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E.g., Tuesday, January 23, 2018
E.g., Tuesday, January 23, 2018
Question:
Please advise my going to become an economist. I was an average mathematics major as an undergraduate with a G.P.A. of 3.19 overall with a bachelor's degree in applied mathematics. I have about the average IQ for economists, but I know nothing about economics. Now that I am 41 this year, I am thinking of starting anew in a brand new area of applied mathematics. Is this advisable this late in life to switch careers from mathematics to economics given that the two share a common bond in mathematical economics and are theoretical in microeconomics?

Would the transition be better if I pursued pure mathematics instead, because my experiences has been lately in proof making? What can I look forward to? How and what should I be looking into, to start off, if economics is a good choice? I am a highly curious person. Plus, I have worked hard, I have been doing pure mathematics on my own since 2004 until presently; but, it has been slow going; so, I thought that by going into something that has a better return in investments of my intellectual energy, I should try microeconomics?
Answer:

The prospect of a mid-life career change would be daunting for anyone.  In the end, you’ll have to make that difficult decision on your own.  But I can give you a few tips on how you might begin to explore whether a career in economics...

Question:
A commodity (let's say a vegetable like squash or tomato) that is grown in Mexico and transported to the US and is being sold at 1.29/lb.
After about a month when the commodity has less than 2 weeks of shelf life it may be sold at .69/lb and then discarded after another week.

1) Why would the store not further discount these items at let's say .30/lb to clear the complete stock? ( I understand it is so as not to let the global/US prices of the commodity go down.)
2) Is wasting better for the store than to sell it at a discount?
3) Even if customers stop buying fresh commodity and start to wait until the price goes down to .30/lb. Isn't it economically profitable to the store to actually sell it than waste it ?

Thanks
Answer:

Food waste arises from preferences, incentives, and constraints. Retailers have time and other resource constraints which implies that it simply will not be worth it to sell every last item of food in every instance. It can be said that there is...

Question:
Hi there,

Okay, so this is going to be a really stupid question but I need to know the answer to this. There is a message board about collecting video games and we got into a argument about the definition of the word "rarity." With these games, we all know the exact amount of copies printed for each title. Say Game A has 2000 copies printed and Game B has 5000 copies printed. Assuming that no copies are lost or destroyed, Game A will always be rarer, correct? Someone else is arguing that the availability of copies on the secondary market changes this.

If Game A has 20 copies available on the marketplace right now and Game B only has 2 copies, would Game B be considered to be rarer overall? At that moment in time, sure, but overall, I would say no. Are either of us correct? Would the monetary value of the game on the secondary market change the definition of rarity? Thanks for your time!
Answer:

In the strictest (or standard) sense of the word, you would be correct that game A is “rarer”, given that there are fewer of these in existence than game B. However, the other person is not totally wrong because, in the words of economists, the “...

Question:
I keep seeing this number used instead of actual dollar numbers. Isn't most government spending a part of GDP? If $1 billion spent on a battleship raises the GDP by $1 billion, doesn't that fatally skew the percentage formula?
Answer:

Let me start by reminding you that GDP is a measure of the total amount of goods and services produced in an economy, say the USA, in a year. So it sums the total value in dollars of everything that has been produced in the country in a given...

Question:
Because of QE, the money supply has increased substantially since 2008. Why aren't we seeing more inflation?
Answer:

As noted, the Federal Reserve has significantly expanded its balance sheet from about $800 billion prior to the Financial Crisis, to roughly $4.5 trillion as of November, 2014. The Fed expanded its balance sheet by buying long-term assets and...

Question:
Can a market failure occur when there is a high amount of risk within the market leading producers and consumers to avoid the market?
Answer:

To answer this question, it is critical to agree on the definition of "market failure." In what follows, by "market failure" we will mean a situation where a free market fails to provide an efficient allocation of goods and services (i.e., risk...

Question:
I have been thinking about open market operations that the federal reserve performs to control the money supply and I have a question that I do not fully understand and it is bothering me. An answer to this question will be really appreciated.

Question: Let’s say that if the central bank is keeping the base money at 6% of the GDP then as the GDP expands then the central bank will also have to increase the money supply to keep it at 6% of the GDP. In that case the central bank will perform open market operations to pump extra money in the economy by buying treasury bills. Some of those treasury bills that central bank has on its balance sheet will mature and the central bank will have to replenish those by buying new treasury bills to keep the money supply constant at 6% GDP. So as the economy grows larger and larger, the central bank will be holding more and more treasury bills on its balance sheet and will have to conduct more and more open market operations to replenish the maturing treasury bills? Does that also imply that in an ideal world with no recession and constant GDP growth the central bank will always increase its balance sheet and the balance sheet of the central bank will not go down? Also, if the federal debt is paid off somehow then the central bank cannot use the treasury bill for open market operations so will they use some other type of instruments such as etfs to conduct open market operations? Thank you very much.
Answer:

The money supply and the size of the central bank’s balance sheet are closely connected. Currently and historically, the sum of currency and bank reserves (a narrow definition of the money supply) account for almost all of the Fed’s liabilities....

Question:
The way the economy is today, would it be bad if rich countries (US, EU and Japan) print money and instead of doing the QE (top bottom) inserted the money on a bottom up approach? And I know about the risk of inflation, but isn't it what we want right now? A little bit?

1) I'm talking here about rich countries with deflation or very little inflation, so a bit more of extra money in the market wouldn't be bad (it would be up to them to calculate this amount)

2) The money could be give to the poorest in the society. This money would go straight back to the economy since lower classes save very little (usually they spend the extra money or pay debts). So instead of the trickle down economics (which usually doesn't work) we would have a trickle up economics. Australia did it just after the 2008 GFC and it was one of the only developed countries that didn't go into recession. (although it took the money from its budget).

3) The QE amounted in trillions of dollars and not much of this money went to the real economy in terms of investment and the creation of jobs. A lot of it created an inflation of assets such as the growth of the stock market in US, a housing price hike in world cities such as NY, London, Sydney, LA and so on and even Art prices exploded...but not much to the real economy.

4) Corporations don't need more money in the form of tax breaks and cheap loans (they are swimming in cash). They need consumers to consume! So they know they have a market and be confident to invest in new projects. And with the squeeze of the middle class in rich countries, we are not consuming as much as we need to keep the economy growing.

5) I don't know how much money would be enough to kick start (or improve) the economy of Japan, Europe and US without a dangerous inflation but it could be done in 4 installments along the year to the poorest families. Image something like 4 x 200 USD in one year. This money would make a big difference for low-income families and would flood directly to the economy...and companies would know that the money would come and they could prepare themselves.

6) The dollar is pretty strong now and it's becoming a problem for the US and the rest of the world. So printing a bit might not hurt much.

7) A few years ago negative interest rates were seen as something out of this world. But now Japan, Switzerland and Sweden have it. We just need to think out of the box to improve this economy in a more inclusive way....no middle class, no economy and no democracy!

8) Obviously, this wouldn't work with developing countries with weak currencies and inflation...but for US, EU and Japan...why not?
Answer:

There are several issues here. First, the US central bank, the Fed, is an independent monetary authority and does what it thinks best to keep inflation and unemployment low. They cannot be "asked" to print more money or change interest rates....

Question:
Has the advent of the 401K retirement plan impacted the stock market? It seems to me that the massive flow of cash that must be invested immediately would drive up prices. I understand that prior to 401Ks, retirement plans tended to invest in the host company's stock rather than the general market.
Answer:

In principle, if most companies offering retirement plans switched to 401(k)'s simultaneously and no new stocks were issued (i.e., no change on the supply side of the stock market), I would expect a substantial increase in the stock prices, as...

Question:
In the recent Canadian federal election, the winning Liberal party's platform included running a "small" fiscal deficit of about C$10B each year for 3 years to invest in infrastructure. The commentary about this that most surprised me was this would not increase the accumulated debt, and in fact would still contribute to reducing the debt, albeit more slowly.

Does that make sense? My understanding is that any fiscal year you end up with a deficit means you're borrowing more to make up the shortfall, and thus adding to the accumulated debt. Or are there technical aspects during the year that do otherwise?
Answer:

Given that the standard definition of government spending does not include the repayment of maturing debt, your understanding is correct. In particular, during the three years of running the deficit as planned, the Canadian federal government...

Question:
In news and other articles it often is stated "the cost of something could reach billions" or some such statement. Do these statements mean anything?
Answer:

It means that once the dust has settled, insurance companies have paid out, homes have been rebuilt, infrastructure redone, people have moved out, businesses rebuilt, and so on, the total cost of all that would reach billions. These "billions"...

Question:
Hello. First of all, this idea about answering economic questions is just wonderful and very helpful to simple citizens, but to people like me, too, who are studying economics and want to ask some things. My question has to do with the rate between two currencies. I know the basics but I would like a deeper answer on what it means for the countries the two currencies represent. For example, how can we understand which country is more powerful when we know the rate between their currencies. A few examples, such as with the euro and dollar, would be appreciated in order to understand it better. Thank you in advance!!
Answer:

The rates don’t reflect relative power. For example, 1 UK pound equals about 1.56 USD. That does not at all mean that UK is more powerful. Similarly, a US dollar approximately exchange for 122 Japanese yen currently. By no imagination, it means...

Question:
Hi!

I wanted to value a High-tech start-up of which I have the cash flows of the comming 6 years I am not a VC just a Post-grad student, so I decided to use the Discounted Cash Flow Method. To do so, I calculated the Discount rate. For a High-tech start- up the discount rate = Rate of equity (which can be determined by the Capital Asset Pricing Model). So I calculated my Discount rate, used it in the DCF model And found an aproximation of the Value of the High-tech Firm.

But I didn't took in consideration that the company sells their products globally. This fact has an impact on its beta Factor! and consequantly on the discount rate and finally on the Value of the firm!

One option is to use the International CAPM model, but 'my' company is going to sell globaly, so how do I know the impact of that to the Discount rate?

any help would be very appreciated

Thanks
Answer:

If your company is based in the US, the valuation should be based on the standard CAPM. However, barring exceptional circumstances, one would expect the beta of such a firm to be closer to zero than the beta of an otherwise identical firm selling...

Question:
Using the worst case scenario (Illinois), what are the economic implications of underfunded pension plans?
Answer:

The problem of underfunded pension plans is complex. Some possible economic effects are as follows.

1. Plan beneficiaries will suffer economically in retirement unless they are bailed out by taxpayers. Whether and how much to bail them out...

Question:
What would happen if the minimum wage laws were repealed? Would businesses pay their employees a penny an hour?

If raising the minimum wage to $10.10 would be good for the economy, wouldn't raising it to $20 be better? If not, at what point are the good economic effects of a minimum wage outweighed by the bad?
Answer:

If minimum wage laws were repealed, the vast majority of U.S. workers would not have their wages impacted. Through supply and demand, competitive market forces drive up the wage rates of most workers to levels considerably above the current...

Question:
What are the major pieces of literature on Agricultural economics as well as the household names when it comes to Agricultural economic research?

I am mathematics major student with an MA in Economics, I am developing an insatiable interest in Agricultural economics and would like to read more on research in this area. I would like to be guided on the body of literature making names in this field.

I will particularly be interested in works that apply econometric techniques using time series econometrics and forecasting, panel data.
Answer:

Handbook of Agricultural Economics

Editors: Bruce L. Gardner and Gordon C. Rausser

Volume 1, Part A, Pages 3-741 (2001)

Agricultural Production

Volume 1, Part B, Pages 745-1209 (2001)

Marketing, Distribution and...

Question:
Why has Saudi Arabia released so much oil for sale that prices for that have dropped so fast? Does that country have a lot of debt? Does it relate indirectly to the economic slow down in China?
Answer:

Currently, Saudi Arabia’s foreign exchange reserve is about $600 billion. Saudi’s oil export is about 8 million barrels per day, or about 2800 million barrels per year. At $100 per barrel, their revenue from oil exports would be about $280...

Question:
I know that when there is too much of something the value of that item goes down. If the money supply of US Dollars goes up drastically that will that lead to or cause inflation of the US dollar or a decrease in its value. According to an article I am referencing *," When inflation starts to bubble up, Treasury inflation-protected securities can turn down the heat on your portfolio. Issued with the full faith and credit of the U.S. government, TIPS are one of the few investments guaranteed to earn, under normal circumstances, a "real," or after-inflation, return. Their principal value adjusts in sync with the consumer price index and, because the coupon payments on TIPS cue off this adjusted principal figure, the bonds pay an inflation-indexed income, too."
So my question is: if the US dollar loses 10 % of its value to inflation, how much will the bonds return? In dollar amounts- a $5000 investment in Treasury inflation-protected securities should yield how much?
* http://m.kiplinger.com/article/investing/T041-C000-S002-why-you-need-tips.html
Answer:

Suppose that $5000 is the face value or redemption value (not the market price at which an investor may have bought it) of a 5-year TIPs. Suppose that it promises to pay an annual coupon payment of 1% or the amount of $50 at the time of purchase...

Question:
I watched President Obama’s speech this last week, and I didn’t understand something. He said he’s cut the deficit by 2/3. Yet, we need the debt ceiling raised in order to avoid a government shutdown. Why? If I were to pay down 2/3’s of my debt, I would have a larger amount of credit available to me. What am I missing?
Answer:

You are missing a key difference between the federal budget deficit and the public debt level. The deficit shows by how much the federal government expenditures exceeded its revenues in a given fiscal year; the deficit is measured per year. In...

Question:
One of the macro economic indicator that is monitored by organizations is "the contribution of construction to the GDP". This is measured in terms of percentage contribution of construction.

My question is:
What does this comprise? Does it include large infrastructure projects/oil refineries/nuclear plats etc or not?
Answer:

As you probably have seen already, you can find the measure of value added to GDP per sector of the US economy at the Bureau of Economic Analysis website, specifically at this web address: https...

Question:
With all the killing of poultry by bird flu and euthanizing that will this do to the retail poultry prices?
Answer:

Avian influenza has continued to spread, particularly in flocks of egg-laying hens. When a farm encounters a case of avian influenza, some birds die and others are euthanized. In the immediate short-run, this translates into a direct reduction in...

Question:
What is the median family spendable income for families living in Fort Dodge, IA.
Answer:

The American Communities Survey provides information on median household income

This is before taxes and transfers

American Fact Finder

https...

Question:
I wonder what "reduced-form analysis" is, and a non-reduced form would be. To be more specific, I'm reading an article (www.clevelandfed.org/research/review/1996/96-q1-craig.pdf) which states the following:

"Economic data usually influence policy through a reduced-form analysis...Explicit assumptions about behavior that underlie the relationship are not emphasized; rather, the researcher asserts that the “data do the talking.”"

The author later specifies what he means by "reduced-form":

"We use the term in a wider context, where the pattern in the data — not an assumed behavioral structure — forms the point of departure for estimation."
Answer:

A “reduced-form” analysis, also often referred to as “non-structural” analysis, is the most common kind of econometric analysis performed by economists. The other kind, which you called “a non-reduced form,” is customarily referred to as “...

Question:
How high can our national debt get (as a % of GDP) before it will be a threat to our financial stability? ie: dollar loses its status as the reserve currency.
Answer:

The national debt of the US is the amount owed by the US federal government and is the value of the Treasury securities that have been issued primarily by the Treasury and which are outstanding at that point of time. By far, the largest component...

Question:
If a business owner employs workers in a third world country, is it better (for the workers) to pay them in strong American dollars vs paying them with the local currency? Considering the American dollar will likely be stronger than that of a third world country, the workers will have more economic power with greenbacks than their own national currency.
Answer:

If the third world country has low and stable inflation, then it should not matter much; after all, there is a market exchange rate between say $1 and Indian rupees (these days, $1 = Rs. 60) and whether you pay an Indian worker $1 or Rs 60 should...

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