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    Speedy Airplane Boarding

    Aug 23 • Behavioral Economics, Businesses, Economic Debates, Economic Humor, Innovation, Labor, Macroeconomic Measurement, Thinking Economically • 753 Views

    Closely connected to an airline’s bottom line, speedy boarding means more efficiency. Here you can see the following alternative boarding strategies in action.

    Front to back:

    • Least popular.
    • Early boarders block those who follow them.

    Back to Front

    • Very popular.
    • Used by Continental, Alaska Airlines and others.

    Random:

    • Check-in time is one way to decide boarding sequence.
    • Preferred by academics as one of the fastest approaches.
    • Used by Southwest, American Airlines and others.
    • American Airlines’ flight attendants say it creates confusion.

    Rotating Zone

    • Alternating back and front for contiguous groups of seats.
    • Air Tran uses it.

    Reverse Pyramid

    • Back-to-front with outside-in.
    • Unused.

    Flying Carpet (really?)

    • Unused.
    • Designed by an Australian mechanical engineer.
    • On a carpet with the seats drawn, a passenger stands on his/her own seat. After 20-30 people position themselves on the carpet, that group boards. Because there is no room for seatmates to stand next to each other, boarders automatically are dispersed for optimal boarding.

    According to the LA Times, United Airlines believes in “outside-in” while Continental boards “back to front.” Now that they have merged, will they choose one or compromise with a reverse pyramid?

    The Economic Lesson

    When an airline boards people more rapidly, it is utilizing land, labor and capital more efficiently. Best illustrated by Southwest Airlines, a fast turnaround means fewer airplanes are needed because more flights can be scheduled using the same equipment. Then, the land, labor and capital that might have been used inefficiently can be allocated elsewhere.

    An Economic Question: Referring to cost (defined as sacrifice), explain why faster lines benefit buyers and sellers.

     

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    Health Care (Transaction) Costs

    Aug 22 • Behavioral Economics, Demand, Supply, and Markets, Government, Households, Regulation, Thinking Economically • 931 Views

    One of the first parts of the new health care plan to be implemented, the Pre-Existing Condition Insurance Plan (PCIP) surprised its administrators. 

    North Carolina was ready for a “stampede” but initially only 674 people joined. Nationally, 375,000 people were expected but by April 30, the total was 21,454.

    According to this Washington Post blog, logistics might be one problem. To increase enrollees in another federal/state implemented program, the Children’s Health Insurance Program (CHIP), certain states reduced red tape. The key was to eliminate personal interviews, implement a mail-in renewal form, and even partially fill in forms that were sent.

    That takes us to the entire health care program. How will federal and state officials enroll more than 30 million people?

    The Economic Lesson

    Red tape represents a transaction cost. Defined economically, cost means sacrifice. Standing in line, filling out forms, listening to voice mail instructions, we are sacrificing what we otherwise might have been doing. Sometimes, the transaction costs of signing up for a health care insurance program are so daunting that they outweigh the long term benefit.

    With lines reflecting the dysfunction of the former Soviet Union, the huge transaction costs helped to speed its demise.

    An Economic Question: Which transaction costs did you experience today?

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    Recycling Matters

    Aug 21 • Businesses, Demand, Supply, and Markets, Developing Economies, Environment, International Trade and Finance • 649 Views

    Coca-Cola has a recycling problem. Last year, it had hoped to process 100 million pounds of recycled PET (bottle grade) plastic in its Spartanburg, S.C. plant and is not even close. Here is why:

    Less supply of recycled plastic:

    • It is tough to get enough PET plastic because many of us do not recycle plastic bottles. Maybe bottle deposit programs would make a difference. However, Coke and Pepsi say that paying 5 to 10 cents for a returned bottle is inefficient, pricey and unfairly targets them.
    • Coke and Pepsi prefer using municipal recycled plastic. Mixed with other plastics, though, the plastic from curbside programs tends to be less than bottle grade.

     

    More demand for recycled plastic:

    • Increased demand from China for used plastic in clothing and furniture manufacturing is nudging the price upward. As a result, “virgin PET” is cheaper.

     

    The Economic Lesson

    Is it ethical for a profit-seeking business to be ethical? Believing that profits are the responsibility of the business firm, Milton Friedman (1912-2006) said that it is not appropriate for corporate management to pursue social responsibility. Agreeing, former Harvard president and Secretary of the Treasury Lawrence Summers cited Fannie Mae and Freddie Mac to display the cataclysmic results of combining doing good with seeking profits.

    In this economix blog, Harvard economist Edward Glaeser discusses the debate surrounding corporate responsbility. Reminding us that it need not be “black and white,” he encourages us to ponder different levels of corporate social responsibility

    An Economic Question: Implying that we cannot put a price on environmental responsibility, a a U.S. senator from Maine, Edmund Muskie, once said, “Can we afford clean water? Can we afford rivers and lakes…which continue to make life possible…?…These questions answer themselves.” Your opinion?

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    Song Rights

    Aug 20 • Businesses, Innovation, Labor, Regulation, Thinking Economically • 689 Views

    When do we own what we create? It depends.

    For Bruce Springsteen and Billy Joel, hit albums controlled by record companies might soon become theirs again. During the mid-1970s, the Congress decided that after 35 years, a musician could regain the copyright held by a record company by following a specified procedure. Called termination rights, the copyright switch can begin in 2013 for Billy Joel’s “52nd Street” and Bruce Springsteen’s “Darkness on the Edge of Town.” The NY Times provides a list of some of the performers who might benefit and also reminds us that record companies will probably contest the artists’ claims.

    In this Econtalk discussion, you can decide whether you agree with an author who complains that his family cannot inherit an unending copyright for his work.

    The Economic Lesson

    Trademarks, copyrights and patents protect intellectual property. With Article 1, Section 8, Clause 8 saying, “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries,” the US Constitution established the right to protect innovation.

    Interestingly, although Hamilton and Jefferson did not entirely agree, both were involved with the first Patent Act in 1790.

    An Economic Question: Being able to restrict use of someone’s ideas can hinder and fuel progress. Explain.

     

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    Stock Market Crashes

    Aug 19 • Behavioral Economics, Demand, Supply, and Markets, Economic History, Financial Markets, Households, International Trade and Finance, Thinking Economically • 607 Views

    How to define a stock market crash? One economic paper has 2 suggestions:

    • “When you see it you know it.”
    • Look at depth and duration: A 20% drop is a crash while length can vary. Several possibilities: 1 day, 5 days, 1 month, 3 months, 1 year.

    Suggesting we have undergone 15 major stock market crashes during the 20th century, Professors Mishkin and White say the most drastic 2-day losses were during 1929 and 1987:

    • On October 28, 1929 the Dow fell 12.8% and then, the next day, took another 11.7% slide.
    • For October 19, 1987, the drop was 22.6%.

    More recently, the Dow plunged from 11,616 to 6,547 between August 14, 2008 and March 9, 2009.

    And that takes us to today. The Dow has tumbled 14% since its April 29 high of 12,810.54 while the S&P has declined 16%.

    Perhaps most crucially, Professors Mishkin and White ask whether crashes are consequential. Their answer? For a correct diagnosis of our economic ailments we need to focus on financial instability rather than stock market volatility.

    An Economic Lesson

    The key difference between 1929 and 1987 was the economy. 1929 marked the beginning of the Great Depression with industrial production plummeting each year from 1930 to 1932 (-8.6%, -6.5%, -13.1%). By contrast, during 1987, the GDP increased 3.2%.

    An Economic Question: How might the impact of a stock market crash ripple through the economy?

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