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    A Surprising Car Fact

    Oct 1 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Labor, Thinking Economically • 728 Views

    2 car price facts:

    • A car whose mileage is 79,900 will cost approximately $10 less than one with 79,800.
    • A car whose mileage is 80,000 will cost approximately $210 less than one with 79,900.

    For both, the rise was 100 miles. But the drop in price at wholesale car auctions was very different. Why?

    The reason is left digit bias.

    Defined in the NBER Digest, left digit bias is “the tendency to focus on the left-most digit of a number while partially ignoring other digits.” Briefly discussed here and then considered in detail in this NBER paper, left digit bias affects the demand and supply sides of used car auction markets. Wholesale car buyers tend to pay much less at 10,000 mile thresholds. Predictably, auto dealers try to avoid 10,000 mile thresholds.

    While the authors of this study focused on wholesale used car auctions, they believe their conclusions have broader implications. They ask whether a similar bias could affect admissions decisions, treatment of medical results, and even a response to government spending programs

    The Economic Lesson

    There are 5 determinants that can change our demand and shift the position of a demand curve. They include changes in…

    • income
    • substitutes
    • complements
    • utility and taste
    • number of buyers

    The utility for a car that crosses a 10,000 mile threshold will tend to diminish. As a result, demand will decrease and price will descend.

    An Economic Question: Where have you seen left digit bias affect prices?

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    African Notes

    Sep 30 • Demand, Supply, and Markets, Developing Economies, International Trade and Finance, Labor, Macroeconomic Measurement • 634 Views

    • If you were asked to select the world’s fastest growing economies, maybe you would place China at the top of your list.  This Economist Daily Chart sums it all up. 6 of the world’s fastest growing economies, 2001-2010, are located in sub-Saharan Africa. And Angola is #1.
    • Here, showing the growth of small-scale manufacturing in Africa, the WSJ focuses on a chocolate maker in Madagascar. Among the best in the world, the cocoa is premium. However, the transportation and communication infrastructures sound tough. Just getting a cell signal near one chocolate factory required walking to the top of a hill, 3 miles away. It echoes what Professor Timothy Taylor says in his Teaching Company lectures on Africa (#19 and #20) for “America and the New Global Economy.” (The course is excellent.).
    • And finally, back to the Big Mac Index. The only African country listed is South Africa where a $4.07 U.S. Big Mac costs $2.87.

    The Economic Lesson

    African economic development returns me to a wonderful econtalk lecture on Adam Smith and David Ricardo.  It takes us to the economies of scale that a larger market can facilitate. Then, as Smith and Ricardo told us, with specialization and trade everyone becomes more productive.

    How then to facilitate the growth of small African factories through world trade?

    The Economic Question: Looking at the Economist Chart on the world’s economic growth, you might check the GDP of Angola to see how its size compares to #2, China, with a GDP of $10.1 trillion (2010 US dollars).


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  • U.S. Jobs and China

    Sep 30 • Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Thinkers, Government, International Trade and Finance, Labor, Regulation, Thinking Economically • 525 Views

    Trading with China can be very confusing.

    As Chinese imports proliferated from 1990-2007, factory employment in the communities surrounding Raleigh N.C. plummeted.  According to the WSJ, the 40% dip in factory jobs led to a government spending increase on food stamps, unemployment insurance and disability payments.

    By contrast, in the communities surrounding Cleveland, the challenge of Chinese imports had a very different result. Facing less demand, factory owners switched to goods requiring more technology, more technical expertise. Consequently, stats covering the 10 counties surrounding Cleveland indicated that the  employment to population ratio actually went up.

    Which is more typical? Raleigh or Cleveland?

    Each is a possibility. On a broader scale, one academic study suggests that the Raleigh experience is more typical. However, challenging the study, one Dartmouth economist suggests that the benefits of cheap China imports might be tough to quantify when looking at one geographic area. For example, when trade with China leads to cheaper U.S. goods and added export business, the numbers are not added to stats about the Raleigh area. 

    The bottom line?

    Maybe one question: How to cope with short-term joblessness when in the long-term adapting to trade should be beneficial.

    Include Chinese demand?

    government benefits?






    “The China Syndrome”

    The Economic Lesson


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  • U.S. Jobs and China

    Sep 30 • Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Thinkers, Government, International Trade and Finance, Labor, Regulation, Thinking Economically • 513 Views


    “The China Syndrome”

    The Economic Lesson


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  • “Nutty” Regulations

    Sep 29 • Businesses, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 613 Views

    Asked if we wanted accurate labeling on food packages, most of us would say yes. Calorie counts in restaurants would come in handy. Should boilers be more environmentally friendly?

    Describing a walnut package labeling regulation that adversely affected one business firm, Senator Susan Collins suggested “a regulation time-out.”

      “The economy needs a regulation time-out”


    susan collins



    pending legislation she has proposed.

    “U.S. Government Works at Cross-Purposes, Hindering Housing Recovery” bloomberg

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