• economic news summary and movie inflation

    Movie Reviews and Fandango Inflation

    Nov 8 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Entertainment, Government, Money and Monetary Policy, Tech • 75 Views

    At the Fandango movie review page, almost every film in its “Now Playing” list had four or five stars. Not so at Rotten Tomatoes.

    Where are we going? To inflation.

    Fandango’s Movie Stars

    To check out a film, we can go to Rotten Tomatoes, Metacritic, IMDb or Fandango. The statistics website fivethirtyeight, though, suggests we stick with the first three “review aggregators” because they tend to use more of their ratings scale, are pretty consistent and avoid outside interference.

    On the other hand, Fandango might be less dependable. You can see below that Fandango’s reviews lay primarily in five star territory while ratings from Rotten Tomatoes and Metacritic were far lower.

    Fandango inflation


    Fivethirtyeight suggested that the math at Fandango was one reason for its higher numbers. Based on stars and half stars, the Fandango rating scale requires rounding. The problem is that 4.1 becomes 4.5 and 4.6 is a 5.0. (Our math teachers would be horrified.) Asked about the system, they said it was a “glitch” in their software.

    You can see below how one cause of Fandango’s numbers could be rounding:

    Cause of Fandango inflation


    Whether the reason is rounding or the incentive to make movies sound better because then Fandango might sell more tickets, the result is that mediocre films get too many stars.

    Our Bottom Line: Reasons for Inflation

    Like prices and grades, stars can be called inflationary when they distort value.

    With prices, the primary cause of inflation is the money supply. Comparing the money supply to the value of the goods and services an economy produces, economists suggest a balance. Too much money chasing too few goods and services and you get rising prices whereas an inadequate money supply has the opposite effect.

    The ideal appears to be slight inflation—maybe two percent—because predictable price increases provide appropriate incentives to businesses.

    Should movies also enjoy slightly inflated reviews?

    No Comments on Movie Reviews and Fandango Inflation

    Read More
  • The econlife.com economics news summary

    Weekly Roundup: From Venezuela’s French Fries to the Army’s Pizza

    Nov 7 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Thinkers, Environment, Gender Issues, Government, Households, Innovation, Labor, Macroeconomic Measurement • 82 Views

    Posts Roundup

    economic news summary and Height Discrimination Sunday 11.01.15

    How to be inches away from getting hired…more

    economic news summary and China's one-child Monday 11.02.15

    Why one-child could be here to stay…more

    economic news summary and military food innovation Tuesday 11.03.15

    The army food we eat at home…more

    Pizza Box Innovation Wednesday 11.04.15

    What a pizza can teach us…more

    economic news summary and How to Measure Poverty Thursday 11.05.15

    The tough part of deciding who is poor…more


    economic news summary and the invisible hand Friday 11.06.15

    Venezuela’s expensive fries…more

    Ideas Roundup

    • behavioral economics
    • human capital
    • discrimination
    • wages and salaries
    • social norms
    • unintended consequences
    • human capital
    • innovation
    • technology
    • environment
    • invisible hand
    • price
    • poverty
    • consumption
    • income
    • hyperinflation
    • supply and demand
    • price controls
    • invisible hand


    No Comments on Weekly Roundup: From Venezuela’s French Fries to the Army’s Pizza

    Read More
  • economic news summary and the invisible hand

    How to Make the Invisible Hand Disappear

    Nov 6 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Financial Markets, fiscal policy, Households, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 77 Views

    In Venezuela, a serving of McDonald’s French fries could cost you $133.

    Our story starts ten months ago when Venezuela limited McDonald’s potato imports. Because local farmers planted potatoes, the fries are back on the black market at 64 cents. Meanwhile, McDonald’s has been selling them for as high as $133 because of the official exchange rate. As one McDonald’s employee explained, “Customers have been coming in really excited. But when we tell them the price, not so much.”

    Where are we going? To why prices need Adam Smith’s invisible hand.

    Venezuela’s Prices

    In Venezuela prices are going haywire.

    Low Prices

    Some Venezuelan prices are unusually low because of price controls. Creating shortages, Venezuela’s President Maduro capped the price of everyday necessities like toilet paper, rice, soap, milk and meat.

    Lines are the memorable way to picture the impact of a price cap:

    Venezuela's food shortages and the price system

    From: WSJ

    Also, we can graph it.

    Below, the horizontal purple line represents a price cap. The price cap is called a ceiling because price wants to head up to equilibrium but the ceiling stops its ascent. Crossing the supply curve before it hits demand, the ceiling creates a shortage.

    Hyperinflation can be caused by price ceiling that create shortages

    High Prices

    For other items, prices are rising. I’ve copied below one post from a blogger who has been collecting his own data during visits to Venezuela. Tracing the price of cornmeal cakes–arepas–he created a Hyperinflated Arepa Index (HAI):

    Venezuela's inflation

    From: devilsexcrement.com


    Oil Prices

    Another ingredient in the Venezuelan recipe for economic chaos is the plunge in oil prices. Hit hard by less oil revenue, Venezuela can’t afford the foreign exchange it needs for more imports. Combine ceilings, shortages and a government that needs to print money because it has inadequate oil revenue and you get a 510 percent annual rate of inflation (as of May 2015).

    Venezuela’s hyperinflation:

    Venezuela's inflation rate

    Our Bottom Line: The Invisible Hand

    Nudging the supply and demand sides of transactions with enticing incentives, the invisible hand makes markets work. So, when McDonald’s fries will cost you $133, you know that the invisible hand has really disappeared.






    No Comments on How to Make the Invisible Hand Disappear

    Read More
  • economic news summary and How to Measure Poverty

    Why It’s Tough to Place the Poverty Line

    Nov 5 • Behavioral Economics, Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Education, fiscal policy, Government, Households, Labor, Lifestyle, Macroeconomic Measurement, Thinking Economically • 157 Views

    Using calorie consumption as its yardstick, Rwanda reported that its poverty rate had declined. During the past three years, they said that 600,000 people had exited poverty. As a result, the national rate dropped from 44.9 percent to 39.1 percent.

    But maybe it didn’t.

    The problem says one critic is they changed the statistical food basket on which they based their conclusions. After lowering the quantities of sweet potatoes, Irish potatoes and bananas by 70 percent, they compared the bottom line to past totals. With a lower threshold, naturally, fewer households fell beneath the line.

    Where are we going? To the ways we can measure poverty.

    The U.S. Poverty Line

    Although the definition is a bit more complicated, let’s assume that any family that earns less than three times the annual cost of a nutritionally adequate diet is below the U.S. poverty line. Then, pointing to a paltry 4.4 percent decrease in the official poverty rate from the early 1960s to 2010 we could say we have lost the War on Poverty.

    But, as you can see below, it is also possible that we are winning the War. It just depends on your yardstick.

    Debating the poverty rate

    From: “Winning the War: Poverty From the Great Society to the Great Recession”

    Once we step away from the official poverty rate, the number of alternative measures is endless. For starters, we can choose between income and consumption. You can see from the green consumption curve below that the poverty rate has plunged:

    An alternative poverty rate.

    From: “Winning the War: Poverty From the Great Society to the Great Recession”

    Our Bottom Line: Measuring Poverty

    As Nobel Laureate Angus Deaton tells us, to identify poverty we can select a money metric or a utility yardstick. But then, as we look at aggregate income, consumption or non-monetary variables, a slew of dilemmas surface. We not only have to decide what to include as income or consumption or non-monetary measures but also to resolve whether a poverty line should depend on relative or absolute numbers.

    And, as Rwanda and the U.S. demonstrate, our metric will shape our conclusions.

    No Comments on Why It’s Tough to Place the Poverty Line

    Read More
  • Pizza Box Innovation

    Lessons We Can Learn From a Pizza

    Nov 4 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Humor, Economic Thinkers, Households, Innovation, Labor, Lifestyle, Tech, Thinking Economically • 146 Views

    When we order a pizza, there is a lot we don’t see. So today we will just think outside the (pizza) box.


    It’s tough to get rid of a pizza box. We can’t recycle the greasy bottom of the box because cardboard recycling is based on water that won’t mix with oil. We could recycle the top but most people don’t and a lot of cardboard still remains when we do. Or, like Smith College, you could try out plastic reusable pizza boxes (the idea did not work).

    The one solution that has potential is composting. At North Carolina State University, 16,000 greasy boxes became fertilizer because of pizza box dumpsters with massive pizza decals.


    Choosing between a small or large pizza, it helps to have a tape measure. A 16-inch pizza is four times as large as an 8-inch pie but you probably pay approximately twice as much. Below, you can see the math:

    A pizza box and prices


    And here NPR’s Planet Money compared the price per square inch to the pizza’s diameter. You can see that as the pizza gets larger, the price per square inch falls.

    Pizza lessons


    Most pizza boxes ruin the pizza. Because they are inappropriately vented, traditional pizza boxes soften the crust. To make it worse, as the pizza crust becomes soggy, it absorbs the taste of the paper.

    According to Wired, a Mumbai businessman has solved the problem. The winner of the best pizza box award (from Scott Weiner, a pizza box expert), Vinay Mehta created a box that lets the steam exit through an escape route at the top without affecting the pizza. His innovation was a “fluted middle layer” of cardboard that sends the steam along a different route.

    Our Bottom Line: The Visible and the Invisible

    Sometimes in economics, what we do not see is more important than what is visible. Describing the market, Adam Smith told us to imagine the invisible hand. For trade, Nobel Laureate Milton Friedman suggested that before levying a protective tariff to save a visible industry we recognize the harm to less visible exporters and consumers.

    Similarly, most of us do not see the environment, math and innovation when we order a pizza.

    1 Comment on Lessons We Can Learn From a Pizza

    Read More