Saturday, August 30, 2008

Demand for rat meat rises!

Talk about substitutes!

Well, from now on when discussing in class the (shift) factors affecting demand for a product my example will be the following:

If the price of beef rises then demand for rat meat will rise and as a result shift to the right!

I was reading today's Kathimerini (English edition here) when the following caught my attention:
The price of rat meat has quadrupled in Cambodia this year as inflation has put other meat beyond the reach of poor people, officials said on Wednesday.

With consumer price inflation at 37 percent according to the latest central bank estimate, demand has pushed a kilogram of rat meat up to around 5,000 riel ($1.28) from 1,200 riel last year.

Spicy field rat dishes with garlic thrown in have become particularly popular at a time when beef costs 20,000 riel a kg.

Here is also a clear example that inflation is not balanced (i.e. if inflation is, say, 4.7% it does not mean that all prices increased by 4.7%).

Question: If the price of rats (per kg....) increased from 1200 riel to 5000 riel in a year and the price of beef is now 20000 riel (/kg.) how much was beef at the most last year (given that people are switching from beef to rats.

Also, what is the staple food in Cambodia? I read somewhere that it is white rice. For the very poor in Cambodia who are now forced to switch to rat meat, is there any chance that white rice may behave as a Giffen good? Yes? No? Why or why not?

Mind you that this news may sound strange to many but it hides some dramatic facts that maybe we should be aware of:
...malnutrition in children 6-59 months old continues to be a major problem in Cambodia based on the three commonly used indicators. The prevalence of underweight was 52%, that of stunting was 56% and 13% of children were wasted.
If you are interested in finding out more about the nutrition profile of Cambodia read the summary of a FAO report here.

(the article in English about the rising demand for rat meat is found here.

Monday, August 25, 2008

High gas prices drive down traffic fatalities

In today's Yahoo! News an interesting article was found linking the rise in gas prices to a decrease in traffic fatalities. The article can be found here.

Read this quote:
Experts who have studied motor vehicle fatality trends said one reason for the dramatic decline is that people are reducing their nonessential driving first, which is often leisure driving at night or on weekends. That also happens to be riskier than daylight commuting on congested highways at lower speeds.

Teenage and elderly drivers — who also have higher accident rates — are more likely to feel the pinch of higher gas prices, and thus may be cutting back more than other drivers. Federal data also shows that driving declines have been more dramatic on rural roads, which have higher accident rates than urban highways.

And, some drivers are simply trying to save on gas by slowing down, which also decreases risk.

How about Greece? Did the rise in the price of gasoline have any such effect? Could this be a topic for an extended essay?

The above is due to a post in the Greg Mankiw blog:
Greg Mankiw's Blog: A Reading for the Pigou Club

Wednesday, August 20, 2008

Olympic medals and a little bit of Economics...

Gary Becker in the Becker-Posner blog presents the findings of the paper "A Tale of Two Seasons: Participation and Medal Counts at the Summer and Winter Olympic Games", published in 2004 in the Social Science Quarterly. The authors of this paper tried to find variables that could explain why some countries collect more medals than others.
Quoting from Becker:
Their regression analysis shows that two very important variables are the total population and per capita incomes of different countries. Also important are whether a country has an authoritarian government-such as communism- a country's climate, and whether a country is the host country for a particular Olympics. These five variables taken together predict closely the total number of medals won by different countries in the winter as well as summer Games.

His discussion of each variable is interesting. How do you expect each of the above variables to affect the medal count? Can you think of any other variables that may have been included in the analysis (but did not prove significant)? I think I could come up with a couple!

Read also the economic arguments for government spending on athletes preparing for future Olympics. Does it make sense to you? Are there any significant 'externalities' involved that could justify government spending (i.e. subsidization of the process)?

You can read Gary Becker's post here. (Aug 17 post)

Richard Posner's comment below it is also (of course) intriguing!
The nationalistic fervor and great-power aspirations that Olympic competition stimulates seem to me a negative externality. In addition, some unknown but doubtless large fraction of the expenditures on training athletes have no social product, but are in the nature of "arms race" expenditures. If one nation spends very heavily on training its Olympic athletes, other nations, if they want to win a respectable number of medals, have to spend heavily as well. The expenditures are offsetting to the extent that the objective of competition is to win rather than to produce an intrinsically better performance. Economic competition produces better products at lower quality-adjusted prices, and this effect dominates the costs of competition in duplication of facilities and offsetting advertising. The balance in athletic competition is different, because the main product (as in war) is winning, and it makes little difference to the consumer whether the winner ran a mile in 3.05 minutes or in 3.01 minutes. Moreover, Olympic competition is inherently lopsided since, as Becker explains, success is largely determined by a nation's population, per capita income, and (in the winter Olympics) climate. Why should Americans feel good if an American team beats a team from Costa Rica?

And, who was it that said that IB economics is not interesting/useful?

PS: You should all be very much aware of Gary Becker (Nobel Prize 1992). Read about him here, here and here.

And, you should definitely also be aware of Richard Posner, especially if you are planning to do Law (and Economics - huh, Mr. Alex P.??!!). Read about him here and here.

Tuesday, August 19, 2008

Inflation 11,200,000 percent (yes, eleven point two million percent!)

Well, we know that if the inflation rate exceeds (usually) the 3% mark, Central Banks get nervous and typically respond by tightening monetary policy.

Well, what about 11,200,00%?


Zimbabwe's inflation rate has soared in the past three months and is now at 11.2 million percent, the highest in the world, according to the country's Central Statistical Office.
Think of possible solutions. Remember that you need to consider the particulars: we're talking of Zimbabwe, an African nation, that has been in the news very often lately...

We also learn from the article that price controls don't seem to work:
Official figures dated Monday show inflation has surged from the rate of 2.2 million percent recorded in May, despite the government's price controls.
Replacing the Central Bank with another monetary authority that would strictly control the money supply had been proposed by U.S. economist Steve Hanke:
Hanke says that in order to halt its hyperinflationary spiral, Zimbabwe must replace the Reserve Bank with a new monetary regime imposing discipline on money supply
A discussion of solutions can be found at the Marginal Revolution blog here.

Some of the costs of hyperinflation are mentioned in this Guardian June 07 article when inflation was only 4,500%:

Hyperinflation is spreading poverty, as even basic goods become unaffordable. Supermarket trollies lie idle as few can afford to buy more than a handful of goods. Government regulations only permit the withdrawals from banks of Z$1.5m a day, which is not enough to buy a week's worth of groceries.

Golfers pay for drinks before they set off on their round, because the price will have gone up by the time they have finished the 18th hole. One Zimbabwean was recently told by a pension company that it would no longer send him statements as his fund was worth less than the price of a stamp.

"I can barely cope with inflation in the thousands, but millions? We will die," said Iddah Mandaza, a Harare factory worker, who added that some workers were now saving on transport costs by "going to their jobs on Monday and sleeping at the workplace until Friday. They all share their meals. That's what they do to get by."

Many Zimbabweans are resorting to bartering. "I traded some soap for two buckets of maize meal [Zimbabwe's staple food]. It was far much better than trying to buy it in the shops," said worker Richard Mukondo. "People in the rural areas are even worse off. You can see they are hungry and their clothes are in tatters. They trade in whatever they can produce: tomatoes, onions, chickens and eggs."

How bad then can a mere 4.4% be? Well, this is the latest figure for Greece and, trust me, it is pretty bad. Remember the particulars!

Great Jazz station online!

Not econ related but this is my blog so I reserve the right to post non-econ stuff that I find interesting!

Well, this is a great place to listen to jazz (in the background?): It's WBGO, Jazz 88.3.

The Doha Round stalemate: does it matter?

We will be discussing elements of trade this semester and one of our topics will be trade liberalization. The WTO (World Trade Organization)is responsible among other things for conducting multilateral trade negotiations and the latest 'round' of such trade negotiations is the Doha Round. It is the Doha round because it was officially launched back in 1991 in Doha, the capital of Qatar.These trade talks have reached a stalemate and the most recent attempt to revive them collapsed. Much has been written on the benefits of a successive round, especially to the developing countries. Many have doubted these benefits and Rodrik's latest Project Syndicate piece 'Don't cry for Doha' contains some very interesting points that I think you should be aware of (please save his article for later use):

But look at the Doha agenda with a more detached set of eyes, and you wonder what all the fuss is about. True, farm-support policies in rich countries tend to depress world prices, along with the incomes of agricultural producers in developing countries. But for most farm products, the phasing out of these subsidies is likely to have only modest effects on world prices – at most a few percentage points. This is small potatoes compared to the significant run-up in prices that world markets have been experiencing recently, and it would in any case be swamped by the high volatility to which these markets are normally subject.

While higher world farm prices help producers, they hurt urban households in developing countries, many of which are also poor. That is why the recent spike in food prices has led many food-growing countries to impose export restrictions and has caused near panic among those concerned about global poverty.

It is hard to square these fears with the view that the Doha trade round could lift tens, if not hundreds, of millions out of poverty. The best that can be said is that farm reform in rich countries would be a mixed blessing for the world’s poor. Clear-cut gains exist only for a few commodities, such as cotton and sugar, which are not consumed in large quantities by poor households

Read it here or here

Friday, August 15, 2008

Inflation in U.S. at a 17-year high (IHT)

I'd like you to note the following from this article:
..the news was distressing for investors

and, also
The Consumer Price Index, considered the benchmark gauge of U.S. inflation, rose 0.8 percent in July. Economists had forecast a rise of half that rate. In June, prices rose 1.1 percent. The index surveys prices of a basket of common consumer goods, among them toothpaste, prescription drugs, airfares and the cost of dining out.

Because food and energy prices can be highly volatile from month to month, the Labor Department also calculates a so-called core price index, which strips out those costs. In July, core consumer prices rose 0.3 percent, reaching a 2.5 percent annual rate.

..and, lastly, this:
The Fed has signaled repeatedly that it has no plans to lower interest rates, given the threat that inflation poses to the economy. Lowering rates could stimulate more economic activity, but such a move would risk inflating prices further.

The link for the article is here, but if you google the title in the google news facility you can find different versions of it with the emphasis differing.

Greg Mankiw's Blog: How to Write Well

Well, you are not members (yet..) of the CEA but some of you are doing their Extended Essay in Economics so perhaps this Greg Mankiw post is worth looking at and saving. It is his advice to his staff when he was the CEA chair some years ago.

Greg Mankiw's Blog: How to Write Well

Europe succumbing to global economic woes (IHT)

Starting today, I am beginning an attempt to regularly post links to articles that I find interesting. There will be no pattern or sequence or regularity to expect. The rule is: if I happen to see it and I find it worthwhile posting (and I have the time :-) ) I will go ahead and post the link, perhaps accompanied with a small 'something'.

Hope it proves useful for (my) kids doing IB Economics!

The first one is from the International Herald Tribune. It is about the slowdown of the European economy: "...The economy of the 15-nation euro area contracted 0.2 percent in the three months ended June 30, data released Thursday showed..."

It is interesting to note the stance of the ECB:

But the European Central Bank, which has bucked the trend of other major central banks by raising interest rates in July, appears determined to stick to its mandate to tame inflation, arguing that higher inflation is still a greater threat than lower growth.

Is it worth controlling inflation? What could be the costs of not doing so? Who gains and who loses from a tight monetary policy stance? Taming inflation, but at what cost? Is there a difference between the short term and the long term? In this case, what does the price of oil got to do with it? Why may credibility in policymaking be important? Is there something in this article pointing to its role? What is the role and importance of inflationary expectations?

Note also the distinction made in the article between a 'recession' and stagnation:
The data Thursday from the EU statistical agency Eurostat set off fevered head-scratching about whether Europe can formally dodge a recession, often defined as two successive quarters of shrinking economic activity. The consensus seemed to be that it still might - but just barely.
'We can probably scrape by and avoid another negative quarter,' said Julian Callow, chief Europe economist at Barclays Capital. 'But we are in for stagnation here.'

Anyway, any IB economics student interested can find the article here

Friday, August 8, 2008

The Aplia Econ Blog: News for Econ Students

I just found this blog and it seems both very interesting and very useful for IB Economics students so I decided to let you know about it and upload the link for all of you. It was originally uploaded by a colleague (Patricia Hermes) on the OCC, the site for IB economics teachers (thanks Patricia!).

The externality analysis on helium ballon consumption is very close to what I consider the appropriate framework (check out the diagram used) and skimming through other posts makes me quite confident that many of you will bookmark the link for future regular reference.

This is the link (I will also add it on the RHS of this blog).