EconLife.com

blog: Chinese Oreos

Sun, 05 Feb 2012 00:00:00 GMT

Everybody in the U.S. knows that eating an Oreo is an experience. You split open the cookie, slowly swallow the filling, and then submerge its chocolate remains in your milk. At Kraft they call it, "Twist. Lick. Dunk."

When the Oreo team brought their cookie to China in 1996, they expected that familiar enthusiastic response. Instead, sales were tepid. Consumers said the taste was too sweet and no one knew to "twist, lick and dunk."

Taking a second look at the Chinese cookie eater, Kraft decided to redefine the Oreo experience. They made the cookie less sweet, created a cylindrical/straw-like Oreo that dipped but did not divide, and developed nonwhite fillings. With the new product, they marketed a cheaper package that more people could afford and an ad campaign that introduced the dunk in the milk concept. The result? Kraft is now #1 in China.

Here is an Oreo Wafer Stix ad.

The Economic Lesson

Being a trading nation is about more than shipping products abroad. At first it was the 18th century New England merchants who facilitated trade from home. During the 19th century, businesses like I. M. Singer & Co. (sewing machines) secured foreign patents, sold exclusive selling rights to representatives abroad and established foreign manufacturing facilities. Then, the next step was the foreign subsidiary through which the multinational firm increasingly took on the identity of its home away from home.

And that returns us to the Chinese Oreo.

An Economic Question: Which multinationals produced your Adidas sneakers, your Bic pens and your Ben & Jerry's Ice Cream?

note: Kodak Asks Court to Remove Its Name From the Oscars Theater

Sun, 05 Feb 2012 00:00:00 GMT

"The Eastman Kodak Co., as part of its federal bankruptcy court filing, says it wants to get out of the deal made in 2000 by which it has naming rights to the theater in the Hollywood & Highland complex where the Academy Awards have been held since 2002."

note: On a lighter note...

Sun, 05 Feb 2012 00:00:00 GMT

Facebook has set a historic IPO!

blog: Jobs Questions

Sat, 04 Feb 2012 00:00:00 GMT

Hearing that the U.S. economy gained 243,000 jobs last month, wouldn't you think that there were 243,000 more jobs?

NY Times financial journalist Floyd Norris explains that actually, the economy LOST 2,689,000 jobs. But, it would be misleading for the Bureau of Labor Statistics (BLS) news release to report the real number because of seasonal fluctuations in the jobs market. Holiday hiring during every December inflates the numbers and then they quickly deflate during January. To compensate for data that would have obscured our true economic trajectory, the numbers were seasonally adjusted...from -2,689,000 to +243,000.

However, not everyone agrees on the appropriate approach to seasonal adjustment. And that returns us to the problem with statistics. Seemingly objective, a close look (as with college ranking) reveals much more.

The Economic Lesson

If you saw more job creation during December 2008, you could have concluded that the economy had entered the road to recovery. However, knowing the holidays were the reason, and that it happened every December, you might have changed your mind. Called seasonal variation, adjusting monthly data to let us see where the economy is going is perfectly explained by the Dallas Fed here. The graph that they include with a seasonally adjusted and a seasonally unadjusted line ideally displays the difference between the two.

An Economic Question: Before looking at the Dallas Fed's graph, draw an unemployment graph with unadjusted data for an economy experiencing a worsening recession during one year. Then, eliminating the temporary economic impact of summers and holidays, draw a second unemployment graph for the same year.

note: NASDAQ Hits 11 Year High

Sat, 04 Feb 2012 00:00:00 GMT

"Stocks rose after the U.S. economy added more jobs than expected last month, driving the Nasdaq Composite to an 11-year high and pushing the Dow to its highest reading in almost four years."

note: On a lighter note...

Sat, 04 Feb 2012 00:00:00 GMT

Madonna's album has not even come out yet and it is already #1 on iTunes.

blog: Pricey Pigeons

Fri, 03 Feb 2012 00:00:00 GMT

At the Paradise Pigeon auction in Belgium, a Dutch breeder sold a female pigeon to a Chinese shipbuilder for $328,000. Purchased to breed rather than race, Dolce Vita (the bird) will enable Hu Zhen Yu, also the owner of a pigeon racing group, to elevate China in a sport that had been dominated by Germany, Holland, Great Britain and Belgium.

With the capacity to fly more than 60 miles an hour and to cover 500 miles in one day, carrier pigeons are faster than any horse and rider. As a result, sort of like FedEx, they were used to fly stock prices between cities during the mid-19th century before the telegraph replaced them.

Our bottom line? Prices created by markets convey valuable information.

The Economic Lesson

A market is a process that determines the price and quantity of a good or a service. The demand schedule records the different amounts of a commodity, at different prices, that people are willing and able to buy. Correspondingly, the decisions of those who are willing and able to sell different quantities of the item at different prices are the supply side. When they interact, a market results.

The price of Dolce Vita was more than a number. It represented a wealth of facts about the carrier pigeon market. Because a market created the price, it was meaningful.

An Economic Question: Think of a $20 sweater and a $100 sweater. What information does each price convey?

note: On A Lighter Note...

Fri, 03 Feb 2012 00:00:00 GMT

"SwaddleDesigns, a Seattle-based small business maker, scores first-ever license to make baby products for the mega-popular Angry Birds brand"

note: Fifth Straight Month Of Declines For China Housing Market

Fri, 03 Feb 2012 00:00:00 GMT

"While some pundits might see the continued decline in China housing prices as evidence China is on the verge of a U.S. style housing crisis, anti-inflationary policies are largely to blame"

pulse: And the Oscar Goes To...

Fri, 03 Feb 2012 00:00:00 GMT

The Academy recently announced that it will be switching to electronic ballots in 2013. But experts say this could open the doors to a variety of cyber attacks that could falsify outcomes. Hot or not?

blog: Super Bowl Economics

Thu, 02 Feb 2012 00:00:00 GMT

The least expensive Super Bowl weekend in Indianapolis might cost close to $6248. That means you purchased a "nosebleed" seat for $2100 from StubHub, your coach airfare from NY or Boston was $1379 instead of the usual $400, and you are paying $1840 for a 2 night stay in an airport hotel that typically charges $47 a room. For your car, Hertz shifted its normal weekend rate from $102.42 to $429.89 and a parking spot near the game might cost $499.

$2100 (tickets)+$1379 (airfare)+$1840 (hotel)+$430 (car) +$499 (parking)=$6248

Other Super Bowl economics? The National Chicken Council reported that on Super Bowl Sunday last year, we consumed more than 1.24 billion chicken wings. Likewise, according to The Big Three (Pizza Hut, Papa John's and Dominos), we doubled our pizza orders.

Do Super Bowl cities benefit from a surge in spending? Maybe. It all depends on several questions.

Leakage: Does the money go elsewhere? Does the money spent at Pizza Hut and elsewhere go to a local owner or to the national firm?

Crowding out: If locals stay home, will certain retailers experience less business?

Money transferred: Would some of the money spent for Super Bowl goods and services have been spent elsewhere anyhow?

Investment: How much money did the city spend to prepare for the event?

The Economic Lesson

The blip in prices is perfectly illustrated on demand and supply graphs. Perhaps all you need for the supply side is a shift in the curve's position and also a change in its shape. The shift is upward and the curve becomes horizontal at the new, high price. Meanwhile, you have a demand curve reflecting individuals and businesses that are willing and able to spend astronomical dollars. Combine the two, equilibrium soars, and as a result, a parking space can cost $499.

An Economic Question: How would you draw a supply and demand graph illustrating skyrocketing Super Bowl prices?

note: Super Bowl Commercial Ready to Inspire

Thu, 02 Feb 2012 00:00:00 GMT

The Kauffman Foundation has created a Super Bowl commercial that, instead of urging viewers to buy a certain product, encourages them to actually start their own business. Could this be the advertisement that plants the seed in a soon-to-be-great innovator's head?

note: On a lighter note...

Thu, 02 Feb 2012 00:00:00 GMT

Check out FOX Sports' top 10 Super Bowl commercial picks of all time.

blog: Marginal Children

Wed, 01 Feb 2012 00:00:00 GMT

By Mira Korber, guest blogger.

American births are on the decline; the number per year has fallen from 4.3 million (2007) to 4 million (2010), perhaps due to a shaky economic situation.

However...

Why is raising more kids less expensive (in some ways, anyway) than having the infamous "only?"

Diminishing marginal costs are the answer.

To begin, here's the cost of raising one child before adding in the marginal family members.

Now, after this marginal child is born (and then another!), the cost of raising each consecutive sibling decreases substantially. For example, the figures cited in this TIME Moneyland article run thus: an "only" 11 year old might cost $15,830 per year, but add in a 16 year old sibling and you only spend $10,660 more, and finally, add a third kid and you are spending merely an additional $4,580.

A lot of necessary child raising equipment and expenses -- from high chairs to cribs to clothes -- can be passed from one child to the next as the time comes. And, with many family and parent-child health insurance plans, the monthly cost remains the same regardless of how many kids you have. Simple math shows the price per person then goes down. Who isn't looking to run the house as an economy of scale?

A final point:

Although college tuitions are more expensive than ever, (and it's not exactly possible to get an "enroll one, enroll another one free" financial aid package) many schools offer increased economic support for families with more than one child. And this fascinating article shows freshman year for ten kids at universities abroad could cost less than freshman year for one kid in the US.

The Economic Lesson

Everything revolves around the margin. If a family has one child, its second is the marginal child. If a family already has two, the third is the marginal child.

The bottom line: Having more kids demonstrates a diminishing marginal cost of production.

Check out these graphs, which show how marginal cost at first decreases, but will eventually increase again due to the law of diminishing returns. For a different take on studying the margin, look at this recent Econlife post.

An Economic Question: What decisions do you make at the margin in your everyday life?

note: On a briefer note...

Wed, 01 Feb 2012 00:00:00 GMT

Find out the worst state to lose your job.

note: Singapore Airlines Reaches Far with Their New First Class Line

Wed, 01 Feb 2012 00:00:00 GMT

The airline now offers a whole array of amenities for first class fliers, which include private suites and double beds.

pulse: Rent the Runway

Wed, 01 Feb 2012 00:00:00 GMT

Renting a designer dress for under $100 to wear once instead of buying a dress that you can wear multiple times, hot or not?

blog: Amazonian eWarfare

Tue, 31 Jan 2012 00:00:00 GMT

By Mira Korber, guest blogger.

The Amazon rainforest may be shrinking, but Amazon.com certainly isn't.

The superpower "e-tailer" has all but taken over, and it's selling just about anything, but Amazon.com threatens one industry just as much as climate change threatens its arboreal counterpart.

The publishing industry is in danger. By cutting out publishers -- essentially the middlemen -- in book sales, Amazon can pay authors a higher percentage of profits, and charge consumers lower prices to acquire books.

Barnes and Noble is faced with potential extinction. Even with Borders gone, it's still struggling to survive. This NY Times article discusses the complex conundrum B&N must confront. It also cites that in the past 8 years, about one in five independent bookstores have disappeared from the market.

The question is largely whether Barnes and Noble will be able to sell enough of its eReaders, "The Nook," to keep the company (and by extension its dependent publishers) alive. Therefore, in some kind of plot twist, the very publishers threatened by the Amazon Kindle's explosive growth are clinging to a different eReader's future success just to stay in business.

Interestingly, this past December, small-bookstores called for an Amazon.com shopping boycott based on the company's practices to divert their business.

Now, where does Apple fit in? With the ever-developing iBooks store, the iPad is another competitor at odds with the Kindle and the Nook. Committing to the new iBooks store prohibits publishers from selling rights to any other companies, thereby barring content from Amazon and the Nook. But then again, it is unlikely that large publishers will want to transfer exclusive selling rights to Apple.

We're all reading within a changing market for books. And soon, it seems that we all may be flicking touch screens instead of flipping pages.

The Economic Lesson

Again, the rise of Amazon.com attests to economist Joseph Schumpeter's theory of creative destruction. As new industries emerge, old ones die off as part of an ever-changing marketplace.

Side note: A monopoly exists when one firm dominates in a market and is a "price maker;" with no competition, the monopoly is free to set any price for its goods and services...

...A related economic question: Do you see a monopolistic power developing a.k.a. Amazon.com? And if you buy from Amazon, do you see yourself as a participant in this emergence?

note: The rising cost of catastrophes

Tue, 31 Jan 2012 00:00:00 GMT

COMMERCE has long been at the mercy of the elements. The British East India Company was almost strangled at birth when it lost several of its ships in a storm. But the toll is rising.

note: On a Lighter Note...

Tue, 31 Jan 2012 00:00:00 GMT

Fold-up car of the future unveiled for Europe