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E.g., Monday, January 22, 2018
E.g., Monday, January 22, 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:
If I run a manufacturing company and I pay people to do work, presumably those hours are in the manufacturing sector when it comes to measuring the nations's productivity. If I also pay consultants [who's hours belong in the service sector] to help with that manufacturing volume, are those hours counted as service or as manufacturing?
Answer:

The output determines which sector a particular activity falls under. If the output is a good (product), then it falls under the manufacturing sector. If the output is a service, then it falls under the service sector.

In your particular...

Question:
In a recent article in the New York Times about free trade, the author talks about the negative impact on the US of low cost Chinese goods entering the market not being experienced by Germany and other European countries. The article goes on to explain that part of the reason is low US interest rates caused in part by a low American savings rate.

Why would a low savings rate put downward pressure on rates? If savings is capital available to be borrowed, and less savings means less capital available, shouldn't that put upward pressure on rates (everything else being equal)? Isn't that a fundamental economic principle? Restricted supply in the face of fixed demand = increasing price (interest rates)?

http://www.nytimes.com/2016/03/16/business/economy/on-trade-angry-voters...

"Mr. Autor suggests that Americans’ low savings rate was a big part of the story, coupled with foreigners’ appetite for accumulating dollar assets, which helped keep American interest rates low and the dollar strong, in that way fueling a persistent trade deficit."
Answer:

To a certain extent, the quoted sentence is tautological.

As an accounting identity, from the GNP accounts, the Balance of Trade (positive is a surplus) = (Savings – Investment) + (Taxes – Government Spending)

Hence, a balance of...

Question:
http://money.cnn.com/2016/07/07/news/economy/japan-yen-options-brexit/index.html

- Is it a good time to invest in the Yen?
in part it's a bad idea since contractionary policies are/will be implemented to slow its growth rate, but on the other hand it's great because it's value is constantly growing despite the implemented policies.

- does having negative interest rates means that people need to pay in order to keep their money in the bank? is this a contractionary monetary policy?
Answer:

first part:

It appears from the news analysis that Yen has appreciated too quickly against dollars and policymakers are concerned. Implicitly, yen appears to be overvalued in the short run. It is never a good idea to invest in a currency...

Question:
I am trying to better understand the concept of interest rates rising and its impact on the FED or BOE, ECB etc (i.e. the lender/creditor) themselves rather than everyone else which is often mentioned. The definition of an interest rate is as follows: An interest rate is the rate at which interest is paid by borrowers (debtors) for the use of money that they borrow from lenders (creditors). I feel I understand the principles behind why they raise and lower rates to stave off inflation, etc. I'm just trying to understand this part a bit more about where the money from increased (or decreased) interest goes (e.g the cycle from the other way around)?
Answer:

The implementation of monetary policy – e.g., how exactly a central bank raises interest rates – differs across countries and even over time within countries. These differences imply there is not a single answer to your question, but for...

Question:
Hello economists! Regarding people who are unemployed --if every one of them went through the motions and started their own small business today (let's assume that part goes off without a hitch) would the economy benefit from the increased occupied jobs, or have no net change from a proportional increase in competition?

Or something completely different?
Answer:

There are many assumptions underlying your question. To begin with, we have to ask, why are people currently unemployed? assuming businesses are in it to maximize their profits, then if they are not hiring (which is why there are unemployed...

Question:
Would slowing down immigration and blocking illegals from working in the US automatically cause the minimum wage to rise on its own?
Answer:

Minimum wages are wage floors set by law, not by the market. They, however, are subject to political pressure from citizens. If, say, hypothetically, all immigration, legal or otherwise, was stopped, then there would be a stronger demand to hire...

Question:
I am working on a research project of agriculture cooperatives and their locations across the United States. I have found several sources that list the coops by name and give the main office corporate address, but I have been unable to find a list of cooperative and their operating branches. Does such a list exist?
Answer:

To my knowledge, a publically-accessible national listing of all the agricultural cooperatives and their branches does not exist. However, many states have cooperative associations or cooperative development centers that likely maintain a list of...

Question:
What would be the costs and benefits of returning to the gold standard?
Answer:

Under the gold system, either gold circulates as money, or there is a fixed relationship between the amount of currency in circulation and the amount of gold, given the dollar price of gold. In either case, it means that a valuable resource which...

Question:
My friend and I have been engaged in a heated debate over the astronomical purchasing prices of apartments in New York (and even Shanghai, as we live in China) and what causes them to be so high. He believes they are solely based on supply and demand, while I believe there are other factors independent of supply and demand that determine why the prices are so astronomically high. Could you please inform us as to which is the case?
Answer:

As for the high price of apartments in China's big cities, I believe the supply and demand play the main role.

1. The supply in big cities is depressed by the heavy land regulation. There are two types of regulation. First, according to...

Question:
What are the signs of a bubble about to burst, such as the housing market in San Francisco or tech bubble?
Answer:

It’s logically impossible to predict the bursting of a bubble. If it were possible, everyone would sell before the bubble burst. The selling would cause the bubble to burst earlier. But then people would anticipate the earlier bursting and sell...

Question:
If growth rate is measured as % of GDP, and inflation is also measured as % of GDP, wouldn't a growth rate of 2% be completely offset by a 2% inflation rate for the same period? That is, the GDP would experience 0% effective increase?
Answer:

Hello, and thank you for sending us a question! The GDP growth rate is measured relative to last year’s GDP. Usually the Growth numbers that make headlines on the news are of what economists usually call “Real GDP,” meaning that it is already...

Question:
I am part of a group of 5 students who wish to rent a house with 5 rooms of uneven size. We each have different budgets.

Initially, a suggestion was made that we just hunted for a house with a rental cost 5 times the person with the lowest budget and then allocate the rooms by lottery.

However, this seems a sub optimal approach, since some of us would happily pay extra if we could get a slightly larger house and then pay extra for the larger rooms.

Given some of us are prepared to pay more for a larger room in the house, how can we match the rooms with each person's budget and willingness to pay extra for a larger rooms?

Further it would be great if any solution was generic to a range of potential rental houses, each of which has rooms of varying size (as we are looking at a number of houses).

I originally thought that we could have an auction for the rooms, but noted that the aggregate bids must add up to the cost to rent the whole house. I then thought we could do relative bids (how much extra we would be willing to pay for the largest room compared with the second largest and so on), but this approach left the possibility that the solution would produce bids higher than someone's individual budget.

This seems to be an optimisation problem constrained by each individuals personal budget and the rental cost of the house as a whole.

Do you have any ideas how to solve this?

Regards

Justin
Answer:

Roughly speaking, you need to compute the aggregate valuation of the students for each house.  They should then rent the house for which the gap between their aggregate valuation and the house’s rent is the largest.  They can then...

Question:
If it could be shown that rising GDP is associated with rising levels of anxiety, would you favor deducting psychological costs to obtain the true value of GDP?
Answer:

Thanks for your very interesting question. GDP measures the market value of production. It is not intended to be a measure of aggregate well-being but it is often used as such. Economists generally recognize that GDP is an imperfect indicator of...

Question:
I work for the federal government as an auditor of costs proposed/incurred by government contractors, for goods and services for which there is no competitive market, and cannot be priced by the normal forces of supply and demand. We are supposed to help make sure the costs for the goods and services received are not unreasonable, or for purposes not allowed by the contract. My question is: What impact, if any, would it have on the economy if there weren't people in my position, and contractors could more easily charge the government unreasonable and unallowable costs for the goods and services provided?
Answer:

I am not sure I agree with the premise that the government buys a lot of goods and services which are otherwise not traded in a competitive market. (I suppose military expenses come under that description, to some extent.). If we assume that...

Question:
How does the government's disposal/burning of elephant ivory protect the market from illegal trading/poaching?
Answer:

If the government destroys ivory this year, then there is less of it this year which may cause price of ivory to rise. That may dissuade some current potential buyers. (I am assuming the government is destroying ivory that would otherwise be...

Question:
When speaking about social welfare in economics, they are referring to the allocation of resources and imperfect markets, NOT the social welfare of Medicaid, food stamps etc. Is this assumption right?
Answer:

Social welfare maximization in Economics typically refers to the correct allocation of scare resources to agents (firms, individuals) so as to generate the maximum possible utility (or other criterion) for the agents. The term has no negative...

Question:
I have a vegan friend who believes that the meat and dairy industry and all its affiliates and infrastructure could be phased out of the United States economy without causing it to collapse. In one year. I vehemently disagree. I found a statistic from 2009 by the meat industry saying they essentially make up 5% of the economy. I understand that if we include the dairy industry and all industries that exploit animals, it would be much higher, but let's stick with 5%. Would a sudden loss of 5% of the total US economy, with all those people being left jobless, all those companies going under, and all the ripple effects (Who needs a grill anymore?) (Where did fast food go?) destroy the economy? This is also assuming the animals would be harvested one last time; so there wouldn't be any costs concerning the animals themselves.
Answer:

Agriculture and agriculture-related industries contributed $777.0 billion to the U.S. GDP in 2012, a 4.7% share. The value of U.S. livestock production output (dairy products, milk; meat animals; miscellaneous livestock; and poultry and eggs)...

Question:
What percentage of Iowa's current row-crop farmer prosperity is the result of row-crop agriculture being completely unregulated in terms of water pollution, and therefore able to externalize water pollution costs? Installing new conventional pattern tiling, for example, raises crop yields but sends more polluted water into the drainage outlet (usually a river or lake). The farmer profits from the increased yield but pays nothing for the increased water pollution, which impacts society at large, since most rivers and lakes are public. Has any research been done on this question?
Answer:

The writer of this question understands economics and the market failure associated with externalities very well. Thank you for such an informed and interesting question! The writer is quite correct that the fact that agriculture generates an...

Question:
Should Internet companies like Uber and Airbnb be regulated?
Answer:

Should Uber and Airbnb be regulated? As a matter of fact, these companies, like any other in the United States, need to comply with a large number of regulations that cover for example workers compensation and health care. But should Uber and...

Question:
Generally speaking, an efficient allocation of ‘ownership’ or ‘control’ of a business is one that matches contribution to capital or input. For example, if I commit 60% of the resources a business requires (human or other capital), then I would expect approximately 60% control (ownership). It seems that both Partner 1 and Partner 2 contributed the same amount of cash equity (each secured “the same” loan to fund Business 2). Therefore, a starting point is that each Partner has equal ownership (on grounds of invested risk capital). One might also consider that Business 1 is a ‘partner’ because of the subsidization of land (rent) and Partner B’s salary. Business 1’s contribution is an amortized amount of rent and salary over the years in which Business 1 will subsidize Business 2. In this case, Business 1’s ownership is not trivial and should be recognized as risk capital to be repaid by Business 2 or purchased by either Partner A or Partner B at some point, giving the purchasing Partner a greater share of the remaining control.
Answer:

Partner A secures a loan for startup through a business (business 1) he owns 90% of. Partner A will have significant input in business decisions but little to do with day to day operations. The new business (business 2) is in a different industry...

Question:
My name is Bob Galask and I grew up in Iowa (Fort Dodge). I've been in the diamond business in Los Angeles for over 35 years. Much of that time has been spent in Asia, particularly Thailand where I still have a diamond cutting factory. I've developed extensive connections in Thailand, Burma, India, Taiwan and Indonesia as well as a strong familiarity with most Asian countries and customs.

My question is, are there opportunities to purchase, process and export Iowa agricultural products? Pigs ears, gluten, chicken feet, ginseng, farm equipment etc., I'd be amenable to any opportunities.. I'll be in Iowa next week visiting friends and family. I'd appreciate any feedback be it positive or negative from any members of your staff.
Answer:

Yes, there are definitely opportunities to export Iowa agricultural products.  The U.S. Census Bureau currently calculates that Iowa companies exported $13.2...

Question:
I'm just an average joe, but I thought I had a decent grasp on inflation and top down economics. I don't understand, however, why the cost of EVERYTHING continues to rise in leaps and bounds. Yesterday, I went to Sam's Club and passed on a can of cashews priced at $18. I'm certain last year I was debating whether or not they were worth $13. I'm almost certain that the cost of picking and packing nuts hasn't increased that dramatically; how can they justify an almost 50% increase in price? I've noticed that the cost of eggs has increased everywhere; a dozen eggs are almost $4, the expensive ones used to be $1 and some change. Am I to believe it costs 400% more now than it did five years ago for chickens to lay eggs? The cost of butter has increased at the same rate of eggs, so I can see whatever is affecting the chickens are affecting the cows as well... This question was prompted when I noticed that the $18 cashews were close to the same price as the honey which was comparable to the price of shrimp. No way you can tell me it costs the same to harvest honey, nuts and shrimp! For whatever reasons I know that the cost of gasoline has increased 400% since I first started driving less than twenty years ago; although it is declining significantly now, but why does a gallon of milk cost more than a gallon of gas? Who is controlling this stuff?
Answer:

Let me answer the last question first. The markets are controlling the prices, based on supply and demand. So, depending on how you want to look at it, either everyone or no one is controlling the prices. Let’s dive into the factors that have...

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