup of coffee, the price would be low. However, those who were willing and able to pay more would also be satisfied. In that way, Starbucks could retain a dual clientele.

    NPR’s Planet Money explains how Groupon takes advantage of the same idea. People willing to expend the time and energy looking for coupons pay less. But businesses still can take advantage of the group who, ignoring the coupons, are willing to pay more. Again, the business owner can benefit. She does not have to offer lower prices to everyone.

    The Economic Lesson

    Starbucks and Groupon are engaging in what economists call price discrimination. The perfect example is airlines. An airline knows, for example, that a business traveler might be willing and able to pay more than a vacationing student. Their task is figuring out how to charge the businessperson more. The answer? Give discounts to people who stay over a Saturday night. The price discrimination is not explicit and yet, business fliers are charged a higher price. 

    In economics textbooks, price discrimination is typically discussed in chapters on monopoly. A monopoly and a smaller firm with a unique good or service have pricing power that have enables them to target different customers with their prices and coupons. Movie theaters discriminate by charging senior citizens less.

    Do you think that colleges engage in price discrimination through financial aid?

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