Monday, October 20, 2014

Ebola Update: Graphs of Cases and Deaths. Not a good trend.

Here is a graph of the Number of Cases of Ebola that have been identified in each of the 4 countries where there has been a significant outbreak.  You can see Nigeria has it under-control, but the other 3 are still on an upward trend. The data was last updated on Oct 14-17.

Here is the Data Set.  It is being compiled from data/reports provided by the affected countries.

Using the same data source, here is a graph of the Number of Deaths thus far in the most affected countries.

The trend is still upward.  Until we see a plateauing this will only get worse.

Saturday, October 18, 2014

Ebola: Latest WHO report suggests deterioration in affected areas in NW Africa

For any of my readers interested in the latest regarding the Ebloa situation in Northwest Africa, here is an excellent resource for you or your students.  It is from the World Health Organization (WHO) and is dated October 15, so it is very recent.

All you need to do is read the first page of the report (and only the 3rd paragraph) to get the idea that at this point the virus is not close to being contained in either Liberia, Sierra Leon or Guinea Bissau.

The international community is going to be playing "Whack-a-Mole" with this for the foreseeable future. Not a good situation.

Also, if you are a data hound, here is a link to a source that is doing yeomans work by combing through unorganized data provided by the respective host countries and putting it on Github.

Thursday, October 16, 2014

NYT column on water in CA. Nice graphic that I think I make more clear.

Eduardo Porter at the New York Times has an excellent column on water policy in California. I highly recommend it.  It discusses many economic concepts, with prices and opportunity costs most prominent.

He includes this first graph that shows water consumption at different prices for several different developed countries:

Notice the "Quantity" is on the vertical axis and "Price" is on the horizontal axis.  In economics (by tradition) when we plot demand (or supply) we do the reverse---Price on the vertical, Quantity on the Horizontal.

To put it terms that an introductory econ student can better visualize, I took the plotted points on the graph, reversed the axis, and replotted the points to derive a traditional demand curve as we would recognize from a textbook.  That is below.

The Demand Curve DOES slope downward!

PLEASE NOTE:  I did this by hand "eyeballing" the points so it is not absolutely correct but I hope relatively correct for the most part.  Also, the RED Demand curve I drew is not necessarily mathematically correct either---eyeballed as well.  I accept there is a margin of error! :)

Three countries are outliers compared to the rest: the US, Australia and Canada.

Side by side, both of these help me visualize the issue better.  I hope it does for you as well.

Netflix and Elasticity of Demand. Nice article for illustration.

Rarely do I come across an article or commentary (like the one below) that is a great help in giving life to relatively difficult introductory economics concepts.  This from Slate regarding Netflix is a gift for teaching Elasticity of Demand:

Netflix Says a $1 Price Increase Crushed Its Subscriber Growth

Netflix tacked on about 3 million new users across the globe over the last three months, undershooting its forecast of 3.7 million. But perhaps more worrisome, it’s growth in the U.S. fell year over year, reaching just 1 million net new signups, down from 1.3 million in the third quarter of 2013. The company is blaming its $1 price hike in May, which raised the cost of a subscription to $8.99 per month.(emphasis mine) “As best we can tell, the primary cause is the slightly higher prices we now have compared to a year ago," management said in its letter to shareholders. "Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher adoption markets such as the US.”  
What is happening here is that subscriber growth is increasing (1 million more) BUT it is increasing at a decreasing rate (1.3 million last year). This works out to a year-over-year decrease in quantity demanded, relative to the prior year, of 300,000 subscribers.  In percentage terms that is a decrease of 23% (1.3M-300,000 divided by 1.3 M X100).

Over that period of time the price increased from  $7.99 to $8.99, an increase of 12.5%.

Using the simple Elasticity of Demand formula:
%Change in Quantity Demanded divided by %Change in Price
Doing the math, we have 23%/12.5% = 1.84.

An elasticity greater than 1.00 suggests the demand for a good or service is relatively ELASTIC. The higher the number the MORE sensitive consumers are to changes in the price of the good/service.
"Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher adoption markets such as the US."
Elasticity measures changes along an EXISTING Demand curve.  In order to counter this movement up and along its Demand curve, Netflix will have to figure out a way to shift that Demand curve to the RIGHT (an increase in Demand):
"Slightly less growth" is a bit of an understatement. The slowdown suggests that streaming customers might be more cost-conscious than it previously seemed. When prices first went up in the spring, subscription growth didn't seem to take a hit. But now, the company thinks that may have been due to  "the large positive reception to Season Two of Orange is the New Black." 
But maybe that's the silver lining here: If it just manages to come up with a few more decent programs, investors might buck up." (emphasis mine)
This suggests if Netflix produced more programs that people as a whole wanted to view, then the quantity demanded will increase at the new price.  Demand curve shifts right and revenues, ceterus paribus, will recover.

At least Netflix hopes so. Creative Destruction with new streaming services are just around the corner.

Friday, October 10, 2014

The New UK Minimum Wage in current and PPP exchange rates compared to US Minimum Wage.

The UK has different minimum wages for different age groups and for those who are classified as "apprentices".

Th numbers below are from the website.

The wages are in current, nominal British Pounds Sterling.  I highlighted the 2014 rate that took affect this month (October).

For comparison to the US minimum wage of $7.25 here are the conversions in current market exchange rates and in the Purchasing Power Parity (PPP) exchange rate.  Go HERE for an excellent explanation of PPP, if you need it.

Economists, in general, prefer the PPP exchange rate because it more accurately measures the actual purchasing power of currencies and is less volitile than the market exchange rates that can flucuate for transient reasons.

Current Market Exchange Rates (1 British Pound Sterling exchanges for $1.61 US dollars).

   21 and over: 6.50 Pounds X $1.61 = $10.47
   18-20 : 5.13 Pounds X $1.61 = $8.26
   Under 18: 3.79 Pounds X $1.61 = $6.10
   Apprentice: 2.73 Pouns X $1.61 = $4.40

Purchasing Power Parity (PPP) (1 British Pound Sterling exchanges for $1.36--source OECD)

   21 and over: 6.50 Pounds X $1.36 = $8.84
   18-20 : 5.13 Pounds X $1.36 = $6.98
   Under 18: 3.79 Pounds X $1.36 = $5.15
   Apprentice: 2.73 Pounds X $1.36 = $3.71

In either measure, the minimum wage for those over 21 in the UK is higher than the US minimum wage.

However, below that level using PPP the effective minimum wage falls below that of the US. US teens are "better off" in terms of the wage (I am NOT factoring in other benefits or costs  that exist--just comparing the absolute wage rate).

When reading media accounts of the differences in Minimum Wages around the world it is important to know if they are reporting in actual exchange rates or in PPP.

As you can see, it makes a BIG difference.

NOTE: Here is a link to an entry I did like this for AUSTRALIA.

Thursday, October 9, 2014

China vs the US in GDP measurement. I try to explain it using actual vs PPP exchange rates.

China reported its Gross Domestic Product to be 56.88 trillion Yuan in 2013. I am going to assume this is "Nominal GDP", not adjusted for inflation, but I do not know that for certain.  I got this from a Chinese newspaper Zinhuanet HERE.  On January 1st of 2014 the official exchange rate was 1 Renminbi (Yuan and Renminbi are used interchangeably, sort of) exchanged for $.16529 US cents.

So, putting the GDP in Yuan in dollar terms at the market exchange rate we would take 56.88 Trillion Yuan multiplied by $.16529 and that would equal $9.4 Trillion US dollars.

At the end of 2013 the US Real GDP was $16.768 Trillion dollars (Nominal dollars)

Either way you figure it US GDP is about $7 Trillion more than China's using current (Jan 1, 2014) market exchange rates.

What about many/most economists preferred measure of exchange rates: the Purchasing Power Parity (PPP)?

According to theWorld Bank, the PPP exchange rate (2011 is the latest calculation) is 1 Renminbi exchanges for $.28 US cents.

If we take 56.88 Trillion Yuan and multiply by $.28 US cents, the PPPexchange rate, we get $15.926 Trillion US dollars, about $800 million shy of the US GDP at the end of 2013.

The big picture here suggests the Yuan is UNDERVALUED relative to the US dollar.  Instead of the actual market exchange rate where $1.00 US dollar "buys" 6.04 Yuan (or 1 Yuan buys $.16529 US cents) it should buy only 3.57 Yuan ( or 1 Yuan buys $.28 US Cents) based on PPP.

In other words, the dollar should be weaker (depreciate) and the Yuan should be stronger (Appreciate).

But it is not, hence the difference in nominal GDP's based on actual exchange rates as compared to PPP.

I hope that makes some sense. Quite the difficult concept to walk through!

Depreciation and Small businesses in Japan. My example.

Here is a nice article on how swings in currency exchange rates are having an adverse affect on small businesses in Japan. Here is an excerpt and below that I do a simple example to show how this works in "real life".  Exchange Rates MATTER!

Data Show More Smaller Companies Succumbing to Weak Yen

"The failed businesses, many of them small, were struck by the higher costs of imported materials such as fuel, minerals and food as the exchange rate shifted from less than ¥80 per dollar two years ago to as high as ¥110 in recent days.(*emphasis mine).
Hit hardest was the transportation industry, including trucking companies, which saw 81 companies go bankrupt. The number of insolvencies totaled 44 in manufacturing, 41 in wholesale and 19 in services, the research company said."

I am a Japanese small business-person.  I produce a "widget" that sells for $100 Yen in Tokyo.

Assume half the cost of producing and selling one widget comes from inputs I must import from the US--50 Yen. Prior to the weakening of the Yen against the dollar, one US dollar exchanged for 80 Yen or, inversely, one Yen exchanged for 1.3 US cents.

So, for me to purchase my inputs from the US I took 50 Yen and sold them for 1.3 cents each for a total of 6.5 US cents. Remember, this is half the cost for me to produce and sell the widget. This means the price for my widget, in US currency, is 13 US cents.

Now, the exchange rate moves to one US dollar exchanges for 110 Yen or, inversely, one Yen exchanges for .9 US cents (9/10ths of a cent/penny).  The Yen does not "buy" as much US currency as it did before.  So I am going to have to give up MORE Yen in order to pay for the 6.5 US cents worth of inputs I need.

How many Yen do I need at the exchange rate of one Yen buys 9/10th of a cent to get 6.5 US cents?

YEN ("X") Times .09 US cents = 6.5 US Cents.  Solve for YEN "X" and you get 72.22 Yen.

Through no fault of my own, events beyond my control, my cost of production using US inputs has increased from 50 Yen to 72.22 Yen, a 44% increase.

Assuming I have little pricing power domestically because of competition and cannot raise the price, it is easy to see how small companies in Japan are under pressure. If they cannot cut costs elsewhere to off-set the currency swing, then they risk going out of business.

I hope this simple example helps you understand better how changes in exchanges rates can affect big AND small businesses.

Tuesday, October 7, 2014

Lower gas prices and higher consumer welfare for the win.

I read the following passage at Carpe Diem (emphasis mine):
According to the Department of Energy, Americans buy 365 million gallons of gasoline every day, so every one cent drop in prices at the pump saves consumers $3.65 million per day, and $1.33 billion dollars over a year. Therefore, the 42 cent drop in prices since April will save US consumers almost $56 billion over the next year compared to what they would have paid if gas remained at $3.70 per gallon.
Think of an increase or decrease in the price of a good (or service) as a transfer of purchasing power from producer to consumer and vice versa.

When the price of something that is effectively a fixed "need" in the short term (gasoline, some food items, a utility bill, etc) changes is has a large impact on our individual welfare and consumption possibilities for other goods/servics that are more "luxuries" (by way of a very lenient definition) to us.

Those saved dollars from lower gas prices might not be explicit to us but they do appear elsewhere in the bundle of goods/services we consume on a regular basis.

I would think a good portion of that $56 billion shows up in retail spending such as food away from home, entertainment, and whatever you might buy at the Mall/Walmart after you fill up the tank.

In terms of GDP it is a wash.  Either the fuel companies get the money or you do and in turn other businesses get it when you spend it.

However, in terms of our standard of living, individually we are better off because we get to purchase other stuff with the extra money from lower gasoline prices.

This "surplus" welfare for consumers is not captured in the GDP accounting.

However, it is captured in my heart.  I LOVE MY SURPLUS!

NFL prices in 1989 and today. Nice lesson on Inflation.

I found this on Twitter (I do not have the original link).

Shows how much a Season Ticket Package for all the NFL teams cost in 1989 (or it could be 1990, it does not show) in the far right column.

I am assuming the numbers for each year are the number of season ticket packages that were sold then the percent change from 1988 to 1989.

Divide each package by 8 games and you will get the single game price.

Below is a price list for 2013. The yellow highlighted section is for average individual, single game tickets.

Compare the single game price average in 1989 (divide the season package price by 8) with the prices below.

General inflation has increase 92% since 1989 (put $1.00 in the BLS calculator for 1989)

The 1988 (season) Super Bowl Champion was the SF 49ers.

A single game ticket now costs about $84 on average ($275 for a premium ticket).  In 1989 you could get an 8 game season ticket for $250.00, for an average game price of $31.25.  Depending on how much of a break one gets today on the season ticket cost for that seat it may very well work out that a ticket to a 49ers game has kept up with inflation (more likely it has fell behind, though).  We would have to compare a comparable seat.

Have fun with your favorite team and see how much prices have increased relative to inflation.

Source: HERE

Sunday, October 5, 2014

Sometimes Appreciation is not appreciated at all: The currency edtion

Companies that do business internationally care about movements in currency exchange rates.  They can affect the bottom line in a way the corporation has little control.

Latest Threat to Corporate Earnings: The Almighty Dollar
"While U.S. executives must be pleased with encouraging news about the economy—including Friday’s strong jobs report—it may prove a mixed blessing for their bottom lines. That is because American corporations, as represented by the S&P 500, aren’t that American. Over 40% of sales come from outside the country. 
The problem isn’t only the absence of similar momentum abroad, but that the U.S. increasingly looks like it will soon be on the road to higher interest rates. 
That makes the dollar relatively attractive. In just the past three months, the greenback has gained 8.4% against the euro and 7.5% against the yen, big moves in the foreign-exchange market." (Emphasis mine)
 A simple example to illustrate this.

Assume the US dollar and the Euro are trading at parity:  $1.00 exchanges for 1.00 Euro, 1.00 Euro exchanges for $1.00 (they are not, but go with it).

So, profits of 1,000,000 Euros will exchange back into $1,000,000US dollars.

The Dollar "gains" or appreciates 8.4% as the excerpt above suggests.  This means that $1.00US will exchange for 1.084 Euros and 1.00 Euro will exchange for $.923 US cents ($1.00/1.084 Euros--a simple reciprocal).

So, our 1,000,000 in profits in Euros will exchange into $923,000US dollars (1M Euros X $.923)---a loss through the exchange rate change of $77,000 US dollars.

However, there is a flip side for a European firm making profits in the US.

If they take profits of $1,000,000 US dollars and exchange it back into Euros they will receive 1,084,000 Euros---a gain of 84,000 Euros as a result of the currency change.

Exchange rate swings can be a blessing or a curse for a corporation expatriating profits. It just depends on which side of the fence you are standing on as to how you will be affected.

The War on Salmon! Smoke dope, eat almonds, kill fish.

Two articles I read this morning have the same thing in common---the plight of salmon in California due to a severe water shortage.  Nice examples of scarcity of a resource (water) and how opportunity costs arise in allocating that resource (for salmon? almonds? marijuana?).

Each article cites a different culprit for the suffering salmon (emphasis mine):

Cannabis farming in California using so much water it could wipe out salmon population, biologists warn

"Water use and other actions by the marijuana industry in the Emerald Triangle of Northern California and Southern Oregon are threatening salmon already in danger of extinction, US biologists have said."
California Drought Has Wild Salmon Competing With Almonds For Water
"The ongoing California drought has pitted wild salmon against farmers in a fight for water. While growers of almonds, one of the state's biggest and most lucrative crops, enjoy booming production and skyrocketing sales to China, the fish, it seems, might be left high and dry this summer—and maybe even dead."
Use marijuana, quench the munchies with almonds, kill salmon.

Save the salmon, but don't smoke dope and/or eat almonds.

Change the order, but the lesson remains the same:  Choices, choices...

Friday, October 3, 2014

How are Complementary Goods like Unicorns?

Sometimes is it hard to come up with good examples of Complements when studying the basics of supply and demand.  They can be elusive, like unicorns.

Complementary Goods are generally taught as a demand-side function.  It describes the relationship between two goods that are separate and distinct but often (or always) used together. There is an INVERSE relationship between the change the price of one good and the demand for the other.

Here is an example (source HERE)

Low meat supply, low spice demand

You may remember hearing about a shortage of certain meat products at fast-food restaurants in China over the summer, due to the news that a major supplier was handling meat improperly and selling expired meat to restaurants. 
The impact reached across oceans, certainly to the fast-food chains like McDonald’s, which changed suppliers and couldn’t keep up with the demand because of the news. 
But less meat to eat also means less meat to season, so McCormick & Co. Inc. also lost out. The Baltimore-based spice maker acknowledged the effects in its quarterly report Thursday. 
“Our quick service restaurant customers in the Asia-Pacific region are currently being impacted by well-publicized supply issues,” said President and CEO Alan Wilson. “This is affecting our sales results in the region and has us cautious in our near term outlook.” 
That region showed a 1 percent decrease in industrial sales as a result.
With a decrease in supply of beef the price of beef increases.  When the price deceases the quantity demanded for beef decreases (movement ALONG the Demand Curve).

With less beef being produced and consumed there is less need for complementary goods, like spices. The Demand for spices will decrease as a result.

Notice the inverse relationship:  Price of Beef Increases, the Demand for Spices  Decreases.  

That is characteristic of Complementary goods (and services).

Having fun with 1938 prices.

Nice graphic showing a cross-section of prices in 1938 (Link HERE).  How have things changed?

Embedded image permalink
Source: Classic Pics on Twitter
Here are the same prices with the inflation adjusted figure in parenthesis.  In other words, if these individual 1938 prices kept pace with overall inflation then the amount in parenthesis would be what those items would cost in today's dollars.

          New House:  $3,900.00 ($65,788.85)

          Average Income: $1,731.00/year ($29,200.13)

          New Car: $860 ($14,507.29)

          Average Rent: $27.00/month ($455.46)

          Tuition to Harvard University: $420.00/year ($7,084.95)

          Movie Ticket: $.25 ($4.22)

          Gasoline: $.10/gallon ($1.69)

          US Postage Stamp: $.10 ($1.69)

          Granulated Sugar: $.59 for 10 pounds ($9.95)

          Vitamin D Milk: $.50/gallon ($8.43)

          Ground Coffee: $.39/pound ($6.58)

          Bacon: $.32/pound ($5.40)

          Eggs: $.18/dozen ($3.04)

One way to look at this:  If the number in parenthesis is GREATER than what you would pay for that good today, then over time the price of that good has risen LESS than inflation.  You can look at this as a good thing.

Couple of observations:

A stamp to mail a letter today is $.49.  If it had increased with general rate of inflation since 1938 it would be $1.69 today.

I am pretty sure just ONE class at Harvard costs $7,000 today so the cost of Harvard has increase MUCH more than the general rate of inflation.

A movie ticket (general admission, not discounted) is more than $4.22 today.

You might say the price of a new car has stayed the same.  You could buy a car today for $14,507 that one could argue is BETTER than a car built in 1938 in terms of features.

Probably gets beat on style, though! :)

It is interesting to me to look at history through the prism of prices. What do you see?

Friday, September 26, 2014

See the amount of Federal Tax Refunds issued for the day and tell me this is not inefficient

Below is a small section of the US Treasury's daily report on various metrics.  It is a short document and has some pretty interesting numbers as they pertain to the operations of the Federal Government.  I urge you to check it out.

I was lead to it from this Wall Street Journal blog entry.

This section made me pause.  It shows on a daily, monthly and yearly basis the amount of refunds the Federal Govt sends back to businesses and individuals. Presumably this is because after filing tax forms these entities proved to the government they over-paid throughout the year in tax withholding.

You can see the numbers below.

Tax refunds issued for the day were $397 million; for the month-to-date is $5.474 billion; and for the year-to-date is $361.193 billion.

It is nice to get these checks, but wouldn't it be more efficient to not go in such a roundabout way to keep the money flowing in the first place?  Seems like a significant amount of Dead Weight Loss is created--all it is doing is moving money in a circle and creating significant transaction costs, i.e. time, tax preparation, bureaucracy to handle it, etc, ad nauseam.

A Consumption tax? A Flat Tax?  A Something Else Tax?  Just explicitly pay what you owe, no more and no less.

Maybe I am just having a bad day... :)

From US Teasury Daily Report.

Thursday, September 25, 2014

Price of iPhones, in select countries, converted into US dollars. Is arbitrage the reason for long lines?

I found the prices of the new iPhone6 in various countries at this link HERE.  They have the prices for the "regular" one and the "Plus".

The conversion I do below is just for the "regular" iPhone With NO CONTRACT.

In the first column are the prices in local currency for the respective country.

The second column I calculated how much the holders of those currencies would have to exchange in order to buy the iPhone in the US instead.

The third column shows the difference in local currency between what it would cost residents to buy an iPhone in their own country at the local price vs how much they would have to convert to buy it in the US in US dollars.

For example, in the UK a 16GB phone is  £539.  In the US it is $649.  At today's exchange rate of 1 pound sterling exchanges for $1.633384 dollars, a Brit would need exactly £397.22 to buy the phone in the US.  That is a SAVINGS of £141.78 for them over the UK retail price!

In US dollars that is $231.58 ( £141.78 X $1.633384). A lot, isn't it?  Seems like a GREAT opportunity for "Arbitrage".  Buy low at retail in the US and still sell below the retail price in the UK and make some money, right?

Included in the price quoted above for the UK (and I believe for the other countries listed) is a thing called the Value Added Tax or "VAT.

Here is the breakdown for the UK (found HERE)

16GB - £539 (£449.17 ex VAT)
64GB - £619 (£515.83 ex VAT)
128GB - £699 (£582.50 ex VAT)

So the ACTUAL prices of the phones, minus the VAT, are in parenthesis.  If you take these numbers and subtract  the 2nd column numbers it will show a much lower difference, hence a smaller arbitrage opportunity. It almost disappears if you were to add on the Sales Tax to the US prices listed.

It seems to only way to make money buying in the US and selling in the UK (and the other countries listed EXCEPT Japan) is to trade on the Black Market to avoid the steep VAT taxes.

I am sure that is not the reason for the long lines in the US and people buying multiple phones....RIGHT?