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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've worked with, or had my kids, in many organizations that rely on (and demand) contributions. They claim that 100% participation (even a single dollar) is important because other donors look at the participation levels when making their decisions. It seems plausible, but is there any ACTUAL evidence that (a) that is a wide-spread practice, and (b) that such institutions actually raise more money?
Answer:

This question is in two parts: 1) How prevalent is the requirement for 100% giving of any amount; and 2) Do organizations raise more money if there is a 100% giving expectation?

Let me begin by stating that I’m not aware of any research...

Question:
How many families would be helped by raising the minimum wage?

This week the Congressional Budget Office analyzed the effects of raising the minimum wage to $10.10. They say (Table 4) that it will raise the average income for families in poverty by $300, but also (Table 1) that it will raise the total income for families in poverty by $5 bn.

These two numbers would make sense if there were 17 million families in poverty, but the census says there are only 9.5 million families in poverty. The numbers about families at other income levels have the same issue. Somewhere a number or an interpretation is wrong -- but where?

CBO link: www.cbo.gov/publication/44995

Census link: www.census.gov/hhes/www/cpstables/032013/pov/pov04_000.htm
Answer:

That’s an astute observation. As you say, $5 billion divided by $300 per family in poverty suggests there are about 17 million families in poverty. But the Census data cited in the CBO report indicate far fewer families in poverty. Updating your...

Question:
Why aren't citizens who have given up looking for work not included in the unemployment numbers?
Answer:

Various measures of the U.S. labor market are prepared and published by the Bureau of Labor Statistics (BLS), U.S. Department of Labor. The (civilian) labor force (L) is defined to be the summation of those in the non-institutionalized and non-...

Question:
I don't understand why deflation, or even the zero-bound liquidity trap are not easily escaped by printing money.

I understand why deflation is debilitating, and why the zero-bound inhibits monetary policy. Why can't central banks just print money, and turn it over to their national governments to generate inflation? As a bonus, those governments would then have more money to spend - presumably to the benefit of their populations.

I do understand that high inflation carries its own problems (I remember the 1970s) but could a central bank facing perennially low interest rates not just run the presses until inflation began to approach its target level?
Answer:

In the US at least, financing Govt expenditure/budget deficit by using more Federal Reserve notes is not an “usual” option (the way it is in India for example) is primarily because the central bank’s independence from the Treasury and the Govt’s...

Question:
From 1934 to 2015 the mean difference between the national debt and commercial bank assets has been as follows: National Debt = 0.94 x Commercial Bank Assets. There is a simplistic narrative of the national debt that goes as follows. The government spends into the economy and then removes some of the spent money and then spends more, etc and the amount the government does not take from the economy is equal to the debt. This simplistic narrative does not include the complexities of a central bank, an endogenous money supply system, etc. Is it possible that the narrative is true but the system enables commercial banks to "capture" the money as their assets?
Answer:

A fundamental principle of accounting is that the liabilities of one party are the assets of another. National debt is simply the amount owed by the federal government – that is, its liabilities. Some other party must hold these as assets, but it...

Question:
If you have a large amount (lets say 50%) of your wealth tied up in a single foreign currency and your home currency depreciated what would be the effects? Would you be better off or worse off than someone with all their wealth in their home currency? What are the variables that would determine if you are better or worse off?
Answer:

Your wealth in terms of home currency will increase whereas in terms of foreign currency it will decrease. If your home country prices remain the same, it means your real wealth has also increased. So, broadly, it depends on when and where, home...

Question:
A few of my friends believe that the cure for cancer already exists, but the pharmaceutical companies won't release it because they make more money treating the disease rather than curing it. In my head, the company that had the cure would end up making the most because they would have a better product. My questions is which model would be the most profitable?
Answer:

You have put your finger on an important topic that economists have been arguing about since Kenneth Arrow’s analysis of the incentives to innovate in “Economic Welfare and the Allocation of Resources for Inventions” in _The Rate and...

Question:
I do not fully understand how Open Market Operations of US Treasury Bonds by the Fed increases the money supply, i.e. reserves. Treasury issues a $1000 bond which is given to a primary dealer to auction off. The NY Fed buys that particular bond by crediting the dealer's bank account with $1,000 the Fed just created. But doesn't the dealer now have to remit that $1,000 to Treasury? The dealer is at net $0.00 (ignoring commissions or other minor amounts). So when the Fed buys bonds, the new money actually ends up at Treasury. That doesn't seem to agree at all with my reading that the new money is held as reserves at commercial banks. Can you please clarify?
Answer:

Money supply increases when the FED (say NY FED) buys T-bonds from other banks (say Wells Fargo) or non-bank public (say a household or a dealer) in a secondary market, NOT a primary market. The Treasury does not get anything if its assets are...

Question:
I was just thinking about the massive economic dislocations resulting from World War I and their impact on Weimar Germany. But the dislocations spread well beyond there. The War had bankrupted England and France (though not so much the U.S.), to the extent that they forced Germany to pay such enormous reparations that Germany was a basket economic case in the 1920s. The U.S. economy boomed during that period, but it then crashed ten years later. After World War II, somewhat contrariwise, we had an unprecedented and never repeated period of growth and prosperity. After Vietnam, we had galloping inflation, followed (I think) by a recession. After seven years of a ruinous war in Afghanistan and Iraq, we had a Great Recession. Now I'm a political scientist, not an economist, but from the standpoint of political economy, it would seem that there must be correlations between massive military expenditures and economic cycles. The economy, that is to say, does not exist in a vacuum. So, Dr. Economist, is it possible that the famous "economic cycles" are not merely cycles that happen all by themselves, but rather sine waves that correspond with other fluctuations in military expenditures and war? As a political historian, I know that it has always been wars that have bankrupted nations and caused political upheavals. This is not new. Why not in our age? Why do we teach our students that there are recurring economic cycles without, in traditional economics, relating them to the military adventures of our own government, And that of others?
Answer:

There are really two questions here: (1) what are the causes of economic fluctuations, generally? And (2) what role do wars and military spending play in these fluctuations? 

 

Answering the first question is beyond the...

Question:
What percent of hog firms use forward contracting or options? Why do hog producers not use futures or options?
Answer:

Unfortunately data are not readily available on the percent of hog firms using forward contracting or options. What is readily available through Mandatory Price Reporting (MPR) data provided by USDA’s Agricultural Marketing Service is the volume...

Question:
Given the increasing population migration to more urban centers - and maybe the possible validation of Richard Florida's 'creative cities' theory - what viable economic models are we seeing for smaller, rural Iowa communities, most of which are really struggling to maintain population and economic viability? In other words, is there any hope for these once thriving rural towns and, if so, what does that look like?
Answer:

It is useful to begin by noting that Nebraska has a higher proportion of its population living in urban areas (73%) than Iowa (64%). The reason is that Nebraska has only 4 metropolitan areas (Lincoln, Grand Island, Sioux City, Omaha), all of...

Question:
If banks create credit from thin air, when they issue loans, and make astonishing interest in doing so, why would it not be beneficial to have their government create the credit? Then the interest collected on those loans could be used to fund goodies for the people, instead of super-yachts for crooks! Cheap loans for the poorest, expensive loans for the richest. Narrow the wealth gap a smidge. I cannot see a down side. Was this not how it once was, to our great prosperity? Is access to credit not the true essence of opportunity. Only people create value, thus, credit can only be created by the people. When did private banks capture our credit? And whom is responsible?
Answer:

There are government owned corporations or government backed corporations that directly lend to households or foster lending to households in other ways, for specific purposes. For example in the US, GNMA (Ginnie Mae), FNMA (Fannie Mae) and FHLMC...

Question:
Hi, quick question: can a tariff be counted as a fiscal policy measure? Currently studying the great depression and curious to know if the Smoot-Hawley act which raised US tariff on 20,000 imports counts as a contractionary Policy fiscal policy. My thinking behind this is it did involve the raising of taxes on imported goods,and increasing taxes are usually considered a contractionary fiscal policy measure. Please help. Thanks.
Answer:

In discussing the impact of economic policy on aggregate demand and the balance of trade in open economies, international economists often talk about two types of (non-monetary) policies: “expenditure reduction policies” and “expenditure...

Question:
What are the fringe benefits of being an economist?
Answer:

Taken literally, fringe benefits are extra, non-monetary compensation, such as health insurance, etc. provided you by your employer.  I suspect, however, that the person who submitted this question is not interested in the package of...

Question:
What is the impact of production being directed towards what appears to be endless product differentiation, for example multiple flavours of toothpaste or shampoo variations which ultimately do nothing to improve individual well being? Does this form of market operation generate employment or is it a waste of productive capacity that might be better directed towards activity that genuinely increases well being. For example, creating products that delivers a real benefit.
Answer:

Does the market provide too many or too few products, relative to some social optimum benchmark? It turns out that this question does not have a simple answer. It depends on whether or not consumers are well (perfectly) informed about products'...

Question:
Hi. I studied economics at undergraduate level and have encountered the profit maximising rule of MR = MC; with the standard premise for such calculations involving the production of goods with a fixed price per unit. I currently work in the construction sector (demolition) where each of our projects have a different cost and revenue from other projects. As such, I would like to know if/how the above measure could be applied to the service sector? My current thinking is that the data must be manipulated to achieve the cost per square foot of a site. However, this will involve significant data manipulation just to run the calculations. Could you tell me if I am on the right track with this direction or whether there is an alternative way that I could calculate the profit-maximising output? My goal in answering this question is to determine the appropriate mark-up for our business when submitting a quote to a client. At present, we are charging a 10% mark-up which I currently believe to be too low to be sustainable. Any assistance on this would be greatly appreciated.
Answer:

Hello:

 

Suppose you have N projects, each of them with possibly different but constant marginal costs (MC). Since the marginal cost for each project is constant, the average variable cost is also constant, and your profits can...

Question:
When health care spending (or military spending or education) is tallied as a "percentage of GDP," doesn't that GDP figure include that same health spending? If you remove all that double-dipping, what would those percentages look like?
Answer:

Thank you for your question. Indeed, part of the expenditure in health expenditure and defense will count towards total GDP. The reason why the total GDP (including health expenditure or defense expenditure themselves) is used as a denominator to...

Question:
Does the ISU Economics Dept. have a position on whether the Federal Reserve Board should manipulate the federal fund rate to fight inflation? When I was at ISU there was a difference of opinion among professors due to the negative impact on employment.

When the Federal Reserve announces to the world that it’s going to slow down the economy to hold back inflation that has always meant that unemployment will eventually take a hit. In the three cycles since 1989 the unemployment rate starts declining 2.59-3.09 years after the Federal Reserve starts dropping the federal fund rate. The monthly unemployment rate has been falling at a predictable rate within 2.31% since January 2012. For some reason whoever is in the White House gets the blame or credit.
Answer:

As noted, when the Federal Reserve changes the amount of “monetary stimulus” in the economy, it tends to push inflation and employment in the same direction. Lowering the level of stimulus (by raising interest rates) puts downward pressure on...

Question:
In his answer to my previous question, Dr. Orazem states that 'Iowa's small towns are surviving' (compared to Nebraska). Are they? A vast majority of Iowa school districts have seen declining enrollments for years/decades, many/most of the small rural main streets that I see appear to be in serious decline, and the towns in general seem to be losing both population and vitality. I travel a lot through rural Iowa and it sure doesn't feel like most of these small towns are surviving. Am I incorrect? If my eyeball test and what I think are accurate demographic data aren't sufficient, how do we determine if rural towns are surviving? Thanks much. Just trying to wrap my head around issues related to small Iowa town vitality and the accompanying implications for schools.
Answer:

I think it is important in establishing policy to work from facts and not perceptions. While rural towns are getting smaller on average, not all are. While schools are consolidating in rural areas, they are also consolidating in cities as like...

Question:
http://imgur.com/4uBj6mc

How do I read what is the most profitable? I want to buy low and sell high. Something called item-flipping.
Answer:

I’m not able to read (too small) the table. Regardless, I think the question relates to flipping stocks. Admittedly, my expertise is much more in commodity futures markets, but I believe the theory/rationale holds across markets. As such, my...

Question:
I have simple question and I hope you could help me with it. Why when someone books for one week for international flight during vacation time, it will be cheaper than two weeks, and two weeks cheaper than three weeks? Why is that from an economic prospective?
Answer:

I always thought that it was the other way around: the closer you are to the departure date the higher the price. Airlines have some market power and use pricing overtime as a way to second degree price discriminate: Consumers who plan long ahead...

Question:
What would be the possible outcome if the President were to initiate a program that would buy up all bad credit for those with credit scores below, say 670. All those who participate would agree to an auto draft of $20 per month or something until they reach 65 to pay back the debt owed the govt via creditors. Would this not help to stimulate the economy with individuals now having more credit power? Most people who get a second chance in the credit score will more than likely take care of it. You said ask right?
Answer:

This is a very intriguing proposal that deserves to be researched. It can have a stimulative effect for sure, at least in the short run. Once the government has paid off the bad debt, presumably banks will start lending again and that help...

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