“Andrew Manshel writes in The Wall Street Journal that elite colleges have an elaborate system for deciding how much money they can squeeze out of desperate parents, and surprising ways of spending it.”
“Economic theory suggests that marginal product of capital series might help predict economic growth forward one or two years, even under abnormal conditions such as wartime or depression. In some situations, …”
Fouad Ajami: Afghanistan and the Decline of American Power – WSJ.com
“Fouad Ajami writes in The Wall Street Journal that Afghan President Hamid Karzai’s anti-American shift is a statement about the standing of the Obama administration in the region.”
Here’s a list of articles that I have been reading lately (organized by topic):
Economics and Public Policy
Leslie Hook and Joseph Sternberg: Confessions of Two Unpaid Interns – WSJ.com
“In The Wall Street Journal, Leslie Hook and Joseph Sternberg say that the Obama administration’s latest crusade, to prevent the use of unpaid interns, is a mistake that will harm opportunities for young men and women looking for a leg up in the work force.”
Daniel Henninger: Joblessness: The Kids Are Not Alright – WSJ.com
“In The Wall Street Journal, Dan Henninger asks if Obama’s economic policies have sent the U.S. toward European levels of youth unemployment.”
“Labor unions are among President Obama’s political allies, and were actors in the story of the demise of General Motors. But I do not yet see much evidence that their influence on private-sector outcomes has become more significant.”
Economics and Culture
‘Extreme Makeover’ Show Downsizes Its McMansions – WSJ.com
“While it’s unclear just how many Extreme Makeover families have run into financial difficulty, the show’s producers say they are aware of the problem and are making a change appropriate to current economic reality: downsizing.”
Extreme Home Foreclosure Trouble – WSJ.com
“Some recipients of Extreme Makeover: Home Edition homes end up in trouble once the cameras leave town. Here are five family’s tales.”
FORT WASHINGTON, Md (Reuters) – By the time thousands of parishioners stream into the 3,000-seat Ebenezer AME Church on Easter Sunday, church leaders hope to have something else to celebrate: financial revival.
According to an article appearing on Bloomberg.com, the marginal cost of manufacturing the 16-gigabyte Apple iPad is around $260. This includes $95 for the touch-screen display and $26.80 for the device’s processor. Flash memory accounts “… for $29.50 in costs on the 16-gigabyte model, $59 in the 32-gigabyte version and $118 in the 64-gigabyte model. The differences in flash memory costs “…push the cost of manufacturing the 32-gigabyte version of the iPad, which sells for $599, to $289.10. They boost the cost of the 64-gigabyte version, which sells for $699, to $348.10.”
Obviously, Apple has very healthy profit margins on these devices; roughly 48% for the 16-gigabyte iPad, 52% for the 32-gigabyte iPad, and 50% for the 64-gigabyte iPad. From this information, we can also infer the price elasticity of demand for these products. Price elasticity is a measure of the percentage change in quantity demanded associated with a one percent change in price.
From basic price theory, we know that marginal revenue MR = P(1 + 1/, where P is price and corresponds to the price elasticity of demand. We also know that the optimal output decision for a profit maximizing firm involves setting quantity such that marginal revenue is equal to marginal cost; i.e., MR = MC. Thurs, we can rewrite the marginal revenue equation in the following manner: MC = P(1 + 1/—> MC = P + P(1/ therefore, (MC – P)/P = (1/—> = P/(MC – P) Applying this equation to the various iPad models that are currently for sale, we find that
the price elasticity of demand for the 16-gigabyte iPad is = P/(MC – P) = 499/(260-499) = -2.09;
the price elasticity of demand for the 32-gigabyte iPad is = P/(MC – P) = 599/(289-599) = -1.93; and
the price elasticity of demand for the 64-gigabyte iPad is = P/(MC – P) = 699/(348-699) = -1.99;
Any number less than -1 for indicates that demand is relatively elastic. This implies that if Apple were to change prices from current levels, then the percentage change in quantity demanded would exceed the percentage change in price. In other words, if Apple dropped prices, revenue would increase because of a larger quantity response, and if Apple raised prices from current levels, then revenue would decrease due to a disproportionate decline in quantity demanded.
Putting this into perspective, the price elasticity of demand for the various flavors of the Apple iPad is greater in absolute terms than the price elasticity of demand for the Apple iPhone (see Dartmouth economist Robert Hansen’s blog entry from June 2009 entitled “Apple iPhone Price Elasticity” in which he calculates that the price elasticity of demand for the iPhone 3G S is -1.43). Also see “Apple iPad and the price elasticity equation”.
Here’s a list of articles that I have been reading lately (organized by topic):
Hearing Problems at Steven Landsburg | The Big Questions: Tackling the Problems of Philosophy with I
“During a belated conversation about health care policy, a colleague remarked that “of course, nobody would want to live in a world where rich people and poor people got the same kind of health care”. The economists around the table all nodded in agreement and moved on to matters that were actually controversial. It occurs to me that had there been a few non-economists at the table, someone might have objected to my colleague’s matter-of-fact (and surely accurate) observation. And it occurs to me also that maybe there’s a general lesson here about how economists communicate-or fail to communicate-with the world at large.”
“The head of the IRS seems to be confirming what we suspected: the agency is going to enforce the mandate by deducting any penalties from your tax refund, not by using its other enforcement authorities such as the ability to file tax liens.”
James A. Klein: The White House and the Writedowns – WSJ.com
“In The Wall Street Journal, James A. Klein of the American Benefits Council points out that the White House wants companies to ignore known costs and book speculative future savings. Sounds like Enron accounting.”
“The Wall Street Journal describes What happens when all medical decisions are political.”
What 1946 Can Tell Us About 2010 — The American, A Magazine of Ideas
“It is interesting to look back at the biggest Republican victory of the last 80 years, the off-year election of 1946. What’s similar and what’s different today?”
The FCC Loses—Again – WSJ.com
“The Wall Street Journal writes that a federal appeals court ruled yesterday that the Federal Communications Commission lacks the authority to regulate how Internet service providers manage their networks is a validation of the rule of law.”
Holman Jenkins: End of the Net Neut Fetish? – WSJ.com
“Holman Jenkins writes in The Wall Street Journal that a federal court says no to an FCC power-grab.”
Peter J. Wallison and David Skeel: The Dodd Bill Means Bailouts Forever – WSJ.com
“In The Wall Street Journal, Peter J. Wallison and David Skeel say that the FDIC should not be given a resolution authority to handle failing, large nonbank financial institutions. The Lehman Brothers liquidation shows that bankruptcy works fine.”
“Book publishing is changing before our very eyes, even if the industry itself is fighting the transition with every comma it can muster. Harvard Business School professor Peter Olson, former CEO of Random House, wonders if books themselves may be in jeopardy.”
“Here is a good article for class discussion. Apparently, some government regulators think unpaid internships might violate minimum-wage laws. (FYI, the internship at the Council of Economic Advisers is unpaid!)”
University of Chicago economist Steven Levitt notes that “…the health care bill that passed recently is a disaster for at least two reasons. First, it seems to do little or nothing to deal with the single most important shortcoming of our current system: the fact that people pay very little on the margin for the medical care that they receive. The second huge flaw … is that health care is provided through employers, leading to job lock, lost coverage when people become unemployed, etc. While the bill does have some elements that weaken the link between employers and health care, it also has other features that strengthen it. Ultimately, it is hard to believe that this bill will be a net positive. It remains to be seen whether it will be a wash, or far worse.” Levitt’s views line up well with my own; see my August 27, 2009 posting entitled “My preferred approach for reforming health care…”.
“The Northern Hemisphere once more begins its tilt towards the Sun, awakening flowers, ushering in new life, and coaxing people outdoors once again. The changing of the season is easily observed in gardens, parks, zoos, farms, festivals and more. Collected here are a handful of photographs showing signs of Spring, 2010, as the final remnants of last winter start to melt away. (27 photos total)”
“A five-week-old Chinchilla rabbit nibbles grass at a rabbit farm in Moosburg north of Munich March 22, 2010. The rabbits at the farm are bred to compete in rabbit shows. (REUTERS/Michaela Rehle)”
News: When Professors Get Their Politics – Inside Higher Ed
“Theories abound about why academics are more liberal than are average citizens. Some blame bias, arguing that conservative scholars are denied positions. Others see self-selection at work, with academe attracting more liberal individuals, while conservatives are more likely to opt for other careers….”
Juan Williams: Tea Party Anger Reflects Mainstream Concerns – WSJ.com
“In The Wall Street Journal, NPR political analyst Juan Williams says dissatisfaction with the economy and the country’s direction cuts across racial lines.”
“Federal mortgage modification initiatives, targeting millions of borrowers, are intended to prevent foreclosures of underwater home mortgages. Those initiatives discourage principal reductions in favor of interest reductions, despite the possibility that the former would be a more durable foreclosure prevention tool. The programs also impose marginal income tax rates substantially in excess of 100 percent. Using the framework of optimal income taxation, this paper shows how alternative means-tested modification rules would simultaneously improve collections, efficiency, the number of foreclosures, and their total cost. As a result, lenders have an incentive to foreclose on borrowers deemed modification eligible by the federal programs.”
Sheila Bair: The FDIC Resolution Process Is a Model for Financial Regulation Reform – WSJ.com
“In The Wall Street Journal, FDIC Chairman Sheila Bair says the agency’s process for resolving failing banks will avoid forcing the taxpayers to bail out large financial firms.”
Today is Good Friday, when Christians commemorate the crucifixion of Jesus Christ. Good Friday is part of Holy Week, a series of religious holidays and observations commemorating the last week of the earthly life of Jesus Christ and his resurrection on Easter Sunday.
With the increasing emphasis by business organizations on ‘green’ initiatives for sustainability, maybe we are overlooking ways to improve the ‘sustainability’ of workers, too, says HBS professor Jim Heskett .
Robert Barro | FiveBooks
The Lessons of the Great Depression There’s a strong tendency for the economy to recover on its own. A year ago governments saved their biggest banks from collapse, but now they are wondering how big really is too big.
John Steele Gordon: As Peaceful as a Tea Party – WSJ.com
In The Wall Street Journal, John Steele Gordon writes that the only person arrested in recent days for threatening violence against a politician targeted Eric Cantor, the No. 2 Republican in the House.
ObamaCare and the Constitution – WSJ.com
The Wall Street Journal argues that if Congress can force you to buy insurance, Article I limits on federal power are a dead letter.
“At the stroke of 8:30 p.m. on Saturday, March 27, nearly a billion people in more than 120 countries demonstrated their desire to do something about global warming by switching off their lights for an hour. But the main thing that anyone accomplished by turning off the lights at nighttime for an hour was to make it harder to see”, says Bjørn Lomborg, who is the author of The Skeptical Environmentalist and Cool It, head of the Copenhagen Consensus Center, and adjunct professor at Copenhagen Business School.