Priyanka's Econ Blog

“Asians must Invest” February 11, 2010

Filed under: Section 2 — priyanka821 @ 3:03 am

Asia’s surplus has been widely blamed (unfairly) for causing the global crisis. The housing bubble was destroyed by inflows of foreign money that helped inflate the market. Many Westerners believe that Asians should spend their money rather than bank it away. But a more rigorous analysis suggests that in most Asian economies it is investment, not consumption, that is too low.

Even economists who believe that most of the blame for the crisis lies in Washington, DC, argue that Asian economies need to shift from exports and investment to consumption as their new engine of growth. “Asian economies fell from 65% of GDP in 1980 to 47% in 2008. American consumer spending, by contrast, accounts for more than 70% of GDP(Roach, 2009).” In China the blame lies entirely with saving, which rose faster than its investment rate. (India’s saving rate climbed just as steeply, but it was matched by an even bigger jump in investment, which kept its current account in deficit.)

Figure 1: Plunging Investment Rates of Asia since 1995

As seen in the figure above, the saving and investment curves correlate, yet savings are much higher than investments. Asians are scared to lose money in their market as the stock market is full of risks. The Indians in 2009  invested about 46% of their GDP, as a consequence of their steady economic growth in the past few years. Philippines, has remained low on investment, being the least investing country in 1995 and also in 2009. With more investment in markets, companies will have an opportunity to innovate more with better resources and create useful products. With useful products, consumer demand will increase and the global economy could be stimulated again.

current account surplus: Equal to country’s domestic saving minus its domestic investment.

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Monopoly Presentation Reflection February 10, 2010

Filed under: Section 2 — priyanka821 @ 12:15 am

Our group did a presentation on Monopoly and it went well. Dalia, one of our group members, was missing, but we did a good job of covering it up. Next time when doing a presentation, I want to try to explain the graphs and how it works. Also, next time we should explain our product more. We declared that monopoly was best for the company, but we did not discuss what is best for the community. I think it would be more effective if we split the talking time equally between all speakers instead of only Irfani talking.

 

MINT theatre February 5, 2010

Filed under: Section 2 — priyanka821 @ 3:39 am

At MINT theater in Sannomiya, a child pays 1,000 yen, a high schooler pays 1,500 yen, and an adult pays 1,800 to watch the same movie. This is an example of price discrimination. This may be due to the fact that with a child, is usually accompanied with an adult, thus the theatre makes 2,800 yen.

“Price discrimination or yield management occurs when a firm charges a different price to different groups of consumers for an identical good or service, for reasons not associated with costs (Riley, 2006).”

Price discrimination is a common form of a strategy that businesses use to increase revenue. They can target specific  age, nationality, income, sex and etc. Price discrimination is an extremely common type of pricing strategy operated by virtually every business with some discretionary pricing power. It is a classic part of price competition between firms seeking a market advantage or to protect an established market position.

Price discrimination is effective because the demand for a product varies within different consumer groups. The group that has a more inelastic demand for a certain product is likely to be charged higher for the product. For example, MINT theater charges a higher price to adults as they have a higher income and their demand for movie tickets will be rather inelastic. However, a high school student with a part time job, who has a lower income will have a more elastic demand for movie tickets in relation to price. If MINT theater does not give them a lower price, they will not come to the movies as often, and MINT theater will be losing revenue. Through price discriminating, there is always a supplementary profit made. However, the big question is whether or not is fair.

For more information visit:

Price Discrimination

 

Cost and Revenue in the Magical world of Disney January 25, 2010

Filed under: Section 2 — priyanka821 @ 1:39 am

Based on tickets alone, with about $2.8 billion in worldwide box office through the end of November. Disney is already up about 16 percent over its 2008 global total. Though revenues have soared for Disney, so have costs.

The major issue was that the production and marketing costs of 3D features were too high in 2009. With a lofty price tag ($175 million), the Pixar-produced “Up” ended up in the box-office stratosphere, generating $683 million globally. “Up” was particularly strong oversees, where it’s generated $390 million to date, helping the studio to its fifth highest grossing year ever internationally with $1.6 billion in foreign ticket sales so far.Problem was, though, the two other 3D films released by Disney this year — the Robert Zemeckis-directed “A Christmas Carol” and the Jerry Bruckheimer-produced “G-Force” — couldn’t rise anywhere near that level.

The cost and revenues of Disney are rising, however it would be most beneficial if only revenues were rising. To increase revenues, Disney is planning on making more movies from their hit blockbuster “Hannah Montanna”. An executive of Disney says, “[There will be] change in the way we sell films, market films and produce films. We have to make great films that can return a profit. We can’t do business as usual.” Lowering costs and increasing revenues will be no easy job, but through succesful marketing as Disney has had in the past, profits may soar.

 

Food, Glorious Food January 21, 2010

Filed under: Section 2 — priyanka821 @ 2:58 am

Due to holiday season, US producer prices rose by 0.2% in December that  was led by an increase in the cost of food products. For 2008 as a whole, producer prices increased by 4.4% as the economy start to recover from the recession blunder. Since producer prices rose, marginal costs must have decreased. Marginal costs are increase in total price for producing 1 extra unit of output.

Demand For Food As Holiday Season Approaches

As seen in the figure above, as D moves to D1, the price point moves higher, setting a new equilibrium at E2. Food has a rather inelastic demand and as all companies increase their prices, people are forced to pay higher prices to producers. Excluding food and energy products, which tend to be more volatile, core producer prices were unchanged in December, and were up 0.9% for 2009 as a whole.The sign of a recovering economy shows optimism for the future. However, this will be no easy climb as the credit crunch has shattered dreams for many.

 

Job Cuts in Technology Sector January 20, 2010

Filed under: Section 2 — priyanka821 @ 4:49 am

This year, the job cuts in the tech sector have been the highest since 2005. As the recession hit, many companies stopped investing in new technologies. The firm Challenger and Gray & Christmas Inc. reported that it cut 174, 629 jobs in 2009 which is a 12.3% increase of job cuts since 2008. Though the tech sector has suffered, the electronic companies have had far worse. The tech cut totals were about 13.2% of the 1.3 million jobs lost across all industries on 2009.

The hope for 2010 is a turn around in all industries. The first companies to experience a turn around are expected to be the computer and electronic companies as their work aims for higher efficiency. For instance, a push for electronic health records should boost spending and jobs in the tech sector, the report said, citing data showing that about 44% of physicians use electronic records but only 7% consider the systems fully functional. That means IT professionals will be needed.

Though the future for the tech sector is quite optimistic, it still faces a challenge. The credit crunch destroyed many tech firms because of the low demand. This means fewer businesses in the world  have money to innovate and expand their technologies.

Figure 1: Fixed Costs are Lowered by Cutting Jobs

By initially cutting jobs in the technology sector, the companies were lowering their fixed costs. Fixed costs are costs that do not change as production is increased or decreased. They have to be paid in advance of production. They exist even if output is zero. Even if the companies did not produce anything, they still must pay their workers their wages. This is why competition would be very high, and only the most efficient workers would still have a job at a given company. A company will always try to keep their fixed costs very low, as if they can cut down on it, they will have a more profitable revenue, thus a bigger profit.

 

Tennis Ball Factory January 14, 2010

Filed under: Section 2 — priyanka821 @ 2:10 am

Today in class we did stimulation to demonstrate the law of diminishing returns. The aim was to get as many tennis balls from one side to the can on the other side in 30 seconds. It started off with one person, with  little labor there were only 8 balls in the can at the end of 30 seconds. Then we added a second person and the total product rose to 11 balls. As we added more people, the total product increased. After 3 people, we could quickly divide the labor so that all 3 people relay to put the ball into the can on the other side so that a ball is constantly entering the can.

We could further divide labor at 6 people as a chain where the people on the ends were only responsible for taking the ball out from the bag on one side or dropping it into the can. Everyone else in the middle only moved the ball forward by passing it on to the next person.  However, at 6 people, the total output decreased by 1 and this is because as the number of people increases, the chance of damaging goods increases. Though total output decreased, with innovation at 7 and 8 people our total output increased dramatically to 25 people. This was the most efficient we could be. Our innovations was that 2 people face each other which allowed our production team to be in a  straight line, but the chances of dropping the balls were reduced.

Another innovation which was less effective was when everyone got on their knees to cut time and distance between the people taking the balls out of one side and putting it into the can on the other. Having 7 to 8 people on our team was the optimum, and when we rose to 13, our total output dropped dramatically to 15. It may be thought that since there is more labor, output should increase, but this is not the case. The law of diminishing shows us that with so many people, we cannot be as effective. This is because chances of damaged products increase, and also because workers get in each others way.

At one unit of labor, the average product was 8. As the units of labor increased, the average product decreased steadily. By the time the labor force was 13, the average product produced by each person was 1.2. This again shows that though increasing labor may increase output, after a certain point it does not enhance the labor force and prevents them from working efficiently. Furthermore, the marginal product started at 0 and rose to 5 when the labor force was 3. This then rapidly dropped to -1 by the 6th person. By the 7th labor force, the marginal product rose back to 3. This was mainly due to our innovation which made the team more efficient. Despite innovation, with 13 units of labor our marginal product was again back to negative , except this time it was -10. From this stimulation, we can see the importance of the law of diminishing returns which proves that more is not always better 🙂 .