Ask an Economist

E.g., Thursday, August 6, 2020
E.g., Thursday, August 6, 2020
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 if I were to buy nearly 100 stocks in different companies and build an algorithm to sell them the minute I make money, and then buy a stock again, but different from the one I had just purchased. Wouldn't the build-up of all the stocks being sold and bought cause a rapid increase in profit? Sorry if this seems like a dumb question. I am 16 and I just had this question about how to exchange market works and if this is plausible.
Answer:

For such a strategy to work at the least following two conditions must hold:

- each time you transact, you need to correctly pick a stock that would eventually rise in price by enough to offset the bid-ask spread and transaction fees you...

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...

Question:
I’m a student at Centennial High School in Pueblo, Colorado. I had a few questions about being an economist. What is it like being an economist? What do you do on a day-to-day basis? What benefits do you get from being an economist?
Answer:

Economics is a science, and the goal of all sciences is to better understand phenomena that we observe in the real world. In social sciences, like economics, the focus is on phenomena related to human behavior; and for economists, the...

Question:
Hello from New Zealand! I have a dataset of sales of products at auction from 1960-2020 in various countries. I have converted all of the sale prices to NZD but I would also like to adjust for inflation.My question is: since inflation is different in each country, should I adjust for inflation according to each country's inflation data before converting the values to NZD or should I just convert all of the values to NZD and then adjust for inflation based on New Zealand's inflation rates? The latter would be the easiest but would it result in bad data?
Answer:

The most correct way should be adjusting inflation according to each country's inflation data before converting the values to NZD if New Zealand is the baseline to compare with. The latter will not necessarily result in bad data as long as the...

Question:
I have noticed that Trillions of dollars of building during the Middle Ages went on in Europe from an agrarian/trading society. How did taxation of millions for farm labor become the basis of trade in Europe? It seems not rational that the food grown during the period 300 AD to 1780 was the basis of wealth. Therefore we know that mining silver, gold, copper allowed for coins but since there was no technology of the era that converts to the Trillions in Building out Paris, London, Prague, Austria, Russia. So, how was farm labor converted to the structures we see still standing today.....which architecturally are still the world standard for greatness.
Answer:

Medieval cathedrals and other structures are indeed impressive works of construction, and to look at them is to marvel at human ingenuity.  Medieval societies were in fact technological quite progressive, a fact documented for example in...

Question:
Here's what seems like a pretty fundamental one: Why do national government's now borrow exclusively from the private sector instead of from their own central banks and as a result pay high interest instead of essentially none, thereby greatly increasing the burden to the public and the national debt?
Answer:

If central banks are to lend to the government, they would have to print money and that is potentially inflationary. Forward-thinking countries try to control such a temptation by legislating in advance that their central bank be independent....

Question:
Hi, I hope to undergo a career in graphic design. My question is, what are the chances of artificial intelligence taking over a design-related job, and how can it affect my employment?
Answer:

Artificial Intelligence is likely to impact all of our jobs just to varying degrees.  Specific tasks that we need to perform in our jobs, skills required, wages, and hours will all likely be adjusted.  There will inevitably be winners...

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 scope of this...

Question:
I came across a company recently which farms mussels off the coast of a small town in Bulgaria, and I started thinking about its structure in the economy. I know since it produces a homogenous product along with hundreds of other mussel farmers, it must be in perfect competition; however this mussel company also sold locally on top of selling to suppliers. This means it was the only mussel supplier (locally) in the town, and as far as I know that's a monopoly. My question is, what would this company's graphs look like? Would it be more like a perfect competition, or a monopoly? Although it is the only supplier in the town, it sells the mussels at the same price if not cheaper to locals as it does to suppliers, which I know unlike monopolies. Would there be any deadweight loss in a company like this? Is it inefficient or is it more efficient than normal? Consumers can buy mussels from the supermarket, but local supermarkets all get their supply of mussels from this one local company. Please help me understand!
Answer:

The local mussel farm has a cost advantage in supplying in its own town mostly because it saves on transportation costs. Even with that cost advantage, the local firm may not be able to fully exert monopoly power on the local market. It is easy...

Question:
My sister and I were trustees for our Mom's estate that was a two family house. For five years that our Mom was in assisted living my sister lived there and collected rent. The rent paid for all house expenses and any needs that Mom required. My sister had also lived there for the past 25 years. All house expenses during that time was paid for by Mom. When Mom recently passed the house became the estate to be shared by both. Rent is $650 per month equaling $7800 per year. Annual expenses cost $3400. That would provide a share of $325 per month or $3900 per year for each of us. My sister says I should pay for half the house expenses. I believe that because she resides in the house the rent will pay for the annual costs and that I should be entitled to my share of $3900. I believe that my paying half the annual expenses is subsidizing her living there. Can you please provide your opinion on what is the proper resolution to this matter? Thank you very much for any assistance you can offer.
Answer:

It is not possible to provide a very good answer to this question because because it is not very clearly posed and is not specific about the desired remedy. Also, the answer below represents some off-hand views of an economist and, under no...

Question:
When I attended ISU and graduated with an M.S. in economics in 1967, I was taught that government debt was largely a good thing, as it was (then) mostly money owed to ourselves. It also provided a useful tool for the Fed. to use for controlling the money supply by buying or selling bonds. Has general economic thought changed with the large amount of debt being taken on by government spending, quantitative easing, and a larger percentage of our debt being owned by foreign powers (China, etc.). Do we now believe that our national debt is not such a "good" thing?
Answer:

Your understanding is correct that government debt is “good” in the sense that it serves as a useful tool for conducting both monetary and fiscal policy. By allowing federal, state, and municipal governments to borrow, it lets these entities...

Question:
I’m currently doing a research on the subject of American founding father Alexander Hamilton as a character in the musical “Hamilton: An American Musical” vs the portrayal of Hamilton by professional historians. To be able to understand the importance of the historical Hamilton as a founder of the US in order to write about him, I need to be able to explain (and first of all understand) what “Hamiltonian finance” is. Could you in a simple way explain the basics of Hamiltonian finance? It is something I have had a difficult time finding an pedagogical and reliable source on. It would be of immense help for me.
Answer:

Alexander Hamilton was, as the musical portrays him, an influential figure in the early history of the United States.  A full description of his views about and impact on financial arrangements in the newly formed United States would be well...

Question:
I am an Amerian citizen and have been considering applying to graduate school in London for a while now, and have finally found multiple programs of interest and have a plan in motion to raise enough money to be a financially stable unemployed student. Due to recent events (Brexit) I am trying to determine if it is financially feasible to continue pursuing obtaining a degree in London. Would school become more affordable for someone like me being an international student there? What about the cost of living? Or is it too early to determine all of this?
Answer:

It’s hard to answer your question since the situation in Britain is in flux. I can only mention a few considerations that may be relevant.

One is the exchange rate.  The British Pound has fallen in response to the Brexit vote. ...

Question:
I have a question about nomenclature related to resources and commodities. Am I right to say that a natural resource is something that is not refined or changed and sold on as a resource. Am I then also right to say that a commodity is a refined natural resource or product?

If possible could you folks better describe the raw product that comes from the ground as sold, vs the raw product that is transformed (in some way) then sold?

I think of wheat as a resource. I think of cereal as a commodity. Is that right?
Answer:

Here is a definition that I found on an OECD website https://stats.oecd.org/glossary/detail.asp?ID=1740. It is as good as any definition I have seen.

The...

Question:
The Department of Veterans Affairs sent me a letter saying they were going to cancel my student loans, (about $7,000) but that I could stop them from forgiving my student loans if I want to.

I have a few questions;

1. Will canceling my debt negatively impact my credit score?
2. Will I be able to get future student loans if I want to go to graduate school?

(The process states that I WILL be able to get those loans if I waive some stuff and agree to have my old loans reinstated). But my question is more basic:

will anyone give me a loan?

References;
https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/disability-discharge
https://www.insidehighered.com/news/2019/08/22/trump-administration-grant-disabled-veterans-automatic-loan-forgiveness
Answer:

1. The most common credit score is of the form used by FICO (Fair Isaac Corporation).  The calculation has five components, payment history, amount owed, length of credit history, new credit, and type of credit used.  The first two...

Question:
It's said that printing more money causes inflation. What if the Federal Reserve printed a bunch of money and gave to someone secretly? How would that cause inflation? Thank you
Answer:

If the central bank printed some money and "gave to someone secretly" and that person did not spend it, nothing would happen. If they did spend it, it would add to the money already in circulation, which may or may not (if output went up) cause...

Question:
My wife and I live in the US and are trying to plan for a retirement abroad. We wish to retire to my wife's native Brazil, and one of my principal concerns while we save our nest egg is accounting for the relationship between inflation and exchange rates after retirement, which I do not understand well. The BRL has had fairly high inflation since it's inception in the mid 90's, on average around 7% per year. Due to the inflation of the Real, and my familiarity with investing in the US, I am inclined to leave our assets in USD, and transfer funds into BRL as needed for the duration of our retirement. The exchange rate between BRL and USD also seems to vary wildly, from R$1.50 per USD all the way up to just under $R4.00.

So if we're looking into the future and we predict that the BRL will have an inflation rate of 7% per year, and the USD will have inflation of 3% per year, obviously the cost to live in Brazil will grow much faster than in the US. If that's true, over a period of 30-40 years, in theory, should the exchange rate become more favorable to the USD as the value of the BRL is eroded due to inflation? If so, is there a way I can replicate that effect in my retirement planning? Thank you for hearing my question. Please reach out to my email address if any clarification is needed.
Answer:

First, a disclaimer. Whatever is written below is not actual investment advice; it is general economics discussion, a dinner table conversation, no more.

It is certainly a great thing to be planning your retirement to such a...

Question:
What area of economics addresses questions about the price of a one-time consumer equipment purchase vs ongoing monthly service fees? For example, to analyze when it makes sense to purchase an upgraded smartphone for its greater capacity/utility, considering fixed ongoing cellular service costs. Or when it makes sense to upgrade your home wifi system to provide greater coverage and speed, given fixed monthly internet service costs.
Answer:

I am assuming you have to keep the cell or wifi plan and you are just upgrading the fixed cost of a new router or cell phone. Let’s take the smartphone/cellular plan case.

Suppose you currently pay $100 per month for your cellular plan and...

Question:
Hi, I gross $52,500 a year in Suffolk County Long Island, NY. How does my personal income compare to other income earners on Long Island? Somewhere in the middle or on the low side?
Answer:

None of us here have direct expertise on this issue. You may look at: http://www.longislandindex.org/data_posts/household-income-distribution/ for more...

Question:
A recent Economist article www.economist.com/news/finance-and-economics/21639587-beware-heavily-traded-stocks-drop-pops reports on an academic paper that seems to offer a mechanical rule for beating the stock market by a substantial margin. Is this a disproof of the efficient market hypothesis or is there some trick?
Answer:

Assume that you decide to buy a new cell phone. Are you going to buy iPhone or Xiaomi, some unknown brand? For a typical US consumer, you have about 40% chance to buy iPhone, but almost 0% chance to buy Xiaomi. An iPhone costs you about $600, but...

Question:
I want to compare previous year's numbers since I have inherited a farm in Marshall County.
Answer:

Iowa has updated the soil productivity system from Corn Suitability Rating (CSR) to Corn Suitability Rating 2 (CSR2) in 2013, and the USDA NRCS Web Soil Survey tool allows you to compute the new CSR2 for your farm (google ISU Extension Ag...

Question:
I am a huge Duke Blue Devils fan and the NCAA basketball season has just recently started back up again. Currently, I am taking a microeconomics class and we just started covering oligopolies and cartels along with game theory. It got me thinking about whether or not the NCAA is considered a cartel or if it would be a monopoly. I looked into it and I have seen it referred to as being a cartel but also having monopoly power. Is monopoly power the same as a monopoly? If so, can the NCAA be a monopoly and a cartel?
Answer:

I teach an Economics of Sports class here at Iowa State University.  In my class, we discuss the economic structure of the NCAA and professional sports leagues in the U.S.  You are correct that the NCAA is a cartel and so is a...

Question:
I read a summary of perfect competition which said that:
1. All market participants have perfect knowledge.
2. Excess profit is only possible in the short run.

If all participants have perfect knowledge, wouldn't all producers instantly know about excess profit opportunities, causing all of them to switch to producing that product at the same time, causing the price to crash and all of them to experience losses? Or, with second-order knowledge, wouldn't they all know that they all knew about the opportunity, and none of them would switch?

Is there a resolution to this perfect market dilemma?
Answer:

"I read a summary of perfect competition which said that: 1. All market participants have perfect knowledge."

An assumption that a market M for a good Q is a "perfectly competitive market" is not a presumption of perfect knowledge...

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