• Ask Alexa Economic Advice from econlife.com

    Toothpaste Tube Torment

    Feb 8 • Ask Alexa • 403 Views

    Dear Alexa,

    This morning I did not hear my alarm and woke up late. Understandably, I was a little frazzled as I rushed to get ready for work. When it came time to brush my teeth, I struggled to get out the final drop of toothpaste. This was the last straw. Alexa, is it worth my time to squeeze out the last drop, or am I right in wanting to just buy more toothpaste when my supply begins to run low? — Minty Mandy

    Dear Minty Mandy,

    You are not alone! Just this morning I was grappling with the same problem. Is my toothpaste tube worth the frustration? In order to solve my problem, and yours, I turned to the experts, the economists. As it turns out, our toothpaste troubles revolve around the concept of marginal utility.

    In every life decision, we think at the margin. Explained economically, the margin is where we start with something extra. The marginal utility is the extra utility, or usefulness I will receive from every additional unit of something. If I am eating a chocolate bar and I decide to take one bite, my second bite is the extra at the margin. How much pleasure did I receive from eating that second bite of chocolate? Well that would be my marginal utility. Unfortunately, as stated by the law of diminishing marginal utility, every added bit “more” will decrease in extra usefulness.

    How does this concept relate to our toothpaste issue? Well, every drop that you squeeze out of the toothpaste tube is at the margin. How much more will I squeeze out by struggling for an extra few minutes every morning? According to the law of diminishing marginal utility, the harder and longer it is for me to get the toothpaste out of the tube, the less extra fulfillment I feel.

    What does this add up to? It means that, at a certain point, your time is more valuable than these last few drops of toothpaste. Buy a new tube of toothpaste. I hope that this helps you, Minty Mandy!

    Sincerely,

    alexa-sig

    P.S. H/T to Dan Ariely and his Ask Ariely entry titled “On the Last Drop of Toothpaste” for inspiring this question.

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  • Everyday economics and Big Mac prices in different countries provide a guide to foreign exchange fluctuation.

    Where to Spend the Most on a Big Mac

    Feb 8 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Financial Markets, Government, International Trade and Finance, Lifestyle, Money and Monetary Policy • 460 Views

    The price of a Big Mac gives us some pretty good clues about the purchasing power of different currencies. Traveling from the U.S. to Europe to Asia and beyond, you can compare below how much the same Big Mac costs.

    Foreign exchange, purchasing power parity and the Big Mac Index

    Or, we can look at the Big Mac Index on the map.

    Foreign exchange displayed by the Big Map Index map

    From: The Economist

    Purchasing Power Parity

    Theoretically, the price of an identical good should be the same everywhere in the world after we adjust for exchange rates. If that were true, then your purchasing power would be the same in every country. But it is not.

    And that takes us to purchasing power parity (PPP).

    To explain purchasing power parity, we can look at the Economist’s 2013 data when a Big Mac cost $4.20 in the U.S. and 15.4 yuan in China. If, though, you were to convert $4.20, you get 26.54 yuan. But a Big Mac costs 15.4 yuan. With 26.54 you can get 1.72 Big Macs. So the yuan was undervalued. And, it still is.

    What might affect the purchasing power of a currency?

    It just might be efficiency. Better at making certain items, a country can charge less. Others try to make their exports more attractive by creating an undervalued currency. We can also add the currency impact of domestic instability or a sinking commodity price.

    Our Bottom Line: Foreign Exchange

    Whether looking at the Swiss Franc removing its peg to the euro, to Norway getting less for its oil, or to how the Ukraine crisis is crushing its currency, behind every Big Mac price change, there is a story.

     

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  • The econlife.com Weekly Roundup

    Weekly Roundup: From Burgers to Boomer Demographics

    Feb 7 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Growth, Economic History, Economic Thinkers, Entertainment, Government, Households, Innovation, International Trade and Finance, Labor, Lifestyle, Thinking Economically • 551 Views

    Our Posts Roundup

    Everyday economics and Shake Shack Sunday 2.01.15

    How a burger shows what we spend…more

    Everyday economics and leap second problems Monday 2.02.15

    The problems with just one extra second…more

    everyday economics and a delivery idea Tuesday 2.03.15

    A delivery idea that no one thought of…more

    Everyday economics and ALMA funding from U.S. Wednesday 2.04.15

    Why Chile is the best place for a telescope…more

    Everyday economics and Uber Thursday 2.05.15

    Three ways that Uber drivers are different…more

     

    Everyday economics aging demographic Friday 2.06.15

    Making What Seniors Want to Buy…more

     

    Ideas Roundup

    • creative destruction
    • discretionary spending
    • disposable income
    • monopolistic competition
    • externalities
    • entrepreneurs
    • standardization
    • federal budget
    • labor markets
    • R&D

     

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  • Everyday economics aging demographic

    What If One Quarter of Your Population is Old?

    Feb 6 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Health Care, Lifestyle, Thinking Economically • 428 Views

    China’s demographics are doing a flipflop.

    In Rudong County, located along China’s east coast, the number of government-funded retirement homes has expanded from one to five. Meanwhile only one elementary school remains from the 14 that used to exist in each village. Shifting from a one-child policy and the concern that there were too many children, now, too many old people is the worry.

    One way to look at the demographic switch is through population pyramids. Whereas in 2010, 8.4 percent (113.5 million) of China’s population was 65 and older, by 2020, the projection takes us up to 11.7 percent (167.4 million).

    Below you can see the senior citizen bulge move upward until, in 2050, they total 25 percent of the population.

     The Retail Response

    My favorite, though, is how markets are responding. In a joint venture with the Chinese, a Japanese company, Longlife, will market disposable adult diapers, water absorption pads, water-resistant sheets and wet wipes.

    Aging population China

    From: Asia.nikkei.com

    U.S. firm Kimberly-Clark has also targeted the Chinese seniors market for its Depends. On the nutritional end, Abbott Labs is accelerating its Ensure marketing and testing new flavors. Correspondingly, internet seller Taobao has a seniors shopping section and a new Smartphone from Hisense has medical alerts and larger flashlights.

    You get the picture. But it really is much bigger when we look at aging elsewhere.

    Our Bottom Line: Dependency Ratios

    Defined as the proportion of the population that needs support from the labor force because its constituency does not work, the dependency ratios of developed nations is skyrocketing as populations age. By 2050, it is expected to plateau at a whopping 50 percent “or one retiree for every two workers.”

    Aging populations and soaring dependency ratios

    From: OECD

    And that takes us back to the demographic and product switch from babies to boomers:

    Aging population demographic switch

    From: WSJ

     

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  • Taxi Demand and supply market system

    How Uber Upsets the Status Quo

    Feb 5 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Growth, Economic History, Economic Humor, Economic Thinkers, Government, Innovation, Labor, Lifestyle, Macroeconomic Measurement, Regulation, Tech, Thinking Economically • 533 Views

    A 4.0 rating from an Uber driver is not good.

    Driving crosstown with Uber, writer Delia Ephron realized she had a 4.5. Told that a drop to 4.0 meant drivers would not pick her up, she wondered, “What could I have done to get demoted {from a perfect score of 5.0}? In six rides?” She remembered once asking a driver to back up and wondered if that was the problem.

    The power to review tweaks the taxi environment. It changes the job and, as a result, the people who do the job.

    Where are we going? To how Uber has upset a labor market status quo.

    A Picture of the Uber Driver

    The synergy between the money and the flexibility make Uber different. Add in the ability to choose your riders and you get a job that attracts higher quality human capital. Indeed, according to a recent analysis from Uber and a Princeton economist, 48 percent of all Uber drivers have a college degree or higher. By contrast while 52 percent of all taxi/chauffeur drivers have no more than a high school degree, the same is true for 12 percent of Uber drivers.

    An Uber driver either works for Uber full time, or, in addition to Uber, has a full time job or a part time job. Interestingly, a higher proportion of women drive for Uber than as taxi/chauffeurs elsewhere. As for intangibles, driver-partners said Uber had improved their life quality, elevated their confidence and boosted their financial stability.

    Below you can see one group of Uber drivers’ earnings per hour are way above the average.

    Labor Market: Uber driver income

    From: “An Analysis of the Labor Market For Uber’s Driver-Partners in the United States”

    Reflecting the allure of flexibility, here are the number of hours drivers work.

    Labor market taxi industry hours worked

    From: “An Analysis of the Labor Market For Uber’s Driver-Partners in the United States”

    The results? An increasing number of Uber drivers.

    Labor Market participation from Uber drivers

    From: An Analysis of the Labor Market For Uber’s Drivers-Partners in theUnited States

     

    With no wage penalty for part-time, individually determined work hours, and minimal entry barriers, we have the spread of a new labor market model in an existing industry.

    Our Bottom Line: High Impact Entrepreneur

    Challenging the status quo in an industry traditionally constrained by government oversight, Uber represents Joseph Schumpeter’s creative destruction.

    And that returns us to the new relationship between Delia Ephron and her Uber driver.

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