True Cost of a Hamburger

The article “True Cost of a Burger” discusses the unseen costs (externalities) that a typical person getting a burger from a typical fast food restaurant will probably not think about. The first cost discussed was the litter. When a burger wrapper gets tossed on the ground, a worker has to come and pick that up, adding to the negative cost of the burger to the government. And if the burger and the wrappers end up in the trash, they will take up space in a landfill, which also costs the government money. There, they will decompose and release harmful chemicals into the environment (mostly methane). Another cost discussed was the carbon emissions of burger production. Looking at just the burger meat, “each pound of burger meat accounts for roughly 25 pounds of CO2 emissions” (Bittman 14). According to the government’s calculations of CO2 emissions to cost in dollars, just carbon emissions of meat cost about 53 cents per burger. Considering that a burger costs 70 cents-2 dollars, this is a significant amount. There are costs to consumers as well. Fast food has been linked to causing deadly chronic diseases and antibiotic abnormalities within frequent consumers. Obesity is also a big threat to fast food consumers. These are all negative costs that aren’t explicit in the the cost of a burger, therefore, they represent the “true cost of a burger” by discussing some of the externalities of burger production.

A Pigouvian tax would be the better solution to this problem. This is because there are too many variables that the Coase Theorem does not account for. There is no clear way to set property laws for air and water pollution, as they are global resources and are the responsibility of every country involved. Since so many people eat burgers, there is no way that burger producers can compensate for the harms they caused to all of those consumers and even to people who are not consumers. Coase might argue that the responsibility is shared equally between the producers and the consumers since the consumers are choosing to eat the burgers with all of the negative side effects on their health and the environments, but that’s like putting candy-shaped and candy-flavored pills in front of a child and expecting them not to eat the pills, even though you warn them the pills might be dangerous. Plus, burger companies rarely, if ever, disclose the full details of their questionable production methods. Either way, it just makes sense to try and stop the negative externalities at their root (the producers) than to try to negotiate with them because ultimately the costs completely outweigh the benefits.

Game Theory

I think trust matters a great deal in decision making. I would rather be able to trust people around me than be a back-stabber in order to move “forward” in the world. Of course, if the situation is a game, like Uno, I would try to win. But Uno is a game. There are no real stakes involved. And when the game did matter, I would choose to be trusting and honest, not a manipulative liar.

A real world example of game theory that I’ve heard about involves traffic. You are standing in front of a group of pedestrians waiting to cross the street. The “Don’t Walk” sign is on. You have about five seconds to cross before the approaching car drives by. You only have time to get half-way across the street before you get hit. Here’s the question: If you march confidently enough, will the people behind you follow suit and force the car to stop? Probably not, but it’s all relative. The stakes are pretty high in this situation– you might die, other people might die, you might get arrested, etc.

 

Price Discrimination

A really great example of a price discriminating firm is Spotify. Spotify is a music streaming company. It price discriminates in two obvious ways. Spotify has a Premium service that costs $9.99/month plus tax. The membership comes with many perks not offered to the rest of the users, like listening offline and no advertisements. This is one form of price discrimination. Another form is student discounts. Spotify offers a $4.99 Premium membership to (college) students. College students are poorer than most, and so music might be elastic for them. By lowering their prices, Spotify can entice millions of more customers and increase revenue.

I think it’s very smart to market Premium to students at a lower price. If I were an economic advisor to Spotify, I would suggest that they extend this Premium service to high school students as well. Spotify asks for an age when someone signs up for a Spotify account. I would check to see how many users are between ages 14-18 and decide if the market was big enough. If it wasn’t I would suggest an advertising campaign to boost those numbers. Overall, though, high school students are more numerous than college students, they don’t have jobs and most can’t afford the monthly membership (also a Premium membership is most likely elastic for them) and they always want music so demand is high. By lowering the price of Premium membership, Spotify can increase its total revenue.

Source:

Gilmour, Kim. (December 2011). Comparison of Spotify Subscriptions. In Spotify for Dummies. Retrieved from http://www.dummies.com/store/product/Spotify-For-Dummies.productCd-1119952344,navId-322460,descCd-description.html

Rational and Irrational Decision Making

I think that some things I do are quite irrational. For example, I tend to procrastinate and leave my homework, projects and studying for the day before things are due. I know that this is not the rational thing to do because the marginal utility that I get from doing whatever it is I do instead of my work leads to an overall decline in total utility that I would get from doing my homework, and might even have a negative impact on my future goals. This possiblity that my procrastination might impact my future negatively should be enough to push me to do my work on time, right? Probably, but for some reason, my brain is not forward thinking enough at that moment. In that moment,my brain must think that the marginal utility it receives from say, watching Netflix, will be more than that of doing homework, and that putting off my work will not negatively impact my future. I don’t know. What I do makes no rational sense, but I do it anyway, even though I know I shouldn’t, which proves that I must be an irrational human being.

Hartford would tell me that I’m only human. He admits that humans are not “blessed with omnisciece or perfect self control,” that “in reality there are limits to our abilities to calculate, think ahead, and see our way through certain cognitive,” and that “there are also limits to our willpower-we make resolutions and then we break them” (Hartford 5). I think that Hartford would claim that in the moment that I make the decision to put off my homework, I’m not thinking cognitively, I clearly am not practicing slef control, and that  overall I derive more pleasure from procrastinating than doing homework.

Ariely would have looked at relativity. He claims that we make decisions based on how they compare to each other. So if I had a choice between doing homework and procrasrinating, since procrastinating gives relatively more enjoyment and utility, I would naturally choose to procrastinate. Ariely claims that we respond to incentives. So since at that moment I have more incentive to watch a movie-more fun- I would do that. Then, right before my homework was due, doing my homework would become my biggest priority so I would respond better to doing my homework closer to when it was due.

Although Ariely claims that irrationalit is predictable, we musn’t throw out our economic assumptions on rationality. For example, when we did Ariely’s experiments in class, I chose to go with the online only subscription rather than the online and print for a higher price. I wasn’t fooled by the obvious marketing trick. I also didn’t want to buy paper because I think paper magazines have terrible environmental consequences. This is why I think that since people have values and the ability to recognize when markets are pushing them to be irrational intheir spending habits, they often think twice about their decisions and choose to make the rational choice instead of the irrational one. There are definitely a lot of people who impulse buy and think rrationally and they are taken advantage of, but many “smart buyers” have trained themselves to not fall for producers’ cheap tricks.

 

Minimum Wage

Minimum wage is an extremely tricky issue with a lot of factors and variables to consider. Should it be increased? well, I don’t think that there is a one size fits all solution for minimum wage. According to the videos we watched in class, a lot of people would benefit from the rise in their paycheck, but many other people, like small business owners, would be negatively affected. For example, if an ice cream store owner can afford to employ 3 people for 10 dollars and hour, increasing minimum wage to 15 dollars would probably lead her to let go of one of her employees. This would upset the store owner, the person let go and the employees still working because they would be expected to work even harder to make up for the loss of a person. Minimum wage increase would be detrimental to the small business economy and discourage innovation and entrepreneurship because people wouldn’t be able to employ anyone.

However, I do think minimum wag should be increased for companies that can afford to pay their employees more. For example, giant corporations like Walmart-a company notorious for paying its employees terribly- could definitely afford to pay its workers more. I think that there should be a formulaic way to deal with minimum wage based on the profit margins of companies, the size of the companies and the value of money where the companies are located. So a full-time Walmart worker in Boston should get more money because Walmart is a huge company and because Boston is one of the most expensive cities in the country. Every city and situation is different so I think it is important to try to find a solution that will help the most people and harm the least.

The Boomerang Effect

Response

Read the article “The Boomerang Effect”  (on second page) on Comparative Advantage from the Economist and considering that a boomerang is a weapon from Australia that returns to the hunter when thrown. Describe and discuss how you see the “Boomerang Effect” in this article using the  changing absolute and comparative advantages between China and the United States (and perhaps other nations) as seen in the article.

Companies are pulling out of China. Why? Because of comparative advantage. A few decades ago there was a huge comparative advantage for companies to base their production in China. Now, however, the advantage is shifting back to the US or to other Asian countries. There are a few reasons for this. Chinese workers are demanding increasing wages; their wages are increasing by about 20% a year, according to the article. China is also very far away from most of the developed world that buys what it produces. This means high shipping costs and wasted time. Companies are realizing that by producing closer to home or at home they can keep shipping and handling costs down and keep up with what their consumers want (keep up with trends better). This is why while it was advantageous to have China based production in the past, companies are analyzing comparative advantage and many factories are whizzing their way back home.

Prediction

Make a prediction, how else will our comparative advantage change globally as our trade patterns with other countries change. Use your own knowledge, an article that you find, or one of the articles below if you need help getting started.

According to the article I read, the successful companies in Europe are mostly tech based. They make life easier for their consumers allowing them to do may things from their phones or computers. People can order groceries or convert their currency with a few clicks. The European tech companies serve people around the world. One example is Spotify, which has a huge number of users in America as well as Europe. From my reading, I predict that countries that have access to more technology and that can further that technology will have a comparative advantage of ver the rest of the world because they will be more efficient. They will also be making a lot more money that everyone else.

Prediction

Make a prediction, how else will our comparative advantage change globally as our trade patterns with other countries change. Use your own knowledge, an article that you find, or one of the articles below if you need help getting started.

How to Get Away with Murder

Reaction

How would you define the problem in the article? Are individuals to blame? Are individuals cruel? Or is there a more systemic problem found in China? How could the incentive system be changed?

The problem described in the article is about hit(multiple times until the person is dead)-and-run cases in China and Taiwan. I believe the problem has three roots.

1. The system in place in China allows for the economical benefit of killing a hit-and-run victim to outweigh the cost, which would be to pay for that person’s medical expenses. This makes it easier for a driver to make the split-second, incentive-induced decision to take a life rather than suffer economically.
2. There is no moral incentive to not kill the victim because this problem has become a quasi-epidemic.  The article mentioned that there is a proverb about a kill-and-run being better than a hit-and-run. If society has accepted something, it is much easier to smother guilt and ‘go with the flow’.
3. There are basically no social consequences for a kill-and-run. Police and most courts refuse to acknowledge solid evidence and many citizens cite corruption and the ease of bribing as reasons to kill-and-run. If the government doesn’t take a stand against a problem, many citizens feel that they are justified in their actions. They also don’t seem to face shunning or disgust after they have killed someone’s kid or grandpa; it has become so accepted in Chinese culture that it is considered acceptable.

If the Chinese government takes a solid stand against kill-and-runs, increases economic consequences for traffic homicide, removes corruption in the courts, enforces traffic laws more strictly, and educates its general public that murder is very wrong, I am confident that this problem can be overcome.

Connection

Considering that the incentive systems in place are deeply flawed in China, where do we see flawed incentive systems here in the United States? What might be a solution fix the flawed system?

One huge problem with flawed incentives in the US can be seen in the foster care system. A supportive familial environment is crucial in the development of every child. The fact that greedy people take advantage of disadvantaged children is disgusting. The foster care system is not regularly discussed and it is certainly not understood by the majority of Americans. Many foster care guardians take in children for the money they receive per child. The money that is supposed to go into providing a kid in need with basic necessities goes to a selfish, undeserving person instead. These people don’t face social consequences for their actions most of the time; they sure don’t feel adequate guilt. The economic incentive that the welfare money from each child provides trumps everything else and the kids are ones who suffer. More inspections and surprise visits from social workers can help weed out the bad foster parents. However, there is a constant need for new foster families. The demand for foster parents is high and the supply is low so the quality of the supply must go down to compensate for the demand.