Monday, April 11, 2005

Hopefully these consequences are worth it

When the semester is over I planned on going back home (philadelphia) to see my dad and the rest of my family. That's normally the case with most college students. However, there is an opportunity for me to travel as well as make money. So I decided to take the opportunity and go away to california and I won't be going to philadelphia at all. I won't see my family until late august but I think the trade off of going away for awhile and making money out weighs the consequence of not seeing my family for awhile. Even though it may seem as though I'm home sick the money and the traveling will be worth because i'll be getting experiance. So hopefully the good (me going away) out weigh the bad ( not going home).

Jamil Allen

End of The Year Plans

The end of the year has arrived and there are many issues that need to be addressed before my room mates and I leave for the summer. Among one of these issues is storage. We are moving to a different apartment next year and rather than have to pack up our cars for home and have to pack them up for the fall semester again, we decided that the time and effort put into this act be too costly, instead we would be wiling to pay around 40 dollars a month to let a storage company hold our stuff until Fall semester. However, because we are college students we shopped around for the cheapest and closest place to campus possible to reduce the travel time as well. This being so, we will go home without the hassle of worry about any of our boxes falling off the roof of the car.

Friday, April 08, 2005

The Pope is in Demand

I’m sure that everyone is very aware of the illness and recent death of the late Pope John Paul II. The media has covered many elements of his death from the health reports to the funeral arrangements. However, there is actually an economical element to the sorrow following the death of the Pope as well. The demand for various mementos of the Pope is incredibly high, and escalating fast. For example, items such as rosary beads with the Pope’s picture in the center, books by or about the Pope, photos of the Pope, and Polish ornamental eggs are being sold at various locations. People are even paying $10 for posters of the Pope, a very high price for a poster. One retailer is experiencing a shortage of prayer cards, because the supply cannot keep up with the rapid increase in demand. In addition, a lottery is occurring for these popular items on EBay. Items being auctioned on the site include a coin that has been blessed by the Pope (going for about $12,500) and rights to the Internet domain name (going for about $10,000). Why is the demand for these items so high? Why is a shortage occurring? Why are the prices of the items so excessively high? It is because these items are highly inelastic. There are absolutely no substitutes for Pope memorabilia. No one else can bless beads or a coin the way the Pope can. Also, the majority of these items are not a large portion of the consumer’s budget (such as the $12 for Polish wooden eggs). Lastly, the demand for these items is rather immediate, especially the items that are being auctioned off on the Internet. Consumers really need to act quickly in order to get the merchandise that they want!

SOURCE: Grant, Lorrie and Horovitz, Bruce. "Consumers seek out Pope memoribilia." USA Today. Friday, April 8, 2005.

-Shawna Malit

Wednesday, April 06, 2005

The Economics of Doughnuts

Johna Eryn Hoey

In the April 6th issue of The New York Times is an interesting article regarding the Krispy Kreme Doughnut franchise and the $225 million dollars that it acquired in loans this week. Krispy Kreme was able to receive such loans, which the article refers to as second-lien loans, because it “paid high rates to attract hedge funds and other investors, who are increasingly willing to elbow aside banks when it comes to lending to riskier companies.” Second-lien loans are becoming increasingly popular because Hedge fund managers are focused on what assets are worth and a company’s ability to repay its debts. Hedge fund managers are no longer solely focused on short-term credit ratings. In fact, “over the last decade or so, the riskiest form of the business, known as leveraged lending, has been transformed to an actively traded market.”

On the other side of this agreement between Hedge fund managers is the company in question, Krispy Kreme Doughnuts. Krispy Kreme in this scenario maintains positive time preferences because it would rather acquire more wealth now than later, which explains its willingness to borrow loans and funds. Krispy Kreme's role, along with the Hedge fund managers, also help to explain the Allais Paradox of preference reversals. In this case, both Krispy Kreme and the Hedge fund managers are taking on the role of risk taker. Krispy Kreme is a risk taker because if it fails to borrow loans, it will likely lose millions in profits; in other words, it has nothing to lose and its remote chance of success is greater than no chance of success. The Hedge fund managers are risk takers in this situation as well because they are taking a chance with Krispy Kreme, a company that is currently “facing a short-term liquidity squeeze.”

In the end, while the idea of borrowing and lending loans all sounds like a risky process in my mind, the article notes that “second-lien lenders are better off than bond buyers because their loans, unlike bonds, are secured by assets.” Hopefully for Krispy Kreme Doughnuts its value increases steadily so that it has enough assets to eventually cover the value of it second-lien loans.

Atlas, Riva D. “Return-Hungry Investors Snap Up Riskier Loans,” The New York Times.
Wednesday, March 6, 2005.

The Supply and Demands of BBQ

In the following story, the names and places have been changed to protect the innocent (or guilty). I work at a tutoring center, and there is a very very small demand for tutoring due to the insignificant number of students coming in to tbe tutored. There is also a large supply of tutors in the tutoring center, who do not really do much tutoring because there is no one to tutor. This being so, my friends who will remain nameless decided to have a big BBQ outside to celebrate the great weather and the birthday of a friend. One of my friends who works at the tutoring center with me, Appreciante, works till 10, making her completely miss the BBQ. However, we decided that since the supply of tutors is large, and the demand for tutors is small it would be okay to leave work early and make the 8 o'clock BBQ. Its just smart economics.

Tuesday, April 05, 2005

Sometimes you just need to take off

So today April 5, 2005 it was a really nice day out. I have a math exam tomorrow and I thought about studying earlier today but it was just too nice so I went out and enjoyed the weather. I played a combination of football and basketball in a spand of three hours. Although I had a good time today there were a few trade-offs that I hadn't thought out before I started playing. When I was done my body was so tired and I could barely move. I went back to my dorm and fell asleep and now here I am trying to get all my online homework done before 12 am. I still have to study for my exam and I have to get up early to go get a hair-cut. Now I will be behind on sleep and very grumpy tomorrow. To make matters worse I missed a mandatory meeting for work today because I was playing basketball. I knew about it this morning but I lose track of time while I was playing. So if I would have just went and studied I would have remembered but what can you do now? The nice weather gave me the incentive to enjoy myself but I was not ready for the consequences. Sometimes blowing homework off is worth it.

Jamil Allen

Monday, April 04, 2005

The Truth About Taxes

There is a rumor that has been going around for a long time that taxes hurt the economy. This is especially relevant information today since the United States has just experienced the “most sweeping tax cuts since the 1980s.” However, this is apparently just a myth, with no substantial evidence behind it. In an article published on the New York Times website, Anna Bernasek goes into detail on the reality behind the economical effects of raising taxes. There are many supposed reasons for the negative externalities that have been previously thought to damage our economy. One of these is the idea that people have less incentive to work if they are being taxed more on their income. This has to do with the Progressive Tax System. People feel that they should exert less energy in their work, thinking that they will come out with the same profit after taxation. Tax increases are also believed to damage the economy because the lack of motivation to work slows productivity. However, according to Bernasek, there is no actual evidence behind this theory. She emphasizes that not very many jobs allow their employees to slack off just because they want to. After investigation through “hundreds of studies to determine whether taxes hurt the economy,” economists have found that productivity rates are actually at their highest when taxes are also at their highest. It was also found that countries with the highest tax rates tend to be the most affluent. Although this article emphasizes the fact that it is not suggesting that taxes necessarily help the economy, it exposes that taxes may not be bad for the economy in reality, and that they “don’t play a big part in how hard Americans work.”

*CITATION: Anna Bernasek, “Do Taxes Thwart Growth? Prove It,”, April 3, 2005

-Shawna Malit

Wednesday, March 30, 2005

A New Incentive for Hospitals to Save Lives

Johna Eryn Hoey

In the March 29, 2005 issue of USA Today is an article titled, “A path to safer hospitals,” which details the decrease in productivity that exists today amongst our nations top hospitals. In today’s world of third-party payments, health care institutions are only getting paid “based on volume of services rather than whether patients get better.” Unfortunately, while Medicare and third-party financing relieve hospitals and patients of their finances, they are also reducing the incentive to measure hospital performance, or productivity. However, as of late a national system to grade hospital productivity has been slowly emerging.

The newly implemented national hospital grading system rewards hospitals over time if they follow guidelines, and conversely, hospitals receive lower fees if they neglect guidelines. In essence, such a system is providing hospitals with an incentive to improve their productivity because if they do, they will be rewarded through monetary means. In the end, by tracking and rewarding hospitals with better pay, such a system “can provide the incentive to save not just money, but lives.”

USA Today, “A path to safer hospitals.” March 29, 2005.

Monday, March 28, 2005

Maximizing Utility

After a long and busy week, this past weekend I decided to celebrate. I got through two exams, physics and economics, and managed to not stress myself out. So I thought it would be a good idea to give myself a treat. Saturday night I celebrated by drinking about six cups of juice (which was not alcohol). I ended up at a party and I happened to be thinking like an economist at the time. The only way to entertain yourself at the party was to dance and at the time I must have remembered that maximizing utility depends on rationality. So instead of trying to dance with the best looking girls at the party I danced with everyone else. I'm not saying that anyone is ugly but I maximized my utlity by dancing with girls who were less attractive than others. I figured most guys would go after the more attractive looking girls. Anyway, I ended up dancing with a girl that was slightly bigger than I and a little bit taller. However I maximized my utility because I was informed that I had a very big smile on my face. I didn't mind the secondary effects of my actions, there a few laughs here and there. The more important thing was my utility was maximized and it was a great way to end a weekend.

Jamil Allen

Are Technological Advancements Setting Us Behind?

Although the benefits of advancements in technology have helped many people, and enabled communication and health services to improve drastically, there is always a looming fear that maybe technology is taking away from humankind. Well, in Friday’s USA Today, this fear was brought into light. This past Tuesday new information was issued about a recent slow in the creation of new jobs. Obviously, this is a serious concern when it comes to current and future unemployment rates. In the article, the main reason for this “softer employment” is explained as an increase in productivity. How can an increase in productivity create fewer job opportunities? It seems that productivity is becoming more efficient and rapid while LESS actual humans are being hired. The technological advancements are enabling fewer workers to accomplish the same amount of production that in the past required a greater number of employees. Although an increase in productivity is a positive thing in terms of the economy because it “allows the economy to grow quickly without sparking inflationary pressures,” new data shows that fewer jobs are being made available for capable citizens seeking employment. So the fact that our society is moving forward at a rapid pace in terms of technology may actually effect those seeking employment in a negative way. It seems that advances in technology are causing negative externalities to occur, which are far from inframarginal. That is an extremely scary thought, especially for current college students.

*CITATION: Hagenbaugh, Barbara. "Reports Indicate Job Growth Remains Bogged Down." USA Today. 25 March 2005.

-Shawna Malit

Fear Factor – Is Fear A Factor For You?

Vanessa Avanzini

Last night, my friends and I were being lazy and watching some TV, some Fear Factor to be precise. As we were watching the contestants dropped from 6 to the sole winner of the show, after having to swim underwater and unlatch themselves from a spinning cylinder and swim to safety, visiting the morgue and having to be zipped in a body bag with pounds and pounds of nasty bugs, and slammed into a morgue drawer until the contestant could figure out how to detach herself from the chains that were on her wrists, and unzip the body bag, and finally go across a rope and collect flags as a helicopter carries both her, the flags and the rope across the ocean. Now let me break it down for those of you not avid in fear factor: contestants get $5000 for each mission that they win (meaning that they must complete the mission and receive the fastest time in completing it), if they refuse, or quit a mission they are eliminated from the competition, the slowest times also get eliminated. Now the sole winner at the end who scores the highest overall points wins $50,000. Keeping all this in mind, my friends and I debated on whether we would go on the show at all. I sided with three of my friends, we thought that going on the show was not an option for us at all; first of all in game show economics $50,000 is a complete rip off. Who wants to be a Millionaire has a huge pay off, and you don’t have to eat nasty bugs. Among other alternatives are wheel of fortune and jeopardy where you win money in a rather lazy, risk free way. In Fear Factor, you are not guaranteed any money at all, and to receive the money you must be the best, and not quit. Not only must you do your best to win, you have to do better than everyone else’s best as well. Now let’s say you put in 100% effort, and your competition also puts in 100%, but their 100% beats your 100%, this makes you a loser despite giving it your all. Now what exactly is $50,000? To me and many of my friends it’s what we will be making straight out of college as engineers, and lawyers. It’s a year’s salary. My friend the future lawyer, says that not only is it what he will be making once he gets out of school, but also that he doesn’t value money enough to have to do dumb stuff on television. The risk, or the possible adventures or thrills don’t add up to $50,000. Now that brings the counterpoint of one of my friends, he said that $50,000 today is worth more than $50,000 one year from now, its money that you can invest, or spend to create more money later. It’s also what I learned in my Engineering Economics class, a dollar today is worth more than a dollar tomorrow. While this may be so, $50,000 is not enough for me to succumb to being trapped with bugs, or eating bugs, or having anything to do with bugs at all. Now if the prize was $100,000 I guess I’d have to sign up.

Increase in Tution, Increase in Loans

Johna Eryn Hoey

As college becomes more of a “fact of life” than an option, the demand for college has obviously increased. With this increase in demand for a college education most colleges and universities have increased their yearly tuition, causing more and more students to file for student loans. In the March 28th issue of USA Today there is an article regarding the struggle of college graduates who are watching their “debt burden increase” due to the fact that they are still paying off their college loans.

The main aspect that this article touches upon is that of the income inequality present in the United States. “The nation’s poorest students already were borrowing heavily, but more of them took on loan burdens- 72% in 1999-200, up from 67% in 1992-1993.” This increase in loan burdens worries some because as higher interest rates and inflation continue, it could make college out of reach for low-income students. In addition, while the rise in tuition and interest rates greatly affects those in the lower income bracket, those students coming from the nation’s wealthiest families are also finding themselves taking on debt in order to pay back their college loans.

In the end, with interest rates expected to continue to rise, “students are going to be facing a whole new set of challenges, given the larger loans that they are taking out.” With this advancing concern in the education department, some believe that the government should intervene. However, do not expect any government intervention any time soon; Congress is currently considering limiting consolidation benefits instead of increasing them!

Toppo, Greg. USA Today, “College graduates see their debt burden increase.”
Monday, March 28, 2005