Econoverse.net - A Daily Dose of Economics within Limits of the Universe

The invisible hand for students

2008-06-24T05:32:00.005+08:00

Good day people! Its time for a brief introduction of myself. I'm the other half of econoverse and much to the chagrin of william, i have yet to post anything here. Well not anymore!

Considering that i am still a struggling undergraduate economics student, my posts on this blog will revolve more around economics concepts we(the students) have to deal with and hopefully i'll get some feedback while providing some of mine. I'll present the concepts the way i see it.

I do not get why lecturers have to make it sound harder than it is and textbooks tend to complicate it more. Thus do not expect a whole shitload of mathematics in any of my discussions.

So yeah...till next time!

Chinese named as World Bank's chief economist

2008-02-06T18:17:00.000+08:00

Justin Lin Yifu, a top economist from China has just been named the next chief economist by the World Bank. Yifu, who is PhD. In Economics from the University of Chicago is one of the front runner of development economics. He is also the first person from a developing country to hold that prestigious appointment and with this many is hoping that this will help World Bank to better understand the needs of the developing countries to implement effects policies and investment in the developing countries.

Is China ready ?

2008-02-06T06:16:00.000+08:00

Heavy blizzards in January have left China's transportation system and power networks disrupted leaving a chaos of Chinese travelers stranded, days before the Chinese New Year. Such a disaster hitting the fastest growing country in the world will make you ponder if China is ready for the 2008 Beijing Olympics.

The disruption in transportation systems is a sign that the country is reaching the “physical growth limits” as the WSJ puts it. Millions of their rural people have migrated to the urban areas like Shanghai and Beijing to experience the phenomenal economics growth in the region. Such a large migration to and for the rural and urban areas make a significant strain on the transportation system which is most train networks.

So looking a how fragile China's infrastructure is, will China be ready for their big event this year – the 2008 Beijing Olympics ? Where the influx of millions of spectators and tourists to the country during that period will certainly post a logistical problem to the country.

The answer is, most probably they would be. Billions has been spent by the Chinese government to develop the infrastructure in Beijing including the a major expansion to the subway station in Beijing. When it is ready, the subway network will have double the number of lines that they currently have. Furthermore, extra thousands of buses and cabs will be made available at that time. These developments show that Beijing would have the infrastructure capability to handle the extra capacity in August, as most of the development have been concentrated here. The current disaster only shows the gross misallocation of resources that have been concentrated in the urban areas of China.

How does the top economists rank in terms of research

2008-02-05T05:50:00.001+08:00

I got this off Greg Mankiw's blog, the rankings of economist in terms of the research output by REPEC (Research Papers in Economics).

The rankings, which Robert Barro tops, is found here.

Also, there rankings of economic institutions are also presented here. Sadly, I do not see NUS anywhere in the list.

Is Yahoo enough for Microsoft to compete with Google ?

2008-02-04T18:32:00.000+08:00

Microsoft's attempt to break Google's Internet dominance by buying up Yahoo has brought shock waves around the tech and financial industry. The takeover bid of US$45 billion would be the biggest the industry has ever seen. But the important question is, is Yahoo worth it ?

Market share
Google remains unshakable with about 60 percent (and growing) of the search engine market share. Microsoft and Yahoo combined would only bring their to about 15 percent. With such a large gap, Google may just feel a ripple, though that has not stop the Internet Giant from accusing the takeover as monopolistic.

Benefits
If the bid goes through, Microsoft will gain Yahoo's rich web applications (like Flickr, del.icio.us, community groups) to compete with the Google Apps. Furthermore, research and development by both companies could lead to the integration of Microsoft desktop application with Yahoo's web application. If that happens, Yahoo might just be worth the money.

Console Wars !

2007-03-28T13:06:00.000+08:00

In this week's issue of The Economist, there is a short article on the on-going console wars and I have talked about something like this in the past (Playstation 3 Economics).

I think the current console wars is by far the most interesting compared to the past, as all three competitor : Microsoft's Xbox360, Nintendo's Wii and Sony's Playstation 3 have their own distinct features. Xbox360 is currently leading the pack with 10 million units sold, while the Wii has about 6 million and Playstation 3 about 2 million units.

First, we have to remember that Xbox360 did have a headstart as it was released at the end of 2005 while the Wii and Playstation3 have just been released. Nintendo's Wii is generating the most hype currently by focusing on the playability and fun factor of its console and forgoing high-definition graphics which the rest have. Because of that, it costs must less to produce a Wii compared to the other next-gen consoles. However, I think a lot of people will be getting the Playstation 3 because of its popular franchises like Metal Gear Solid and Final Fantasy. But currently, the price tag is too high that it puts off most gamers including myself to wait for the price to fall.

I think the console wars, it a good case-study of how there big firms behave in such an industry. All three firms have different strategies to win this war in terms of price, output, and features etc. I will provided more detailed analysis of this as the console wars continues.

Playstation 3 Economics !

2006-12-02T23:17:00.000+08:00

We all know that there is a huge hype on the release of the lastest Playstation 3 (and also the Wii) when we see people lining up on the streets for a week just to get their hands on one.

Interesting to note that the people at Sony manage to ship around 100,000 sets of the new Playstation and that's just not enough. The consequence to that is people have been paid to queue for a week! Also, non-Playstation fans are queuing up to buy just so that they can auction it off at Ebay. If I'm not wrong the new PS3s are selling about 3 times more than their retail price. What a gross mismatch of supply and demand!

Another interesting point to note, Sony actually loses money for each machine that they sell. It's true! The Playstation is supposed to cost even more than the price it's selling now. Now, you might be thinking...why in the world would anyone do that ?! It turns out to be a clever strategy by Sony (Microsoft did the same thing too, I think) to increase it's initial market share, and then gain back through the sales of the Playstations games. Makes sense to think of it, because you will only buy one $500 machine, but buying that machine you'll need to buy more games in too which cost around $50-60 a piece. So, lowering the price for you to buy the machine makes economic sense.

For me, I'm sure which one to get. The Wii looks cools too. I'll probably wait till the price drops futher :)

I'll be back soon

2006-11-15T11:30:00.000+08:00

Sorry for the inactivity. I'm currently very busy with my projects and final exams.

Will be back at the end of the month ! Sorry about that.

Phelps wins this year's Nobel prize 2006 !

2006-10-10T09:47:00.000+08:00

Edmund S. Phelps wins it for "for his analysis of intertemporal tradeoffs in macroeconomic policy".

Nobel Prize in Economics 2006 Countdown !

2006-10-05T21:11:00.000+08:00

The biggest prize in Economics this year, the Nobel Prize will be announced on the 9th of
October 2006 (Monday)at 1.00 pm. CET.

You can visit this link to view a live-telecast of the event : http://nobelprize.org/prize_announcements/economics//index.html

Of course, I'll keep you updated with the news and winners.

Starbucks Index

2006-09-28T14:13:00.001+08:00

I guess most people would have known about the Big-Mac index. If you are not too sure, its the comparison of Big-Mac prices around the world and those prices are used to calculate the Purchasing Power Parity. Purchasing power parity like the currenry exchange rate. eg. How much is one USD worth in Japan.

You can take a look a it from this site : http://www.oanda.com/products/bigmac/bigmac.shtml
or the Economist site if you have an online subscription.

So here's my story. One day, I was drinking coffee at, you guessed it, Starbucks !!! I suddenly thought of doing a PPP comparison using the Mocha latte that I was drinking. A Starbucks Index. So I quickly jotted down the prices of coffee from the menu. And I asked my friends from around to world to check out the prices of their Starbucks coffee (most of them have not gotten back to me yet).

Little did I know, that the Economist had actually come up with a Starbucks index two year ago.
Here is how it looks like :

Well, this isn't gonna stop me from doing my own up-to-date version of a Starbucks index. Hang it there, hopefully I'll get most of the data soon. If you want to help out, feel free to do so :)

IMF, Corruption and Growth

2006-09-27T20:34:00.000+08:00

I decided to talk about this topic in conjunction with the recent IMF meeting in Singapore. There has been a lot of talk about corruption and how it has affected the growth of countries.

Funds used to help the developing countries did not have a significant effect on economic growth due to corruption. This was one of the points that was brought up during the meeting.

Furthermore, in my last post, I have received some comments saying that countries with abundant natural resource would require good governance for it to be properly allocated. I supposed that it is the same scenario with the injection of IMF funds into developing countries.

Well, although corruption is bad for growth. Countries in the South-east Asian region actually have experienced robust economic growth from the 1970 till 2000. Though, corruption level there are quite high.

Here is the Corruption Perceptions Index for SEA.

Source : Transparency International

So we may wonder, to what point does corruption play a part in distorting growth ? I have heard people saying that if there wasn't corruption, the region would not be as progressive today. But is that really true ? What I think is that growth in the region was due to capital accumulation from the 1960s that has contributed to the robust growth. Capital accumulation works in a way that pre-1960 the region was without much capital, thus the accumulation of capital would enable increasing returns. What do you think ?

By the way, please check out this site : Transparency International . I think they are doing a pretty good job in fighting corruption. Keep it up !

Resource Abundance and Economic Growth

2006-09-17T17:12:00.000+08:00

It seems reasonable to assume that countries that have a lot of resources (oil, gold, diamonds, etc.) would experience high economic growth . Looking at the high oil prices today, not many people will deny that statement.

But for the past 30 to 40 years, economic growth for resource abundant countries have been slower compared to countries that do not even have any resources at all. For example, oil rich countries like Nigeria, Venezuela and Iran have all experienced negative growth rate from the 1980s to 2000. Yet, resource-scarce countries like the Asian Tigers (Hong Kong, Taiwan, South Korea and Singapore) have experienced rapid growth during that time period.

There are several reasons that have been proposed on why that happens.

Dutch Disease Model. Basically a resource boom will cause labour to move from manufacturing to the booming resource sector. Sees a decline in manufacturing industries. Growth is reduced since manufacturing accounts for a large portion of R&D and growth.
Education. Resource rich countries tend to allocate less funds to education.
Corruption
Failure to Diversify. The dependency on oil would make the economy very volatile.
Distribution of Wealth. Only a small portion of the economy benefits from the resource boom.

Question time. Venezuela is one of the major oil producers in the world. But its growth is slow from 1970s to the 1990s. Does the lack of focus on education explains that lack of growth ? How ? There is no prizes for this, but I'm just trying to increase the amount of discussion here :)

By the way, thank you all for the valuable comments so far. It has been interesting to learn from all the different perspectives.

Economics and Terrorism

2006-09-12T21:49:00.000+08:00

September 11, 2001

It has just been 5 years since the deadly terrorist attacks on the World Trade Centre in New York. Never in our history, has terrorism affected us so much.

Since 9/11, many things has changed. More funds were allocated towards anti-terrorism, airport restrictions became extremely tight and revenue from tourism dipped. Changes in goventment policies and even international relations. Migration and labour generation.

As Economist, we have to ask ourselfs since terrorism affects so much of our daily lives today, what does it do to the choices that we make. What are the current changes in the government policies ? Our choices of travel destinations ? Where we choose to study ? To take public transport ? Where to live ?

I believe that terrorism should now be taken account into our economic policies, models and theories considering it significance in the world today. I am interested in how terrorism affects growth of countries and read up more in that area.

I would like express my condolences to those whose lives has been affected.

Diamond-Water Paradox part 2

2006-09-11T21:22:00.000+08:00

Earlier I posted a question on why the value of diamond is so much higher than the value of water when water is more useful. I got some answers posted by the readers : scarcity, demand and supply. To some extent I do agree with those answers. Diamonds are more scarce than water which means they have a lower supply. Which explains its high value.

But the concept which truly explains this paradox is the concept of marginalism. The marginal utility derived from a product is the change in satisfaction gained as the quantity of the product changes. Applying this to the paradox. Diamond has very high value because the marginal utility is higher than water. And extra gram of diamond gives so much more satisfaction than an extra gram of water. Imagine haven a bit more water. It wouldn't have much or even any difference to your happiness.

That's it ! Do post your questions if you have any. :)

To the TSRs !

2006-09-09T10:45:00.000+08:00

I just want to say a special thank you to the readers from the TSR for visiting my site and posting ideas as well as giving me encouragement. Thanks !

Economic Abundance and The Dutch Disease model

2006-09-09T10:29:00.000+08:00

I have been slow with the postings lately because my workload is starting to pile up :(
Anyway, I am supposed to do a group presentation on "growth" for my economic class. I never like to do group projects in university because students tend to not do proper research and stick to very easy topics. So I'm quite happy with this group because they seem a more hardworking bunch. Later, I went around the web search for ideas and look what I found.

Did you know that countries with abundant resources actually grow slower than countries that are resource scarce ? I got this idea from an Economic paper "Natural Resource Abundance and Economic Growth" by Jeffrey Sashs and Andrew Warner for the NBER.

I'll quote them here :

"In the past 30 years, the world's star performers have been resource poor Newly-Industrialized Economies (Singapore, Taiwan, South Korea and Hong Kong). While oil-rich countries like Mexico, Nigeria and Venezuela went bankrupt"

There are a whole bunch of reasons and analysis to why this happens. One of them is the Dutch disease economic concept. Something on the line of resource abundance will cause countries to reduced their manufacturing sector and hence slow growth. I'm still reading up on that so I'll only post more information on the Dutch disease when I have them.

Diamond-water Paradox

2006-09-03T16:06:00.000+08:00

They say that Diamond is a women's best friend. Yet, water which is so essential for life lacks that kind of valuation.

Why is this so ?

This is called the Diamond-water Paradox, which is set forth by Adam Smith in his book, The Wealth of Nations. He said :

"Nothing is more useful than water; but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it."

Adam Smith wasn't able to solve the paradox. But today the paradox has already been solved, leading to the discovery of one the most important theory in Economics.

Do you know what it was ? Give it a shot !

Tulips Trade !!!

2006-09-01T00:22:00.000+08:00

The stories about Economic bubble are all too common to us. Who hasn't heard of the dot-com bubble in which the NASDAQ tumbled and caused a lot high-tech Internet companies to fold.

Believe it or not. One of the earlier economic bubble happened during the 17th century in Holland. And guess what. Its over tulips !

Yes, like those shown in the photos. Tulips were prized possessions those days. There were extremely high demand for tulip buds especially from the upper class people. That drove up prices of tulips to an extraordinary value. Of course, the rarer and prettier the tulip the higher the price.

Tulips were also traded in the stock exchange in Holland then. People also started selling futures on tulips.(it is like buying a flower that has yet to be planted !)

It was believed that the most expensive tulip was the Viseroij (Viceroy). One bulb was sold from 3,000 to 4000 guilders. How much is a guilder ?
Well... 3000 guilders would be able to get you eight pigs, four oxen, twelve sheep, twenty-four tons of wheat, forty-eight tons of rye, two hogsheads of wine, four barrels of beer, two tons of butter, a thousand pounds of cheese, a silver drinking cup (as well as clothes, bed and mattress, and a ship!)

Of course, the values for all these tulips were driven up by speculation. Until one day in 1637, the bubble burst and the value of tulips plummet. Many people lost all of the wealth was the bubble burst.

Interesting eh.

Growth rate

2006-08-30T23:31:00.000+08:00

I am taking a course on economic growth. Surprisingly, I see many students questioning why developed countries are so concerned with economic growth since their standard of living is already high. Like the US, they probably have the highest purchasing power in the world, so why worry so much about economic growth, slows down and not meeting growth rate targets.

The rebuttal I thought was rather simple. Humans have 'unlimited' wants. So of course, humans are never satisfied with where they are. So you could expect people to want to be able to purchase more stuff than they already could. This simple concept which happens to be the basic foundation of economic theory is the reason why economic growth is so important to every countries.

Of course there are other reasons too like political, employment or even poverty. The assumption of developed countries having no poverty is totally wrong. Just look at the poverty rate of the US. (Photo courtesy of The Economist. Should check them out. I'm a loyal subscriber)

Welcome to Econoverse !

2006-08-30T00:31:00.000+08:00

Hi everyone ! In this blog, I aim to achieve a high level of discussion of economic theories and ideas. There will be a variety of topics relating to economics especially those that affect our lives.

My name is William Yap. I'm currently studying Economics and Civil Engineering at undergraduate level. When I was in high school, I used to spent late nights eating supper and arguing(mostly eating) about economics with my roommate. It was pretty fun. Well...now I'm without any roommate in university. I'm quite bored with stuff and could use some good Economics argument or even just to discuss ideas with people. Learning from other. Which, I think thats a great way to learn !

So, I shall put my effort in this blog to discuss Economics with the Economists of the web - from within the limits of the Universe, of course.