Category Archives: Economics

Assorted Links (5/27/2010)

Here’s a list of articles that I have been reading lately:

 
Judy Shelton: The Recovery Starts With Sound Money – WSJ.com
Source: online.wsj.com
 
Source: online.wsj.com
 
Daniel Henninger: A New Age of Reform – WSJ.com
Source: online.wsj.com
 
Source: www.thecrimson.com
 
Christie for President – WSJ.com
Source: online.wsj.com
 
Source: mindyourdecisions.com
 
Source: www.theatlantic.com
 
David Malpass: The Panic, Round Two: What Would Reagan Do? – WSJ.com
Source: online.wsj.com
 
Source: www.theatlantic.com
“Fox Business has made something of a splash claiming that Senator Casey has introduced a bill to bail out union pensions that will cost $165 billion. Media Matters lashes back, arguing that the bill will only cost $8-10 billion and isn’t a bailout. Who’s right?””

Assorted Links (5/25/2010)

Here’s a list of articles that I have been reading lately:

Hard Sell – WSJ.com

Source: online.wsj.com

“John Fund writes in The Wall Street Journal that ObamaCare appears more unpopular than ever.”

Chronicle of a Currency Crisis Foretold – Project Syndicate

Source: www.project-syndicate.org

“The crisis in Greece and the problems in Spain and Portugal have exposed the euro’s inherent flaws, and no amount of financial guarantees – much less rhetorical reassurance – from the EU can paper them over. While the euro is likely to survive the current crisis, not all of the eurozone’s current members may be there a year from now.”

Progressives, Jim Crow, and Selective Amnesia

Source: www.american.com

“The Rand Paul episode reveals a drastic misreading of history and of the government’s role in ending racial discrimination in this nation.”

America’s New Jobs Bill – WSJ.com

Source: online.wsj.com

“The Wall Street Journal dissects this week’s stimulus bill.”

Money Market Funds Missing from the Senate Bill – Regulating Wall Street

Source: w4.stern.nyu.edu

“Money market funds are the stepchild of finance. Even though they manage more than $4 trillion in assets, you won’t find them in the Senate’s financial reform bill from last Thursday. Is this justified?”    

Not just their Big Fat Greek Funeral – Mark Steyn – Macleans.ca

Source: www2.macleans.ca

“As lazy, feckless, corrupt and violent as Greece undoubtedly is, it’s not that untypical…”

That’s Rich at Steven Landsburg | The Big Questions: Tackling the Problems of Philosophy with Ideas.

Source: www.thebigquestions.com

“It’s now crystal clear what the Tea Party stands for, says Frank Rich midway through a column that makes it crystal clear what Frank Rich stands for, and it isn’t pretty.”    

Stimulus Surprise: Companies Retrench When Government Spends – HBS Working Knowledge

Source: hbswk.hbs.edu “New research from Harvard Business School suggests that federal spending in states appears to cause local businesses to cut back rather than grow. A conversation with Joshua Coval.”

Game Theory TV – Freakonomics Blog – NYTimes.com

Source: freakonomics.blogs.nytimes.com “Game theory lessons on YouTube.”

Review & Outlook: The New Lords of Finance – WSJ.com

Source: online.wsj.com “The Wall Street Journal editorial page says that Congress’s financial reform is a marriage of Big Finance and Big Government.”

Roberts on the Crisis | EconTalk | Library of Economics and Liberty

Source: www.econtalk.org

“Russ Roberts, host of EconTalk, discusses his paper, “Gambling with Other People’s Money: How Perverted Incentives Created the Financial Crisis.” Roberts reflects on the past eighteen months of podcasts on the crisis, and then turns to his own take, a narrative that emphasizes the role of government rescues of creditors and the incentives this created for imprudent lending. He also discusses U.S. housing policy, particularly the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac and how the government’s implicit guarantee of lenders to the GSE’s interacted with housing policy to increase housing prices. This in turn, Roberts argues, helped create the subprime market, created mainly by private investors. The episode closes with some of Roberts’s doubts about his narrative.”    

Consumer Financial Protection–the Good, the Bad and the Ugly – Regulating Wall Street

Source: w4.stern.nyu.edu

“On Thursday the Senate passed its version of the financial reform bill, and the reconciliation process with the previously passed House bill will now begin. What are the implications for consumer protection? The similarities between the two bills in the area of consumer protection and more notable than their differences, but there are some distinctions to keep in mind and some troubling issues common to both bills. Consumer protection is a worthy goal, especially given some of the documented abuses leading up to and during the financial crisis, but bad regulation may be worse than under-regulation.”    

Economic View – Greece May Not Be as Rich as It Looks – NYTimes.com

Source: www.nytimes.com

“Europe no longer pretends Greece is wealthy. Now the Continent acts as though Greece will quickly become wealthy enough to pay back ever-growing sums of debt.”

Assorted Links (5/11/2010)

Here’s a list of articles that I have been reading lately:

Did a Big Bet Help Trigger ‘Black Swan’ Stock Swoon? – WSJ.com

online.wsj.com

“A tsunami of selling pressure that spread to nearly all parts of the market last Thursday may have had its roots in a single bearish bet.”

Euro-zone Bailout Spurs Moral-Hazard Fears – WSJ.com

online.wsj.com

“A €750 billion bailout package for euro-zone governments facing debt troubles has created another urgent challenge for European policy makers: how to keep free-spending governments in line.”

Depression 2010?

www.realclearpolitics.com

“It is now conventional wisdom that the world has avoided a second Great Depression. Governments and the economists who advise them learned the lessons of the 1930s. When the gravity of the financial crisis became apparent in late 2008, the response was swift and aggressive.”

The Welfare State’s Death Spiral

www.realclearpolitics.com

“What we’re seeing in Greece is the death spiral of the welfare state. This isn’t Greece’s problem alone, and that’s why its crisis has rattled global stock markets and threatens economic recovery.”

What Happened to Due Process?

www.campaignforliberty.com

“A bipartisan group of legislators have introduced a bill that would focus on stripping Americans of their citizenship if they are found to be involved in “terrorism”.”

Landscapers find workers choosing jobless pay

detnews.com

“In a state with the nation’s highest jobless rate, landscaping companies are finding some job applicants are rejecting work offers so they can continue collecting unemployment benefits.”

Garven comment: Here is some compelling anecdotal evidence concerning the unintended consequences of unemployment benefits. Believe it or not, insuring people against the financial consequences of unemployment can actually create more unemployment!

Game Theoretic aspects of racial segregation and executive compensation

I am a big fan of Presh Talwalkar’s Mind Your Decisions blogsite.  He often posts some very thought provoking entries on the general topic of game theory.  Anyway, in a recent entry entitled Game theory videos by Tim Harford, Presh points out a couple of particularly interesting YouTube videos on game theoretic aspects of racial segregation (see Youtube video: racial segregation, which is based upon the Schelling Segregation model) and executive compensation (see Youtube video: why your boss is overpaid , which is based upon tournament theory).

Assorted Links (5/10/2010

Here’s a list of articles that I have been reading lately:

David McCourt: FCC Regulation of the Internet May Chill Investment in Broadband – WSJ.com

online.wsj.com

“In The Wall Street Journal, David McCourt says the FCC’s determination to impose net neutrality regulations on ISP companies will make investments in broadband more uncertain.”

Fouad Ajami: Islam’s Nowhere Men – WSJ.com

online.wsj.com

“In The Wall Street Journal, Fouad Ajami notes that millions of young Muslim men like Faisal Shahzad are unsettled by a modern world they can neither master nor reject.”

ObamaCare’s Phony Medicaid ‘Deal’ – WSJ.com

online.wsj.com

“In The Wall Street Journal, constitutional law professor Richard Epstein says that the new health law unconstitutionally coerces the states.”

Is It Too Big to Save? — The American, A Magazine of Ideas

www.american.com

“If you’re only going to read one book on the financial crisis, this should be the one. ”

Shahzad’s Lesson: Foreclosed Is Forearmed – WSJ.com

online.wsj.com

“In The Wall Street Journal, satirist Joe Queenan writes that history is littered with tales of men who turned to violence because of bad real-estate investments.”

Julius Caesar of the Internet – WSJ.com

online.wsj.com

“The Wall Street Journal writes that the Obama Administration’s attempt to regulate the Internet is unlawful and unnecessary.”

Global markets: So, about that crash | The Economist

www.economist.com

“ON THURSDAY afternoon, between 2:30 and 3:00, the Dow Jones Industrial Average suffered one of the largest and most dramatic swings in its long history. In the space of just a few minutes, the Dow went from being down around 300 points to being down nearly 1,000 points.”

Jeffrey Miron » Blog Archive » Regulating the Internet

jeffreymiron.com

“In a move that will stoke a battle over the future of the Internet, the federal government plans to propose regulating broadband lines under decades-old rules designed for traditional phone networks.”

Kim Strassel: Financial Reform Goldman Can Love – WSJ.com

online.wsj.com

“In The Wall Street Journal, Potomac Watch columnist Kimberley Strassel notes that the Democrats’ anti-Wall Street rhetoric conceals a major fund-raising campaign. The actual financial reforms will not seriously damage the major players.”

What the Hell Just Happened in the Market? – Business – The Atlantic

www.theatlantic.com

“For those who don’t have Bloomberg News on 24/7, the Dow just dropped almost 1,000 points…”

Michael Boskin: Time to Junk the Corporate Tax – WSJ.com

online.wsj.com

“In The Wall Street Journal, MIchael Boskin writes that the U.S.has the second-highest corporate income tax rate of any advanced economy, and that reforming it would boost the economy and future business investment.”

Dan Henninger: Blame Obama. Why Not? – WSJ.com

online.wsj.com

“In The Wall Street Journal, Dan Henninger writes that as the oil-spill cleanup shows, some things are beyond even Barack Obama’s belief in the powers of government.”

Another Fine Mess – WSJ.com

online.wsj.com

“John Fund writes in The Wall Street Journal that the Obama administration was caught unprepared for the oil spill.”

Why Our Current Budget Situation Is a Crisis — The American, A Magazine of Ideas

www.american.com

“There is no precedent for reducing the ratio of debt to GDP by simply growing our way out of it.”

Robert G. Wilmers: What About Reforming Fannie Mae and Freddie Mac? – WSJ.com

online.wsj.com

“In The Wall Street Journal, Robert G. Wilmers, the chairman and CEO of M&T Bank Corporation, says that Fannie and Freddie need to be reformed, lest we have another financial crisis down the road.”

Drilling in Deep Water – WSJ.com

online.wsj.com

“The Wall Street Journal writes that a ban on offshore production won’t mean fewer oil spills.”

Fred Barnes: Democrats at Ramming Speed – WSJ.com

online.wsj.com

“In The Wall Street Journal, Fred Barnes writes that the White House wants to pass as much legislation as possible before losing its big majorities, no matter how unpopular its proposals are.”

Brian M. Carney: A Tale of Three Cities – WSJ.com

online.wsj.com

“Editorial Page Editor Brian M. Carney writes in The Wall Street Journal that Athens, London and Washington each respond to looming insolvency in telling ways.”

Esther Duflo: Social experiments to fight poverty | Video on TED.com

www.ted.com

“Alleviating poverty is more guesswork than science, and lack of data on aid’s impact raises questions about how to provide it. But Clark Medal-winner Esther Duflo says it’s possible to know which development efforts help and which hurt — by testing solutions with randomized trials.”

Assorted Links (4/8/2010)

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

Source: online.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

Source: online.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.”

Source: caseymulligan.blogspot.com


“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

Source: online.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

Source: online.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.”

Source: www.reuters.com


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.

Financial Crisis

Source: jeffreymiron.com

“Lewis’s main message is that Wall Street engaged in reckless and dishonest behavior by leveraging and mispresenting unimaginable amounts of risky, subprime debt.”

Source: www.theatlantic.com

“The Government Accountability Office has a report out today on the unfunded liabilities of the GM and Chrysler pensions.”

 

Health Care Reform

  • Will the Individual Mandate Hold up in Court? — The American, A Magazine of Ideas

Source: www.american.com


“The healthcare insurance mandate is unconstitutional. But don’t expect the Supreme Court to rule it so.”

The Price Elasticity of Demand for the Apple iPad

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

  1. the price elasticity of demand for the 16-gigabyte iPad is = P/(MC – P)
    = 499/(260-499) = -2.09;
  2. the price elasticity of demand for the 32-gigabyte iPad is = P/(MC – P)
    = 599/(289-599) = -1.93; and
  3. 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”.