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:
I believe that people should work where they live and vice versa. To what extent has longer commute times (private and public transportation) contributed to US community decline? Civic engagement, church attendance, school performance, divorce rate and any other factor that people point to as society going to hell-in-a-hand basket. I have seen some headlines about how some commute can be a good buffer between work-life and home-life; TLDR.
Answer:

The question you asked is complicated, but I think it boils down to: “do longer commute times lead to community decline?”. First, I am not sure if communities are in decline generally, but you cite some examples of community decline, such as...

Question:
I am an optimist and see a very different future for Russia if it is defeated by Ukraine and Putin is out of power. IF, and that is an IF, Russia pivots to a western friendly government and embraces more a more free market, what would a US/Western influenced Marshall plan be for a Russian economy? Are there any works or writings that discuss this?
Answer:

I am unaware of any discussions pertaining to a Marshall-like plan for the Russian economy presently.

Question:
Why would China's central bank want to issue a digital yuan with an expiration date? Apparently, in 2021, China announced it was testing an expiration date feature on its digital yuan, which would allow money to expire if not used. I was wondering how this could impact the economy as a whole were this to become the dominant currency in China and how this would be in the interest of the Chinese central bank.
Answer:

The official digital Yuan issued by the central bank of China does not has the expiration date. The "digital Yuan" mentioned in the question should be the digital consumption voucher which is issued by the local government and has the expiration...

Question:
I have done research on this matter and I have come to the conclusion that the retaliatory tariff had many effects on business confidence that significantly dropped before and after the implementation of the tariff due to created uncertainty and expectations of a bearish market, the decreased in the returns per acre in Iowa that caused a decreased incentive for the industry to grow its production which decreased in the short term and a decrease in overall demand from China that wasn't substitutable from both the domestic and foreign markets meant that there was an oversupply that decreased the commodity price that decreased the profit margins and the valuation of the industry while new equilibrium meant that a contraction in the market was in order to stabilize the price. These are results of the impacts I have gathered yet additional perspectives on microeconomics are needed in my opinion and any assessments of these results are highly appreciated. Additionally, I believe that the trade war affected smaller businesses more than it did bigger farms and corporations yet I do not know any empirical way to prove this and analyze it economically in which I am not certain if the trade war caused the concentration of the soybean industry into mega-farms and additionally, to what extent were the subsidies granted by the US government under the MFP effective? I do believe that they were effective in increasing the income of many farmers but I do believe certain parts of the subsidies simply went into the capital of farmers without any real contributions.
Answer:

There is a lot in this question to digest:  the trade war, impacts by farm size, and the effectiveness of government support.  For the soybean market, the U.S.-China trade dispute did have a significant impact.  Roughly half of U.S...

Question:
I'm a 16-year-old writing a "report" for myself to understand how a human being like myself can live their best life and wanted to gather multiple perspectives, one being of an economist. If it's not a hassle, and if you have the time, I would love it if you could answer the following questions.
1. How do you personally live your best life?
2. What are some challenges you face as an economist?
3. Is there something that keeps you moving forward?
4. How advantageous is it to have the support of others?
5. Are you always motivated to do things or does it require discipline?
6. Anything else you'd like to share?

Answer:

How do you personally live your best life?

I live my best life by doing what I enjoy daily. That is researching and teaching economics. When you do what you love, it’s hardly working. In addition, I love going to...

Question:
Hello, I'd like some insight into what people mean when they talk about property value appreciating. The question comes directly from my grandma's observation that her initial investment in the house she still lives in of $79,000 in 1967 compared to the sale of the house across the street for $220,000 in 2021 means she estimates her house appreciated in value by an amount of $141,000 over those 54 years. But after looking at some inflation calculators online, it seems like a conservative estimate for the value of the $79,000 in 1967 purports to be over $630,000 in 2021. Furthermore, converting backwards, the $220,000 her neighbor's house sold for in 2021 seems to equate to only about $27,000 in 1967. This all seems absurd because I can't imagine my grandparents being able to afford a house of that level of apparent value on the salaries they were making at the time. I know real wages were higher back then but the whole situation seems like I'm missing something because it also doesn't make sense that her home has lost two thirds of its real value when adjusted for inflation.
Answer:

People sometimes have different ideas in mind when considering home price appreciation.  Most conventional discussions do not adjust for inflation.  A more nuanced consideration could account for rises in the general price level, i.e.,...

Question:
I am looking into purchase an established auto mechanic shop. The state of economy and ever changing technology could be reasons to fail in future. What are the obstacles for this industry's future?
Answer:

Running a business is always risky, and owning an auto mechanic shop is no different. Your concern about changing technology is interesting because I see two main avenues of change. First, there may be changes in the process of repairing vehicles...

Question:
I read somewhere that economics helps us ask the right questions, what does this mean?
Answer:

Economics provides a framework for understanding aspects of individual and collective behavior.  In particular, economics focuses on how individuals and societies allocate resources.  Economists also offer important insights about how...

Question:
While measuring inflation appears very complex, waiting a month over and over to see what is happening feels like a sub-optimal way to get data to be used to try to control inflation. I'm sure the FED doesn't just seek data on the next to last day of the month, but instead is getting new data all the time. Why could they not be updating the inflation picture in real time, as they get data? The way they are working now is much like trying to drive a car while given a peek out the windshield every five minutes.

As a corollary thought, were the FED to have real time data on inflation, they could micromanage rates rather than waiting a month and then having to jump rates in an attempt to catch up to inflation. If inflation jumps a tiny bit Tuesday then lift rates a tiny bit immediately. I assume that there would be some good reasons not to move rates frequently, but if the big picture intention is to limit inflation to a desirable zone, agility would be a valuable tool. It feels like we are spending 29 out of every 30 days driving out of control.
Answer:

Yes, more timely inflation measures do exist.  For example, academics have used new data-gathering techniques, referred to as "big data", to create daily inflation measures; see, e.g., the Billion Prices Project (...

Question:
I would like to ask something about Granger causality using seasonally unadjusted data. As far as my model is concerned, quarterly log-data is being observed with two endogenous variables specified: GDP and Z (autonomous demand), all in real terms. My question is, is it obligatory to include exogenous variables (dummies for seasonality) whilst determining the VAR model? Doing so, my result changes drastically comparing to one with excluded dummies. In first case (model without dummies) with all necessary condition satisfied, GDP Granger causes Z , but not vice versa, whereas the second model (included dummies) provides both directions but condition of normality of residuals is not satisfied.
Answer:

It is not a necessity to use a seasonally adjusted data for VAR and Granger Causality. If one, however, uses a data with seasonality for estimating VAR / Granger causality and does not do anything to deal with it, the results would capture both...

Question:
Hi, with reference to "Market Structures", how can you work out whether your industry is operating in an Oligopoly/monopolistic/... environment if there is insufficient data? I'm specifically examining the concentration ratio of Property Appraisal firms in France. But without publicised figures regarding the number of Property Appraisals per firm, per year, how can one talk about an industry without knowing its competitive landscape?
Answer:

As you wrote, to compute concentration ratios, you would need data on quantities produced or sold (property appraisals in your case) and a reasonable market definition, which can be a separate challenge on its own. 

Assuming you have...

Question:
In one of our classes we learned about marginal cost of producing a certain product. The lesson says that a company can produce a specific amount of a certain product in order to maximize its profits. After that specific amount (for example 1000 units of a certain product) the company starts to lose profit. (Each new unit doesn’t bring any profit). That’s it about the marginal cost. I’m just wondering how companies use marketing campaigns and make more sales if producing more products results in higher production costs. For example: A company maximizes it’s profits at 500 units. The company then launches a marketing campaign which goes very well and now the demand for its products is let’s say 700 units. How do companies handle this? The only explanation I can think of would be raising the price, but on the other hand a higher price would lower the demand.
Answer:

You asked how a monopolist might use marketing campaigns to increase profit.  As you discussed, marketing efforts would likely result in consumers willing to pay more, shifting the demand out.  This can only be good news for the firm if...

Question:
I have started studying managerial economics as part of my MBA, and it has been great knowing about the economic principles, interdependence, and the gain from trade. I can see how specialization based on comparative advantage helps a country/party in the trade. However, do the two countries possibly engage in a business where the prices are distorted? Is this even possible? It may be possible if one nation is mighty and dictating the terms in a way that is disadvantageous to other countries, but I cannot find a real-life example to understand it better. Is there any example in the current scenario where this holds?
Answer:

Indeed, one answer to a fundamental question in international trade -- why do countries trade? -- is that specialization based on comparative advantage leads to gains from trade for all countries. This same principle also applies at the...

Question:
at this point, it feels like money was brought up as a solution to combat human’s inherent nature to be greedy and selfish. Just like that post, this is certainly more philosophical… but, I don’t see how a society where everyone does what they enjoy for work (or maybe they don’t but regardless a job is a job) and can get whatever they want (ideally within reason, luxury is nice but not always a necessity… even people who make above six figures can’t always afford luxury; the world is already like this).

The incentive to work should really not be a higher wage, working ANYWHERE should immediately give you the right to live comfortably.

Now, the main answer to the original question I realize; is inflation. Demand rises and then so do costs whether it’s for more product or more labor, whatever the reason… if from the beginning we gave every single worker regardless of the role access to food, water, shelter, clothing, and whatever else is needed for a human to be happy and healthy, I don’t see how the economy could suffer. Maybe my point is: the reason poverty exists is because of this economy.

I realize I’ve got off track, but if the government printed $50k and gave it to EVERYONE; sure people would absolutely use it irresponsibly but if that money is going back into the economy anyway… why does inflation even matter? Bc the American dollar in a way loses value? So what… just print more money… it’s paper, $1 = $1 but what’s the deal with $1 being $10 if there’s like a lesser need for people to make large profit because we can just print more money…
Answer:

Printing more money does not solve a country’s financial problems, rather it would exacerbate those. Suppose an economy prints more money, it would mean that the consumers can now buy more goods or a greater quantity of the same good. The...

Question:
In Arizona we have a 5.6% sales tax. Arizona's public school system tried to teach me that sales tax is a regressive tax. I argued that its a proportional tax because regardless of income all consumers have to pay 5.6%. They argued that sales tax puts a burden on lower income families so it's a regressive tax.
Answer:

First, it is important to understand what a proportional or regressive tax means. A proportional tax system requires all taxpayers to pay the same proportion of their income regardless of how much money they earn. Whereas, under a regressive tax...

Question:
If rates are raised to dampen inflation and reduce spending, let's say in buying houses, why then would they ever lower rates? Wouldn't it make more sense to keep rates high? The home ownership rate in the U.S. from 1990 until now has steadily held between 63% and 69% (roughly). Is there some other big reason to lower rates at some point? Thank you.
Answer:

When the Fed raises interest rates, it raises the cost of borrowing by firms which raises their cost of doing business. That induces firms to hire less, delay or eliminate capacity expansions, etc. This is why it is not a good idea for...

Question:
Hello, I am interested in goods, material or non-material, that can be transferred from person A to person B without loss, such that after the transfer of X from A to B, both A and B now possess X (e.g. objects such as viruses, conditions such as illnesses, or knowledge such as a recipe). I thought there was a particular name for such goods but can't find it ... is there? Any pointers gratefully received. Also it seems to me that there is a sub-distinction between goods where what is transferred is the good itself (e.g. a mathematical equation) vs. something being transferred which is not quite the good, but is a necessary and sufficient precursor to its possession (e.g. virus particles for infectious disease, or seeds for plants). Is this a recognized distinction in economics?
Answer:

The term you’re looking for is “non-rivalry.” Rival goods (in contrast to non-rival goods) are the standard stuff of economics: chairs, computers, etc. As you say, they are the kind of good where multiple people cannot use the good simultaneously...

Question:
I want to ask a question that why the producer of a good increases the price when the demand is high, isn't it unfair, he could have sell his good on same prices on first come first serve basis ,while increasing his goods production and selling on same price rather to increase it. I shall be thankful if u answer this. I personally consider it unethical.
Answer:

Economists start from the presumption that producers want to maximize their profits, and are not running a business to promote social welfare or social justice. If a producer can sell 1 unit of a good to Mr. A for $10, he would always prefer to...

Question:
Much of our labor data and statistics explain what a marginally attached worker is, how the pandemic exacerbated the numbers to an all time high. I work in workforce development and want to target this population. How would you suggest I go about this? I am not even sure how to identify/locate them.
Answer:

The sudden and persistent drop in labor force participation that began with the pandemic has been called the Great Resignation. The labor force fell by 3.2 percentage points at the beginning of the pandemic (Figure 1), but almost immediately...

Question:
MRTS is equal to the ratio of marginal products of two inputs. I'm having a hard time understanding the intuition behind the formula.

For example, I am looking at the MRTS of good b for a. Thus, MRTS = marginal product of a / marginal product of b.

Let's say that good a is very productive with a high marginal product, while good b is unproductive and has a low marginal product. This means that the MRTS of good b for a is very high. Thus, a lot of input a must be reduced for a 1 unit increase in input b, to maintain the same level of output.

This conclusion does not make sense to me since I thought that input a was very productive. How come when we increase the unproductive input by 1 unit, we have to reduce a lot of the productive input in order to maintain the same level of output?
Answer:

The question is based on the definition of the MRTS of B for A as the (the amount of input A)/(the amount of input B), which is flipping the numerator and the denominator of the correct definition, probably because of the definition of...

Question:
I have been reading Michael M. Alba's "Why has the Philippines Remained a Poor Country" and in it he mentioned that the Philippines is nearing its steady-state level of output per worker and that the convergence point is lower than advanced economies. Could you please explain to me what steady-state level of output means and why is it bad in context?
Answer:

Steady-state level of output per worker is roughly the same as per capita income in the long run. There is nothing good or bad about it, except countries and their residents enjoy higher standards of living in a material sense if the per capita...

Question:
I have come across a number of articles that test on the Kuznets curve. They are using GDP and log squared GDP as independent variables for their research. I just don't get why they have to create a brand new independent variable that is the "log squared GDP." What is the purpose of this? Why cant I just interpret from the GDP value itself? For example: GDP coefficient is negative, I would just interpret it as a negative relationship between inequality and GDP. Why the addition of log squared GDP?
Answer:

There are several statistical reasons why you would covert the variable into a logarithm. Logarithm transformation, for example, can change a highly skewed variable into a more normalized distribution. It is also useful when you wish to linearize...

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