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    Supply, Demand and Internet Dating

    Aug 3 • Behavioral Economics, Demand, Supply, and Markets, Households, Thinking Economically • 946 Views

    What if, “you’re an 8 constantly chasing after 10s and constantly being chased by 6s?” Described in the Financial Times, the developers of Match.com’s algorithm, codenamed Synapse, have an answer.

    “It’s just supply and demand.”

    On the supply side, we can find individuals with certain characteristics–maybe age range, hair color, body type, religion–who are available for a relationship. Similarly, on the demand side of the market are men and women who, seeking a mate, will be more likely to respond when the supply side has the characteristics they seek.

    Equilibrium? Where the attributes from the supply side are equal to those on the demand side. And therein lies the problem for our person who is an “8.” He or she will be a part of clearing the market when satisfied with another “8.”

    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.

    An Economic Question: What marginal utility might marriage provide to newlyweds?

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    GDP Solutions

    Aug 2 • Businesses, Economic Debates, Economic History, Government, Households, Innovation, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy • 636 Views

    It is all about GDP.  In this article, the WSJ does a good job of explaining how each GDP component might solve our problems…or make them worse.

    • Consumer Spending: The largest part of GDP, consumer spending has propelled recovery in the past. With oil prices declining and the Japanese supply chain no longer depleting auto inventories, spending could rise. On the other hand, you know unemployment, the debt crisis, and consumer confidence are eroding any tendency to spend.
    • Investment: Business equipment purchases and profits have been robust. Looking ahead, though, housing remains weak and uncertainty seems to be building. As Keynes might have said, the requisite “animal spirits” might be diminishing.
    • Government: Compared to the spike from stimulus dollars, state, federal and local government spending are going down.
    • Trade: Yes, the weaker dollar should help exports. The question, though, is which healthy foreign economies will purchase our goods and services. We know the problems that the weaker euro zone nations and Japan have been experiencing.

    The Economic Lesson

    Where does this leave us? If you believe in Keynesian support for a troubled economy, you might suggest another stimulus that will sufficiently “prime the pump.” If your tendency is toward Adam Smith, then your policy is less government intervention because a steep trough in economic activity will ultimately lead to a healthy recovery.

    An Economic Question: Based on whether you are a more government or less government person, express your policy suggestions for high unemployment (9.2%) and sluggish GDP growth (1.3%).

     

     

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    Do We Need Area Codes?

    Aug 1 • Businesses, Economic Debates, Economic History, Households, Innovation • 783 Views

    What if the 3 digits that precede your phone number no longer related to a place?

    Known as “number depletion,” phone companies use area codes because we are running out of numbers. But need the numbers have geographical significance? Calls outside your own area code no longer cost more. Most phone plans do not distinguish between local and long distance.

    However, some businesses perceive value in an area code. Dial 415 and you know you are connecting to San Francisco, a technology center. Securing 212 for Manhattan is truly tough and maybe prestigious. Local businesses might want people to know they are nearby. Or, when you are no longer nearby, retaining your old area code might be helpful.

    Developed by the original AT&T, area codes were used initially by operators during 1947. Densely populated areas were assigned lower numbers because they saved time on a rotary phone. For that reason New York City was 212. If your state had only one area code like Connecticut (203) and New Jersey (201), then “0” was the middle digit.

    Looking even further back, you would find “exchange names.” From the 1930s until the 1970s, phone numbers started with the first 2 letters of words like Butterfield 8, Ivanhoe 3, Pennsylvania 6.

    The Economic Lesson

    From exchange names, to number depletion and geographically significant area codes, to perhaps a more up-to-date system. Sounds like Joseph Schumpeter’s creative destruction where innovation replaces the status quo as our communications infrastructure evolves.

    An Economic Question: How have cell phones related to innovation?

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    Real Statistics

    Jul 31 • Businesses, Developing Economies, International Trade and Finance, Macroeconomic Measurement, Thinking Economically • 568 Views

    How high is Mount Everest?

    No one really knows. China says 29,017 feet, Nepal, 29,028, and the National Geographic Society, 29,035. We don’t even agree about sea level. The U.S. uses the St. Lawrence River in Quebec. But the U.K uses another baseline. And other countries use a local reference point. Furthermore, the Himalayas are rising by several millimeters each year. As one scientist said, “The idea of saying, ‘The height of Everest is this, is an anachronism.'”

    The Economic Lesson

    Similar to Mount Everest’s height, a “Country of Origin” statistic no longer is accurate. A Toyota Camry is primarily American while a Ford pick-up is not. The Made in China iPhone has components from 9 countries. Learjet is based in Wichita, Kansas and owned by a Canadian company, Bombardier. For the origin of the Learjet 85:

    1. wings: Belfast
    2. horizontal and vertical stabilizers: Mexico
    3. engines: Canada
    4. fuselage: Mexico
    5. electrical system: Mexico

    An Economic Question: How might balance of trade statistics be affected by more accurate data?

     

     

     

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    Fried Chicken Wings

    Jul 30 • Businesses, Demand, Supply, and Markets, Households, Labor, Macroeconomic Measurement, Thinking Economically • 663 Views

    When the NFL lockout ended, dry cleaners, ticket-takers and souvenir sellers rejoiced. But not chickens.

    According to the National Chicken Council, on Super Bowl Sunday 2011, we consumed 1.25 billion chicken wings. Joe Sanderson, CEO of the 4th largest poultry seller, said that 12% of his sales related to Sunday football. And, before the NFL lockout ended, the Buffalo Wild Wings restaurant chain offered 6 free wings to all who signed their Facebook “save our season” petition. (They will give free chicken wings to 45,000 people.)

    Think of a ripple. The NFLPA estimates that 3739 jobs are created by each game. On game days, the ticket takers, parking lot attendants and souvenir sellers are busy. Beyond, the sports bars, hotels and gas stations get more business. Municipalities collect additional revenue. And, Roser’s Fine Dry Cleaning could again clean New Orleans Saints uniforms. This Bloomberg Business article also tells about Ticketmaster sales spiking the day the lockout ended, Bud Light’s connection, and TV ad sales.

    The Economic Lesson

    Peanut butter and jelly, Kindles and eBooks, razors and razor blades are all complementary goods because a change in the price or a change in demand for one affects the other. If the price of a Kindle drops, then demand for eBooks could rise.

    Similarly, the elimination of Sunday football would have had a devastating impact on the demand for chicken wings.

    An Economic Question: Knowing that certain goods and services are complementary, retailers use one item to increase the sales of a second good or service. Which examples might come to mind?

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