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. 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 recently read a story about China stockpiling commodities.
https://www.agriculture.com/news/business/doud-china-is-stockpiling-world-s-grain-supplies

Mr Doud, the chief agricultural negotiator for the U.S. trade representative, has put out statistics saying that China has been stockpiling large amounts of the world’s residual supplies of grains and other commodities and says that stockpiling these commodities is “depressing prices for every other farmer across the globe,”. But why would stockpiling lead to depressing prices? It would seem to me that taking residual commodities off the market (stockpiling) would have the opposite effect; that it would create greater competition for the remaining supplies, which would lead to higher prices.
Answer:

The impact of stockpiling commodities on prices depends on the timeframe. While the stockpiling is occurring, your reasoning is accurate. The stockpiling is removing supplies from the market, creating more intense competition for the remaining...

Question:
Why do we need inflation? Could market prices just fluctuate according to supply and demand? It seems to me that the only real argument for inflation is that it is means for making the masses work just that little bit harder. By this I mean that companies and governments ensure that inflation rises a little bit more than wages when they want people to work a little bit harder, or to strive for that higher-paying job. In this situation, big businesses (as well as the progression of humanity's wealth) seem to be the only winners (eg. they can increase profits massively if they leave their workers' wages alone, while increasing the cost of their good/service in relation to inflation). Do we need inflation for anything other than this?
Answer:

Inflation is the natural outcome of price changes brought about by market forces and governmental forces. It is the rate of change in the price level that, in a country like the U.S., is entirely determined by market forces and the actions of the...

Question:
Bitcoin, a cryptocurrency notable for facilitating decentralized, peer-to-peer transactions, has caused controversy among some economists for its ability to allow unrestricted capital markets. Given that some countries rely on capital controls to restrict excesses of capital from flowing out of the country, does Bitcoin threaten the stability of these systems, and should it be regulated? Or have capital controls been rendered ineffective in the 21st century globalist economy?
Answer:

Bitcoin itself doesn't affect global financial markets very much now. It has been used with some unlawful activities such as purchasing drug and money laundering. It certainly can be and have been used to violate capital regulation law in some...

Question:
A group of ten people traveling in a bus from station A to Station B. Fare is 10Rs/Person.Total fare will be 100Rs. But, ticket master instead asks the group to pay Rs.50 only and travel without tickets. He gives assurance that checking squad will not charge you for traveling without tickets. Here, ticket master and checking squad know each other hence they will distribute Rs.50 among them. Ultimately loss of Rs.100 to state transportation. And people involved in this corruption goes unnoticed. How can one prevent this economic loss to the state?
Answer:

You could allow the group to report this to the station master and get a Rs. 25 award. You could randomly check buses unannounced. You could offer a bonus to the ticket master for every ticket he has proof of having sold.

Question:
Two friends go out for breakfast, each ordering eggs, toast and coffee. The total bill is $20.00. They agree to leave a 20% - $4.00 tip for the fast and friendly service. The following week, the same two friends go across the street to a comparable restaurant and again order an eggs, toast and coffee breakfast. This time the total bill is $22.00. When it comes to deciding the tip, one friend suggests that the tip should be the same as last week, 20% - $4.40. The other friend reasons that because the food, the service and the dining experience were essentially the same, the total amount paid, $24.00 should be the same, meaning a $2.00 tip. This friend further reasons that if the restaurant owner is charging 10% more for the same meal, the staff should be compensated accordingly higher. What are your thoughts? When all other factors are essentially equal, should comparative meal costs factor into tip consideration?
Answer:

The writer has already shown that a good argument can be made either way. There is no correct answer the way the question is framed. The friends will debate the question until the restaurant closes. So, let's give them something else to debate...

Question:
CIF or FOB Price per Metric Ton of Yellow Corn No. 2 for Animal consumption
Answer:

The Iowa State University Estimated Livestock Returns (http://www2.econ.iastate.edu/estimated-returns/) provides estimates of cattle finishing and hog production costs and returns. The...

Question:
I just wanted to know if price changes how much quantity is supplied or demanded then what creates the price in the first place? If you say that price affects supply and demand and supply and demand affect price then this just sounds like circular logic to me.
Answer:

First, it is important to understand the difference between a few concepts. The demand is a function that describes that the quantity demanded (consumption) declines as the price increases. That is, the demand is the relationship between the...

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 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:
Hi
I am trying to calculate GDP for countries and the numbers dont seem to add up.
I am using the formula GDP = Consumption + Investment + Government spending + Imports - exports
I am using the example of France
It has a GDP about 2500 bn dollars per year.
Thus the components of C, I, G and X-Y should equal about 2500 right?
These are the figures that I have found
C = 1360, Investment = 20 per cent of GDP ie around 500, G= 1370
Frances trade balance is negative to about 55 bn per year and government borrowing is 85 bn
So if you calculate 1360 + 500 + 1370 - 55 - 85 you end up with 3090 which is more that 20 per cent more than the published figure.
So where am I going wrong in my calculations?
I was thinking it was something to do with PPP v nominal dollar values but the difference between the two is only 10 per cent whereas my figures differ by more than 20 per cent
Thanks for any help
Mick Cooke
Figures are from
C = https://en.wikipedia.org/wiki/List_of_largest_consumer_markets
I = https://en.wikipedia.org/wiki/List_of_countries_by_gross_fixed_investment_as_percentage_of_GDP
G = https://en.wikipedia.org/wiki/List_of_countries_by_government_budget
X-Y = http://atlas.media.mit.edu/en/profile/country/fra/
Answer:

The main problem with your calculation is that you are using as "G" the French government's budgetary expenditure, which most likely includes large transfer payments. Transfer payments are not part of GDP. Another problem is that you are...

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:
Burkina Faso has an employment rate of about 15%, give or take. Approximately 85% of the population is subsistence farmers. Does this mean the country's economy is supported by the 15% of the population who are receiving a wage (not including foreign aid)?
Answer:

The answer is no. It is not correct to conclude that Bukina Faso’s economy is supported by only 15% of the population. It is a common challenge in developing countries to appropriately account for employment and the economic contributions of a...

Question:
How can there be inflation at different rates within the same currency zone? For example, how can there be higher inflation in Greece than in Germany, despite having the same currency?
Answer:

Effectively, you are asking: how can there be different prices across countries within the same currency zone? This may sound surprising because within the Euro common currency, for example, we label regions as countries and there is a price...

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:
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:
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:
Can you see the number GDP per capita increase in the next year and subsequently causing an increase in commercial boat ownership within the United States?
Answer:

Let me start by saying that I have expertise in the economics of commercial fishing. I cannot speak to whether GDP will increase next year. If GDP does rise, there may be channels by which commercial boat building and therefore boat ownership...

Question:
Are goods and services purchased to comply with regulations included in GDP? For example, is money spent on preparing tax returns considered "production" in GDP calculations? It kind of feels like it should *not* be, but I suspect that it is.
Answer:

GDP is the final $ value of all final goods and services produced in a year. Even if a service exists to help compliance with a regulation, it is included because the provision of that service, such as that performed by a tax attorney, is income...

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:
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:
What correlations exist, if any, between a country's age distribution and its economic output? Additionally, does the relative shape of a country's population pyramid seem to give any indication of future performance in (a sector of) the stock market? I have read that a country with an age distribution like an inverted pyramid (more older people than young people) requires a greater investment in healthcare, and the opposite shape (non-inverted pyramid) requires a greater investment in education. Therefore, is it a stretch to conclude that the healthcare sector in a country with an inverted pyramid age distribution will fair better than it would with a non-inverted pyramid in the same country?

Also, is there a name for the sub-field of economics that studies how demographics is related to economy?
Answer:

The question of how demographics relate to economic issues (e.g., poverty, economic growth) has been at the forefront of economics ever since its infancy as a science. For instance, Rev. Malthus (1766-1834) controversially suggested that...

Question:
I was wondering if there are any threats that could cause regression or the stop of progression in the arena football league. I know the Arena football league is trying to expand in order to create more revenue but their business models have been poor in the past. Wondering what's your take on the subject and what environmental factors could prohibit this development
Answer:

If I understand your question correctly, you are asking about factors that will determine the success or failure of the Arena Football League.  As with any firm or industry, ‘economic’ success or failure depends on the ability of the firm or...

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