Soybeans vs. corn

This article in the WSJ shows how farmers are responding to lower prices for corn. The shift from corn to soybeans is an example of exiting one market with sub-normal returns and existing another market where the returns are higher.

Labels: Long-run equilibrium

Is "free" music good business?

This article reports the debate over when the music industry benefits when companies like Spotify offer free subscriptions to people to listen to music.

Labels: Information goods, Pricing

Adidas and strategy

This article reports that the CEO of Adidas announced a three-pronged approach to revamp Adidas.

1. Increase speed to market
2. Focus on 6 cities
3. Give consumers and athletes more input into the design process.

The CEO forecast sales growth near 10% and profit growth of 15% for each year between 2016 and 2020.

Here are some questions to consider.

1. Do the changes comprise an (component of) effective strategy?
2. Does the stock market agree?
3. Are the CEO's forecasts reliable?
4. Does the stock market agree?

Barbie Doll pricing in the printer industry

This article reports the link between cheap printers and expensive ink.

Minimum wage

This opinion reports the effects of recent hikes in minimum wage in the Bay area.

1. Higher prices in restaurants.
2. Restaurants closing.
3. Restaurants eliminating tips.

Minimum wage

This article reviews many academic studies of the impact of minimum wage. The conclusions are:

1. The range of estimates of the effects of the minimum wage on employment is wide.
2. The preponderance of the evidence points to disemployment effects;, i.e., an increase in minimum wage leads to less employment.
3. the evidence for disemployment effects seems especially strong for the least-skilled groups.
4. "We view the literature—when read broadly and critically—as largely solidifying the conventional view that minimum wages reduce employment among low-skilled workers, and as suggesting that the low-wage labor market can be reasonably approximated by the neoclassical competitive model."

Supply and demand at work in the labor market

Here are some additional questions:

1. How does an increase in the demand for restaurant meals affect the extra revenue generated by an additional worker?
2. How would the change in the extra revenue generated affect the demand for workers?
3. How would the change in demand affect the equilibrium wage?

Wages Rise at Restaurants as Labor Market Tightens 
by: Eric Morath and Jeffrey Sparshott
Feb 28, 2015
Click here to view the full article on WSJ.com

TOPICS: Labor Markets

SUMMARY: Wage growth is breaking out in an unexpected corner of the U.S. economy: the nation's restaurants and bars. Food-service employment has surged since the recession ended six years ago.

CLASSROOM APPLICATION: Students can use supply and demand for unskilled workers to evaluate the effect of increased demand on the wages of these workers. The article makes two interesting points for instructors to emphasize. First, skilled workers with restaurant jobs are frequently looking for work in other fields. Hence, the market for skilled workers employed in the restaurant industry could be broader than just the restaurant industry, while the market for unskilled workers employed in the industry could be dominated by the industry. Second, rising pay at restaurants "doesn't necessarily translate into higher wages at call centers or in banking," said Kevin Kliesen, economist at the Federal Reserve Bank of Kansas City. Rising wages for servers, dishwashers and cooks typically are a result of strong demand for labor in other fields, not a leading indicator signaling that pay will grow more broadly.

QUESTIONS: 
1. (Introductory) What factors are driving the increased demand for restaurant meals?

2. (Advanced) What factors are driving the increased wages in the restaurant industry for unskilled workers? What factors are driving the increased wages in the restaurant industry for skilled workers?

3. (Advanced) How do economists determine whether to establishments, possibly in different industries, are in the same labor market for attracting skilled workers? Is the market for skilled labor employed in the restaurant industry broader than the market for unskilled labor employed in restaurant industry?

Reviewed By: James Dearden, Lehigh University

Supply and demand in action in the steel market

Here are some additional questions?

1. How does an increase in the Yen/dollar exchange rate (the dollar is stronger relative to the Yen) affect the dollar price of steel imported from Japan?
2. How does the change in the dollar price of steel imported from Japan affect the US demand for steel produced in the US?
3. How does the change in demand for steel produced in the US affect the equilibrium price of steel produced in the US?
4. How do the changes affect the supply of automobiles produced in the US?

U.S. Steel Prices Tumble in February
by: John W. Miller
Feb 27, 2015
Click here to view the full article on WSJ.com

TOPICS: International Trade

SUMMARY: A stronger dollar helped spur a sharp rise in steel imports, flooding the U.S. market with low-priced products and sending steel prices in the nation in February to their lowest level in nearly 5½ years.

CLASSROOM APPLICATION: Students can evaluate the effect of an increase in the value of the dollar and also the decreased demand for steel from the U.S. oil and gas industry on steel prices in the U.S. They can also evaluate the effect of the decrease in U.S. steel prices on the profits of companies that assemble autos in the U.S. and on U.S. consumers.

QUESTIONS: 
1. (Introductory) What is the effect of an increase in the value of the dollar on U.S. imports of steel?

2. (Advanced) What is the effect of an increase in the value of the dollar on steel prices in the U.S.?

3. (Advanced) What is the effect of the recent events in the market for steel on the profits of U.S. steel companies as well as the profits of U.S. companies that purchase steel?

Reviewed By: James Dearden, Lehigh University

Supply and demand in action in the used car market

The article is a great application of supply and demand.

1. What is happening to the supply of used Leafs? Why?
2. What is happening to the demand for used Leafs? Why?
3. How would these changes affect the equilibrium price of used Leafs?

Resale Prices Tumble on Electric Cars
by: Christina Rogers
Feb 27, 2015
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: With gasoline prices down 33% from a year ago and buyers cooling toward electric vehicles, Nissan dealers worry that weak demand for used electric Leaf cars will put a flood of used models on the market.

CLASSROOM APPLICATION: Students can use supply and demand to examine the effect of lower gasoline prices and federal incentives to purchase new electric vehicles on the demand for new and used plug-in electric vehicles. Instructors can highlight that new and used versions of a vehicle are economic substitutes and that a decrease in the price of one reduces the demand for the other. Another interesting point noted in the article is about the effect of decreased used-car prices on the profits of auto leasing companies. Students can evaluate the relationship between used-car prices and equilibrium lease rates.

QUESTIONS: 
1. (Introductory) What factors are driving the decreased demand for used plug-in electric vehicles?

2. (Advanced) How does the sale price of an automobile coming off a lease affect the profit of the company that leased the car? In turn, how do these resale prices affect lease rates?

3. (Advanced) How does the demand for used plug-in vehicles affect the equilibrium prices of new plug-in vehicles?

Reviewed By: James Dearden, Lehigh University

SAP cuts jobs

This article from Bloomberg reports that SAP is cutting jobs. It describes how the software market is shifting from sales to cloud-based licensing.

Is free education really free?

President Obama recently proposed to make two years of community college free for students. He said, "What I’d like to do is to see the first two years of community college free for everybody who’s willing to work for it."

Here are some questions. 

1. Is the opportunity cost zero for a student going to college if the government pays the tuition?
2. Is the opportunity cost zero for colleges providing the courses if the government pays the tuition?
3. Is the opportunity cost zero of "work[ing] for it"?
4. Is the opportunity cost zero of verifying that a student has a C+ average, that the student is making "steady progress", that "community colleges ... offer academic programs that fully transfer credits to local public four-year colleges and universities or training programs with high graduation rates that lead to in-demand degrees and certificates [and] ... adopt 'promising and evidence-based institutional reforms' to improve student outcomes"?
5. What happens to the quantity of other goods and services produced when colleges and the IRS hire more instructors, staff, and administrators, buy more computers and supplies, and rent or build more buildings to provide additional education and tax services? 
6. Who pays any of the costs above if they are greater than zero?

Pay apps

This article summarizes the 5 different apps on 2 different platforms.

Obamacare

Here is the Skimm's guide to Obamacare.