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    Selling Karma (With a Solar Roof)

    Mar 16 • Environment, Government, Innovation • 451 Views

    The Fisker Karma car has 2 electric motors, 1 Lithium-ion battery, and 1 internal combustion engine. Depending on the model, you can have a solar panel roof, do 0-60 mph in less than 6 seconds and reach a top speed beyond 125 mph.


    “…a small gasoline engine … turns the generator, which charges the lithium ion battery pack, powering the electric motor and turning the rear wheels.” The solar roof will help charge the car. 

    Soon, you can buy the Ecochic, Ecosport, or Ecostandard model. Here is the brochure.  Prices start at $95,900. Estimated annual cost saving (on gas) is $1500.00. The car looks amazing.

    In 2009, Fisker Automotive received a half-billion dollar loan from the U.S. Department of Energy to develop an affordable hybrid plug-in. The goal was a car that would sell for less than $40,000 that, Fisker says, will be available during 2012 or 2013.

    The Karma is the first step. 

    The Economic Lesson

    So, again we have the question. Through loans and outright spending, what should the federal government fund? Should Fisker Automotive have received a federal loan?

    This returns us to opportunity cost and how the money otherwise might have been spent or not spent. The most desirable alternative that was not selected is the opportunity cost of a decision. Choosing is refusing.

    We also should think about what you believe the federal government should and should not do. Should the federal government only fund necessities that the private sector would not support such as a transportation network? Or, should government pay for goods and services that a society wants? 

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    Now It’s Chocolate

    Mar 15 • Demand, Supply, and Markets, Developing Economies, International Trade and Finance • 603 Views

    According to one recent news article, a Cadbury chocolate bar is missing 2 chunks but the price is the same.

    First we had a hedge fund trying to corner the cocoa bean market. Then came political turmoil in the world’s leading cocoa producer, the Ivory Coast. The result was the price of cocoa beans touching a 32-year high. Combine that with the rising price of sugar and you get either a smaller chocolate bar or one that is more expensive.

    With chocolate added to our list of soaring commodity prices, we can see that on the supply side, the reasons for soaring prices have varied. But, on the demand side, the response has been similar.

    The Economic Lesson

    For certain items, we buy much less when price rises and much more when it falls. At other times, our quantity demanded remains relatively stable, no matter where price goes.

    How we respond to a price change is called our price elasticity of demand. More technically, demand elasticity compares the proportional change in quantity demanded to the proportional change in price. We tend to display much greater demand elasticity for luxury goods than for necessities.

    Is chocolate a necessity?

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    A Budget Question

    Mar 14 • Economic Debates, Government, International Trade and Finance, Thinking Economically • 546 Views

    Thought to have saved many lives, a Japanese early warning system sent a media alert seconds before the earthquake struck.  The system took 12 years to implement and cost close to $500 million.

    A similar warning system for the U.S. west coast is being developed. A multi second or minute warning may seem miniscule. However, it is long enough for speeding trains to decelerate, for elevators to reach the next floor, and for technology to go into a safe mode. Meanwhile, people can “duck, cover, and hold on.”

    This takes us to a question. We know that California has been on the brink of what would be bankruptcy if a state could declare it. We know that the U.S. budget is undergoing vast cuts. Would you vote to continue work on the multi-million dollar California Integrated Seismic Network Shakealert system?

    The Economic Lesson

    The opportunity cost of a decision is the next best alternative. It is the sacrificed alternative. In other words, when you decide to do one thing, you will not do something else. Or…”Choosing is refusing.”

    The opportunity cost of an early warning system could be more spending on Medicaid or Social Security or early childhood education. The opportunity cost could also be less spending.

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    Japan’s Sovereign Debt

    Mar 13 • Economic History, International Trade and Finance, Money and Monetary Policy • 527 Views

    Hoping to sell more Japanese government bonds (JGBs), in a rather novel advertising campaign last June, the Japanese finance ministry said that, “Women have a thing for men who own JGBs.” Their message suggests that women prefer men who are “serious about money” and value “stability.”

    Then, last January, Standard & Poor’s downgraded Japanese bonds to its fourth highest credit rating, AA-minus. With debt that has soared to close to 204% of its GDP, Japan owes a lot of money. By contrast, considered high, the outstanding debt of the U.S. is 70% of its GDP.

    Seeing Japan’s debt ads and its debt size, this takes us to a concern. Now that they will surely need to borrow more for disaster expenses and reconstruction, will they increase their debt? The implications?

    The Economic Lesson

    Why compare GDP and sovereign debt? You can think of borrowing money to buy a million dollar house. For billionaire Bill Gates, it is a small obligation. For a typical wage earner it is a huge debt.

    Similarly, a rich nation with a high GDP can borrow more because it has the affluence to pay it all back. But, how much is too much, even for affluent nations like the U.S. and Japan?

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    More Education Matters

    Mar 12 • Businesses, Economic Debates, Government, Households, Innovation, Labor, Macroeconomic Measurement, Thinking Economically • 471 Views

    15-year old U.S. students ranked #24 for math in an OECD assessment program (PISA). For reading, they placed #15.

    In a Teaching Company lecture called “Underperforming Schools” Wake Forest economist Robert Whaples suggests how we might raise our scores.

    Cost/benefit analysis: Dr. Whaples started with what we spend per pupil and then what we get. We spend, on average, $10,000 annually. What do we get? Ranked #24 in math and #15 in reading. New Jersey spends a lot more than Utah but their testing results are close. Even spending more on small classes does not seem to reap consistent benefits. So, is there a connection between educational achievement and spending? Are we sufficiently productive? He concluded, “Not necessarily.”

    Incentives: The next step then is to look specifically at teachers and students. Do teachers need different incentives such as merit pay? It is tough to design appropriate criteria. Would students do better if they had to take demanding “exit exams?” Some students excel with more pressure while weaker students drop out.

    Competition: Maybe vouchers and charter schools elevate student achievement by challenging enrollment at existing schools (that are monopolies). Here, Whaples said to look at the work of Stanford economist Caroline Hoxby whose research concludes that competition can make a big difference.

    Where does all of this take us? Most economists suggest that more “consumer sovereignty” would be desirable.

    The Economic Lesson

    In addition to productivity, incentives, and competition, economists use the idea of value-added to assess school quality. While value-added typically refers to a tax (VAT), for education, it takes us to student achievement. Stanford economist Eric Hanushek with 3 colleagues sought to measure teacher “value-added” through student achievement. 


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