Ask an Economist

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. Is 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:
When speaking of a dominant market position in economics, people usually only think about the abuse of a dominant market position. I decided to look for some answers to see if a dominant market position is acceptable, but I couldn't find anything. My question is: Can you give an example of when a dominant market position is acceptable?
Answer:

My short answer from ten years ago: When consumers are made better off in the short and long run.

My short answer today: That’s a toughie.

My long answer:  You have actually hit on a question...

Question:
I haven't been able to find any information on this, so I hope you can help. It seems to me that corporate taxes are the worst kind of regressive tax and that corporations do not actually pay any tax, per se - we pay it for them. Corporations get all monies for taxes from the goods they sell. So the people buying those goods actually pay the tax, indirectly. The most obvious example I can think of is a gas tax. For every penny the state raises the gas tax, the price of gas goes up by that amount. It just happened recently here in New Jersey. People are driving less, so less tax revenue. NJ raises the gas tax to compensate and gas prices went up accordingly. And the people who can least afford it are forced to pay more for gas. Doesn't impact the millionaires - they won't even notice. Doesn't impact the corporation - their profit remains the same. Corporate taxes in this country (USA) remind me of the VAT in Europe. Same thing, but at least they are honest about it. We seem to like to live in this delusion that corporations are creating money out of thin air (only the Fed can do that) and so they need to be taxed more. It's amazingly popular, especially at election time. On the other side, if a business can not raise their prices because of market pressure, they end up going out of business. So what am I missing?
Answer:

You have described an economic concept called tax incidence. There is a wealth of studies centered around this in the field of public finance. The basic question, similar to what you have articulated, is who bears how much tax burden? There is...

Question:
How do I decide a particular field to focus on under economic careers ? Also what does an economist do in an insurance firm?
Answer:

With a major in Economics, one does NOT need to decide on a specific career field until they graduate when they likely will have multiple options to choose from.  The Econ degree will prepare graduates for various career paths, even if the...

Question:
Hello, I'm currently a senior in high school trying to make my plan for life and I've been eyeing getting an MA in economics to then find a job. So I was wondering if you believe if it is worth it to get an MA in economics to find a good job and will I find a lot of competition? Yes, I believe I'm passionate in economics and such, since when I was in middle school I took an interest in the stock market. So I believe my future job to be in something regarding economics. I'm aiming for around 65k entry level and then sometime early-ish in my career hopefully finding a job that pays 100k+.
Answer:

Thanks for your question. I’m glad to hear about your interest in the financial sector. A degree in economics has many different career tracks: a policy analyst in government, a business analyst understanding how prices influence...

Question:
If data is a commodity that can be bought and sold, how is it impacted by supply and demand?
Answer:

In many ways, data is indeed just another item that can be bought and sold on a marketplace: there is a demand for it, and there are organizations willing to supply it for a price. So what can we learn from a basic supply and demand analysis?...

Question:
This is a two-part question.

(1) Can the Federal Government pay for something (like some fighter jets) just by electronically putting appropriated "funds" into Boeing's (or some other company's) bank account, without having obtained those funds in advance from taxation or borrowing? (I'm not asking whether this is a good idea, I'm asking if this is possible)

(2) Does the Federal Reserve ever give "cash infusions" to banks by just electronically increasing their reserves, without buying back federal securities from that bank? If so, doesn't this automatically increase the value of the bank's stock, and isn't this kind of a windfall to the bank's investors? (As opposed to reducing reserve requirements, or buying federal securities from the bank, which would seem to require the bank to then engage in useful economic activity (lending) in order to benefit the shareholders?
Answer:

The first question essentially asks, I think, whether the U.S. Treasury can spend money it doesn't have (i.e., can it "overdraft" its account at the Federal Reserve). When the Treasury purchases goods and services from a private business, that...

Question:
I'm having trouble understanding something pretty basic about utility: can we compare utility between people? Is it linear? Is it a useful ruler?

Imagine two trades. The first is between a millionaire and a barista at Starbucks. The millionaire pays $4 for a latte. The producer surplus is $4 and the millionaire's consumer surplus is $0, because he's just not that into coffee. Now imagine a second trade between a pauper and the grocery store. The pauper pays the grocery store $3 for some rice which he will use to halt his near-starvation. The grocer's producer surplus is $3, and because the pauper has only exactly $3 (and is therefore only willing and able to make a trade for a maximum of $3), the pauper's consumer surplus is $0. There are no externalities: the hunger isn't going to make the pauper less efficient at work and he is not going to die of starvation, there's nothing wrong with the global supply chain of coffee in this world, and there are no witnesses who might benefit from some weird intangible altruistic benefits or something like that.

If you had to wave a magic wand and make one of these trades impossible (for example, by making either the millionaire or the pauper forget his wallet right before the store closes), which would you choose to preserve to maximize utility in the economy?

My (very limited) understanding of classical economics is that $4>$3, so the latte should be preserved. This strikes me as completely ridiculous. I find it hard to believe that given the choice between a latte you don't want all that much and the extreme disutility of near-starvation, that anybody would choose the latte. I think a rational actor forced to weigh contradictory evidence (between a supply and demand graph that says $4>$3, and any empirical observation of the utility of lattes and disutility of near-starvation) will choose to preserve the rice trade.

Do I have this wrong? Am I mistaken as to what an actual economist would argue here?

If utility isn't exactly equal and linear for everybody, how can we make decisions like "should we tax group A to pay for a service for group B?" If utility is irregular, is it predictably irregular? Do we over-measure the utility of the rich and under-measure the utility of the poor?

I'm fascinated by these problems, and I'm looking for good sources to learn more. Can you point me in a good direction?
Answer:

The concept of utility was introduced to represent decision makers' ordinal preferences. That is, if I like alternative A better than alternative B, I can represent this ordinal preference by assigning utility values to alternative A and...

Question:
In the cartoon show "Futurama," we can see robots with AI spending money, thereby contributing to the economy. In a general answer, if we had AI sophisticated enough to garner "Human Rights" and receive wages for their work, how might this affect the economy, assuming 1 Robot/50 Humans.
Answer:

There are two ways to think about this question, one straightforward and one more interesting. To address the former, we can think of the “robots” as simply additional humans who add to the economy in the same way as a normal person: they save...

Question:
I recently came across a report that attempts to quantify the total economic contribution of Hispanics to the broader US economy, in what the report calls the Latino GDP. It suggests that Hispanics as a group had a GDP of $2.6 trillion based on 2018 economic data, and that if Hispanics living in the US were an individual nation, it would be the eighth largest economy in the world, as measured by GDP. Is it possible and appropriate to use GDP to measure the economic contributions and relative wealth of a distinct racial and/or ethnic group that lives within the United States? Would not factors such as general industry infrastructure investments, shared national resources, federal government spending, etc. impact ALL individuals within the US as part of the US national GDP and thus blend - if not blur - any attempt to create a racial/ethnic GDP figure?
Answer:

I am not familiar with the report you mention, but conceptually it is possible to construct and measure GDP by specific demographic groups, say by educational levels, race/ethnicity, gender, or age. The precision of those indicators would depend...

Question:
Hello - I am doing research for a possible antitrust lawsuit and came across these very useful charts: https://www.pork.org/facts/stats/costs-and-prices/
I am wondering how I would go about finding the underlying data. Any help or guidance is appreciated.
Answer:

There are several sources of publically available data on swine production costs and returns.

The Iowa State University Estimated Livestock Returns (http://www2.econ.iastate.edu/...

Question:
I was just wondering if an optimum level of inequality exists for developing countries. I don't know that much about economics (I've had six months' of economics study) but I'm very curious.

I know lots of top economists say high inequality is bad but those are usually in the US or UK and not in developing countries. I thought maybe an initial 'spurt' of inequality may boost growth? I know Deng Xiaoping created some inequality in China, which eventually led to rapid growth. A similar thing happened in India. I also thought that maybe inequality shouldn't be looked down upon as maybe it reflects a higher standard of living in countries. Assuming migration laws stay relaxed, countries with higher standards of living should have higher inequality as poor people flock to them, right? South Africa has a high GINI whereas Malawi has one way lower. Paul Collier also says that developing countries should develop market economies to catch up with the rest of the world but this will further increase inequality, right?

But the evidence suggests the complete opposite of what I think. Africa as a continent is the second most unequal continent in the world and the poorest. Why do you think that is? Do you think decreasing inequality will benefit the region? A Kuznets curve suggests that a country may have to go through mass inequality before reaching a stable level, but the African continent defies this as it's highly unequal yet still underdeveloped. What do you think causes this?
Answer:

Income is the return of factors, such as labor, human capital and physical capital, that you own and exchange with other agents in the economy. Income inequality in different countries may arise for different reasons and thus it is difficult...

Question:
I am a simple individual with little economic background trying to figure out (predict the likely future) of whether the national U.S. economy is likely to experience inflation or deflation after most states near completion of their vaccine rollout and travel opens back up. Theoretically, the massive quantitative easing and massive stimulus has drastically increased the money supply (https://fred.stlouisfed.org/series/M2) and should result in inflation. Granted, people have been saying the same thing since 2008 and inflation is still low. I have come up with 3 possibilities and would like to hear an economist's opinion.

1) money velocity is low but inflation will soon come when the economy opens up
2) CPI and PCE are broken and are not good measures of inflation. Inflation is already here but reflected in housing, healthcare, and equities instead of milk and eggs.
3) QE actually leads to deflation

1) I thought that perhaps the lack of significant inflation is due to the low money velocity (https://fred.stlouisfed.org/series/M2V). Perhaps once the economy opens up, people will spend more leading to an increase in money velocity, which finally leads to inflation. I have heard that people are saving more since restaurants are closed and travel is dead (https://fred.stlouisfed.org/series/PSAVERT) (https://fred.stlouisfed.org/series/PSAVE). I have also heard that the drastic rise in equities and real estate are due to people spending more on assets. However, if it is assumed that people are saving more, how can net savings as a percentage of national gross income be negative? (https://fred.stlouisfed.org/series/W207RC1Q156SBEA)

2) Perhaps CPI and PCE are broken measures of inflation. At least in California, food is slightly more expensive, housing (whether renting or owning) is very much expensive, and healthcare is stratospherically expensive. Perhaps there already is inflation and everyone is looking at the wrong measurements?

3) Is it possible that QE actually leads to deflation? The rise in equities and real estate has benefited those who already own these assets to begin with (i.e. rich people) and the bottom 90% of people are living off credit, stimulus, and savings. Rich people save more than they spend and thus have a negligible effect on money velocity. Poor and middle-class people spend more and make up 90% of the population; so if they had money to spend, they would spend it, thus increasing money velocity. Is it possible that the bulk of QE is going to rich people who just throw it at equities and real estate while the other 90% gain little from QE. Overall, aggregate demand would decrease for consumer goods. And as stuff that actually matters such as healthcare and housing continue their upward rise, the 90% would have even less to spend on consumer goods, further decreasing aggregate demand. I imagine this is the so-called K recovery. This theory would also explain why net savings as a percentage of GNI is negative. Assuming GNI is still positive (https://fred.stlouisfed.org/series/MKTGNIUSA646NWDB) (the latest data is from 2019), this would mean that net savings is negative and most of the U.S. population is surviving off credit. I imagine that the drastic increase in wealth of the top 10% skews personal savings and personal savings rate, though I have no idea how these are calculated on a national scale.

It is impossible to predict the future, but I would like to hear from an economic perspective why any or all of these theories are wrong.
Answer:

Inflation is the rate of change of the price level (i.e., the “cost of living” as measured in dollars).  The standard framework economists use to understand price changes is supply versus demand.  For example, if supply of an item (i.e...

Question:
There is so much talk these days, that USD is going to go down significantly, so my question is, if that happens what will be the impact on the currencies which are fully pegged with USD for example Saudi Riyal and UAE Dirham, will they see devaluation also.
Answer:

Currencies that are fully pegged to USD will continue to buy the same amount of US dollars. So a peg, by definition, keeps the exchange rate fixed against the base currency, which in this case is USD.

Now USD has depreciated (went down as...

Question:
My city has residential parking minimums and "bundled parking" so that the cost of parking is included in tenant's rent. This means that people without cars are subsidizing the cost of parking for people with cars. Some people in the city government want to unbundle parking so apartments can charge tenants for parking. Property owners would set the price of the parking. My initial reaction was that landlords would charge much more than the actual cost of parking, and make additional profit off their tenants, since, in most places, the only competing parking would be street parking. But now I'm not so sure. Presumably, car owners would consider the cost of rent + parking when picking an apartment, so that price would be subject to the same market forces as rent, so the profit for landlords wouldn't change very much. I guess my question is this: in the long run, would unbundling parking have a large impact on the profits of landlords? In the short term, is there a risk of price gouging, which would be politically disastrous?
Answer:

This is an interesting question with a complicated answer. The short answer is that in the long run unbundling parking would probably 1) benefit landlords, 2) benefit tenants without cars, 3) increase costs for tenants with cars, and 4) lead to...

Question:
I am studying education currently, and we have been asked to explain the areas of our high school history classes we feel have failed us. While writing my essay this evening, I remembered when my teacher at the time (a White, 30-something pregnant woman) was talking about Hamilton's financial plans and how they are still destroying the country today. One of my classmates asked something about the wage gap between men and women, and my teacher looked at all fifteen of us and said, "Well, when you factor in paid maternity leave, there is no wage gap." I have thought about that every single day for four years. When I took AP Microeconomics the following year, I asked my teacher if what my history teacher had said was true, and he refused to give a straight answer, saying more about the experience and what degrees employees have upon hiring. I really believe that maternity leave does not "fix" the wage gap for a lot of reasons, but no one I have asked has given me an explanation.
Answer:

Similar to the response of your AP Micro teacher -- part (potentially a large part) of the gender wage gap can be accounted for by the differences in the fields and positions that working men and women hold in the workforce. This study <...

Question:
Is it bad that the Fed discontinued the reserve ratio? Is this only temporary? Does this mean banks can create and lend out infinite amounts of money? I'm learning about this in macroeconomics (and the textbook is outdated of course) and I was surprised to find out that the reserve ratio is 0 now.
Answer:

The RR is one instrument the Fed uses to control money supply or the amount of money in circulation. The Fed deems that the other instruments, such as open market operations, are better. One reason the Fed discontinued reliance on the RR is that...

Question:
Are any Iowa state agencies required to do efficiency analysis of their spending? In 2017 North Dakota mandated BCA for water projects seeking state funds--anything similar in Iowa?
Answer:

To my knowledge, there is no requirement that new regulations be first subject to a cost-benefit analysis in the State of Iowa.  This is in contrast to the federal government which under Executive Order 12866[1]...

Question:
Why is the healthcare system in the United States so inefficient compared to healthcare systems in other countries? (put another way, why do I have to pay $250/month for bad health insurance?) If there are any introductory papers on healthcare that you could recommend, I would be interested in reading.
Answer:

Healthcare and healthcare insurance in the United States have been the focus of much research by hundreds of health economics in the last several decades. There are many complex economic issues involved. As a first step, I recommend you take a...

Question:
If I had a magical cup that could produce infinite quarters, $20 bills, and $100 bills, and I kept using it on spending splurges, what would that do to 1) my local economy 2) my state economy and 3) the national economy? Assume that this magical cup printed real bills on official paper.

I'm running a Dungeons & Dragons campaign, and my players found such a magical cup. I want their spending sprees to create a major conflict, but I want it to slowly unfold.
Answer:

An interesting question that I’m not sure there’s a precise answer to, especially given my limited knowledge of Dungeons & Dragons, so I’ll try to unpack some of intuition around money supply.

I’ll start with some assumptions and what...

Question:
A few months ago I bought a new car and now I have to pay the bank 300 euros each month for six years with an interest of 7.6%; this is a total of around 4100 euros. Which is the correct thing to do now, try to pay off the car as soon as possible, or invest in stocks, crypto etc. and try to achieve a ~12% by investing each month? By the way, my salary is 1100 euros each month.
Answer:

This is a very interesting question and one I'm sure a lot of people are seeking an answer to. Admittedly, the 7.6% interest rate is pretty high and it adds up to a significant amount of money over the course of six years. 

Achieving...

Question:
I'm 18 and I'm taking a degree in economics in Portugal. I'm in my first semester and apart from Microeconomics I, Introduction to Management, and Math we're not studying anything very helpful nor interesting.

I came to economics not knowing anything about the job. I had an economics class in high school and I enjoyed it, and since I don't have any real passion or am very good at any other thing, I decided to follow it and entered one of the best universities in the country. I'm not the best student, nor the most hardworking (although I try to be more productive). I'm failing Calculus I right now, but I'm excelling in Microeconomics I. It's not that I'm bad at math, I actually got a good score on my final exam in high school, but I tend to perform badly in math/calculus evaluations even though I usually knew more than my friends/colleagues and helped them with homework and that stuff. What I'm trying to say is that I'm good at and like microeconomics and am average at math (haven't studied macro yet).

I've tried to understand what an economist does, and what I got from it was analyzing graphs and writing about them (?). I'm a bit lost on the topic. I like it, I find it interesting, I just need some direction.

Now to the final and most important topic, I wanted to ask, as an economics student, what should I do outside of my basic studies? Should I learn how to code? Learn about politics? Do I need to read any specific books? I know in a certain way degrees are losing value, and it's more about what we do outside of our professional/academic life, and I really need to improve that area. I want to leave Portugal after my studies because, even though I love my country and culture, salaries and quality of life aren't the best, and I know for that I need a good curriculum and abilities.

In conclusion, what advice do you have for an economics student who wants to make it but is a bit lost and in crucial need of direction?
Answer:

You have asked several important questions. As with many areas of advanced study, getting a full understanding of economics requires some time and the effort of building solid foundations, and sometimes it's hard to see where these early studies...

Question:
Six thousand cars at a food bank in Texas? I live in a small town in Pennsylvania. and never, ever saw anybody drive to a food bank, they walk, get a ride or use a bicycle.
Q: Are these people in Texas living so far beyond their means that they have to go to a food bank because of the pandemic or are they taking advantage of the free food or ...? I just don't understand the fancy cars at a food bank--it doesn't make sense!
Answer:

This is a very difficult question to answer but certainly an important one! Unfortunately, the pandemic has had some very sudden and very negative effects on our economy. Keep in mind that COVID was/is a very large shock that was also very...

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