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:
Why do producers overproduce if there’s a price floor, I understand it had to do with the law of supply, but I don’t get why one would over-allocate resources knowing they won’t sell a large portion of their stock.
Answer:

To start, I’ll clarify a couple pieces of the question. First, from Lacy et al. (2019): A binding price floor is a legal minimum price, set by the government, at which a good can be sold. Second, while we often think of producers as the suppliers...

Question:
I have a wonderful question! We won the housing lottery in New York City (focused on keeping middle income people in the City) and pay $2,500 per mo (which we can afford) for a large apartment that fits (and will always fit) our family. The market rate for this apartment is $5,000 (which we could not afford). We would love to stay for the long term, but I worry that we are not investing in property and will not realize the gains that come from a real estate investment over the long term. Question: How should I think about the economics of this situation?
Answer:

Disclaimer.  The following is not intended as investment advice. You should consult a financial advisor who knows the tax and real estate issues related to New York City as there are likely many factors to consider.

First,...

Question:
In many developing countries, similar types of shops are located in a clumps in the cities, right next to each other. All the motorcycle repair shops will all be on one block, and all the kitchenware stores are all on the next block, etc. Are market forces responsible for this somehow? One source suggested there was a Nash equilibrium at play, but that doesn’t seem to fit. There could be non-market factors like zoning or tradition, but why would that be the case in under-developed countries more than more developed countries?
Answer:

This is an interesting observation.  We regularly see spatial clustering of similar establishments for a number of reasons including natural advantage, agglomeration economies, zoning, social networks, and "norms" shaping location decisions...

Question:
I have a question - regarding the BLS "Consumer Price Index New Release" for July:

https://www.bls.gov/news.release/cpi.htm

Did they make a mistake - in their report of gasoline prices (or have I've misunderstood something)?

They reported a July unadjusted percent change - for gasoline (all types) = .2%
(see link below)

https://www.bls.gov/news.release/cpi.t01.htm

I follow gasoline prices - as reported by the U.S. Energy Information Agency (EIA), and by others like the AAA. The EIA and AAA reports for July - were consistent. Their reports showed a July increase of - approximately 20 cents / gallon.

If the EIA & AAA reports are correct, the July unadjusted percent change (for all types of gasoline) was: .20 / 3.66 = 5.47%
not: .2%

Such a sizable difference - would significantly impact the reported CPI, and other averages.

============================================================================
Here's the relevant EIA data:
============================================================================
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPM0_PTE_NUS_DPG&f=W

At the beginning of July, EIA reports for U.S. gasoline price [all grades all formulations] were:

On 06/26/2023 - They reported all grades all formulations = 3.685
On 07/03/2023 - They reported all grades all formulations = 3.643

An estimate for 07/01/2023 - using the 06/26 and 07/03 prices - was 3.66
On 07/31/2023 - EIA reported [all grades all formulations] gasoline price = 3.869
So their prices indicate a July increase of 20 cents / gallon.

Note: The same exercise was done using the EIA Regular Gasoline Prices - which also showed an increase of about 20 cents / gallon.

============================================================================
Here's the relevant AAA report (Aug 3):
============================================================================
https://gasprices.aaa.com/increases-at-the-pump-slow-and-more-relief-could-be-on-the-way/

A key statement in their Aug 3rd report says,
"Today’s national average of $3.82 is 29 cents more than a month ago"

Any thoughts you might have regarding my question of the July BLS report - is greatly appreciated…

============================================================================
The EIA website - also has History spreadsheet (with comprehensive data)

https://www.eia.gov/petroleum/gasdiesel/

https://www.eia.gov/petroleum/gasdiesel/xls/pswrgvwall.xls

The following is a snapshot of the EIA report regarding Regular Gasoline Prices on 07/03:
price was 3.527, and change was -0.044 from week ago - from which I noticed about the same 20 cents / gallon increase in July, for regular gasoline.


Answer:

The BLS reports Consumer Price Indices which are different from nominal prices reported by other sources mentioned in the question. The BLS index measures price change from a designated reference date (the reference base for most of the items is...

Question:
If a business grows its revenues by three per cent, but inflation is 6%, isn't that negative growth? They clearly sold fewer units of whatever they are selling, 3% less. I read lots of stock analysts articles about stocks in which they claim that 8% growth in the last twelve months is pretty darn good. However, with inflation at about 8% for most of that time, did they really "grow"? Isn't this a misrepresentation of the true performance of the company?
Answer:

By definition, revenue equals price of product times the number of units of the product sold. If revenue grows by 3% (in dollar terms) and inflation is 6%, it means there is negative "real" growth, meaning the purchasing power of that revenue...

Question:
Has anyone ever researched or considered a nationwide, federally regulated wealth cap? I am ABSOLUTELY certain many fiscal conservatives would oppose this idea, but as an effort to more equitably distribute wealth in the United States without using taxation as a method, why don’t we federally cap personally accrued wealth (all assets - real property, financial investments, savings, etc.)? The cap could be extremely high, even towards the $250M point, but one that moves like our federal interest rate. I believe capping individual wealth would force the top 10% to push the almost 60% if the nation’s wealth to a wider consumer base. I understand issues would exist with couples or families who would consolidate their $250M caps, but that would be okay (I foresee that as resulting in more personal issues with which those individuals would have to contend). I also understand that many wealthy would find legal loopholes to put their assets in the name of a company; but, if we know that, we could take steps to minimize or prevent it.
Answer:

Most economists would start to answer this question by asking a question: what is the objective you have in mind, and why? Specifically, what problem are you trying to solve for which the solution is a wealth cap? Wealth is a stock, of past...

Question:
I am a single mother and kindergarten teacher, completely inexperienced at reselling concert tickets. However seeing a potential opportunity, I was able to secure two tickets to a Taylor Swift concert October 2024 in Miami. I want to sell them for the highest price. Best to sell:
1) Now? The event sold out yesterday. There are likely many desperate and disappointed fans.
2) Close to the concert date? It'll get a lot of hype in the days leading up to the event.
3) somewhere in between?
Answer:

[The following guidance provided herein is of a generic nature and derived from overarching principles of economics. It is not intended to be construed as particularized counsel with respect to Taylor Swift performances or the...

Question:
The Fed decided to raise interest rates again today. While initially when rate hikes were aggressive, there was a large worry of creating a recession. As inflation has cooled, consumer confidence at its highest level in two years, and a continued relatively strong job market the risk/worry for a recession has shrank. There has been some talks of the Fed successfully achieving the 'soft landing' they had hoped for when they first began to raise rates. However, is our risk of recession actually higher with student loan payments beginning again in the fall coupled with the high interest rates? And is the Fed not taking these payments into account in their forecasts? Just as the pause in these payments (among other things) helped contribute to inflation in the first place, it seems to make sense that the restart of these payments will reduce consumer spending and therefore constrict growth in our economy possibly causing a recession. Thanks in advance for any insight!
Answer:

Members of the Federal Open Market Committee (FOMC) take a broad range of information into account when forming their economic forecasts, including considering how changes to fiscal policies may affect the economy.  One way to get a sense of...

Question:
Why is it often argued that population growth (either endogenous or by immigration) is necessary for a country to be economically successful (e.g., have high per capita income) when some of the richest countries and most economically successful countries in the world (e.g., Norway, Sweden, Denmark, Finland, South Korea, Japan, Singapore) have low or even negative population growth, whereas the poorest countries in the world (many African and middle eastern countries) have high population growth? Setting aside the climate and environmental impacts of human population growth generally, does this not at least demonstrate that population growth is not a necessary condition for economic success? I ask as our current federal government in Canada strongly believes high immigration levels are a necessary condition for Canada to be economically successful in the future, and I have not seen any convincing argument that this is the case.
Answer:

Thanks for asking. This is a good and long-lasting debated question in Economics. As reported, the recent fertility rate in Canada is around 1.4, which is relatively low because the subsistence level is 2.1. I believe the Canadian...

Question:
Instead of everybody filing tax returns with the IRS and creating a central point of failure (or hacking), imagine a hypothetical system where the government created a Flat Tax Per Person Living within the State’s boundaries according to the last Census.

For example, $10,000. Every state must provide the Federal government with $10,000 per person, but the Federal government does not care how they put that money together. Important to mention that there is no federal corporate tax rate in this hypothetical. They look at California and send a tax bill for $392 billion (39.24 million people * $10,000)

How California, or any state, comes up with that tax bill is completely irrelevant. They could do an income tax, a sales tax, a levy on product sales, a corporate tax rate, a fee on produce (grapes?), whatever. Every state is then forced into a competition for the most efficient and balanced tax system possible; as well as the most efficient use of spending possible. At least in theory without a lot of exceptions and corner cases (I’d still keep the IRS around for tariffs).

Thoughts? I’m sure it’s a dumb idea but I want to hear the logic why. I’ve asked this question a few places without answers yet, but feel this may give the best answer.
Answer:

This is an interesting thought experiment. Many factors must be considered, and it is difficult to address them all at once, but here are some important ones. First, the regressivity of the lump sum tax would entail equity concerns that have...

Question:
I'm trying to figure out the size of the global wagyu beef market. But I think the question is the same for regular beef, chicken, etc. How many points of sale are included? For example the packer kills the animal and sells the beef to the distributor. The distributor sells to the grocery store. The grocery store sells to the consumer. Is every point captured in the global market size?
Answer:

According to Motoyama, Sadaki, and Watanabe (2016), "on a global scale, the carcass production of Wagyu is quite limited, equivalent to about 2% of beef carcass production in the United States (11,698,479 t) and Brazil (9,675,000 t), 4% of that...

Question:
Is it possible that Federal Reserve Regional Banks (MPLS, KC, et.) can not or will not be able to pay IORB (interest on reserve balances ) held by member banks in their respective regions? That is, the interest received on the Regional Bank's longer duration bond portfolios may not be high enough to pay member banks of their reserve balances. In other words, did the FRB itself make the same duration mismatch mistake as did the private banks that were recently shut down and sold? If this is true, won't long-term bond/loan rates start to fall even more than they did last week -- regardless of what the FED says about future rate hikes?



Answer:

No, it's not possible; that is, the Federal Reserve can always pay IORB.  The reason is simple: unlike an ordinary bank, the Fed's liabilities are in units (dollars) that it creates.  Put differently, unlike a private business, the Fed...

Question:
How does agricultural crop land compare for return on investment to the United States stock market return on investment over time periods of at least 20 years?
Answer:

Agricultural land returns on investment do compare favorably to U.S. stock market returns over longer time horizons.  Bruce Sherrick, an economist with the University of Illinois, summarized the relationships among farmland returns, other...

Question:
I am come from Pakistan, which is a poor country. I was having discussion with a good friend that should a country like Pakistan control it's population or not.

In my personal opinion, due to abject poverty, it makes a lot of sense to control the population, however my friend was of the opinion that based on reality on the ground, poor people need to have more children that will support them financially by doing jobs and bringing more cash home. If a poor family has 1 or 2 children, then the economic contributors to support family living would be less and the family would find basic survival more difficult, i.e. to make ends meet.

So, from an economist's point of view, what is the better option for a poor family from a poor country, to control its family offspring or have more offspring that will support it to make ends meet?


Answer:

Both opinion from you and your friends make sense but there are some important factors missing. The decision of having one more child or not depends on how parents weigh benefit versus the cost associated with that child. The cost of having a...

Question:
When the interest rate is rising investors sell bond or buy it? I think investors sell bond and consequently the price is falling and the yield is rising, people sell the bond because they want keep their money in banks for getting more interest, that is right? but I saw an article in seeking alfa site it said when interest rate is growing people draws capital out of the stock market and into the bond markets in this situation why bond yield is growing?
Answer:

At any point in time, there are *many* bonds traded: a vast majority are bonds that were issued in the past, but have not yet matured, and a relatively small number of bonds are bonds that are being newly issued. When interest rates increase,...

Question:
During times of economic recessions or depressions, while currency and markets are re-adjusting, could there be a back up system of local barter-style markets that could kick in and help reduce waste? For example, in the Great Depression dairy farmers let their milk go to waste because it was priced so low and there was enough supply that they couldn't make money off it. Could a system be put in place so that the milk -- while still retaining little monetary value -- could be used by local people rather than go to waste?
Answer:

It is certainly true that disposing of milk or other agricultural commodities once produced is inefficient.  The producers receive no income from commodities that are discarded, while there are consumers who would benefit from these...

Question:
Imagine an ark ship carrying the entire remaining human population, about a quarter million. Everything they need to start a colony is aboard the ark. They arrive at a new planet, completely disconnected from any previous economy. The people receive shelter and food supplies from the ark, subsistence/survival is their initial motivation. At some point, industries are established and valuable resources are being collected. A colonial representative government receives and redistributes the resources; raw resources go to processors, then on to manufacturers, for instance. At what point and how did the economic system shift to ownership and capitalism without physical conflict? Or is conflict inevitable?
Answer:

You have asked an interesting (and open-ended) question to begin with. An issue with answering questions regarding capital and Socialism is that they get lost in the political thicket, although given the nature of the question, politics is...

Question:
Hello! I am trying to learn economics through YouTube videos and I don't really have a person to ask a question to so I figured I would give this a shot. My question is: isn't charging the market equilibrium price actually inefficient for producers sometimes? I was watching an explanation about market equilibrium, with the supply curve and the demand curve plotted on a graph with the equilibrium point at the intersection of the two curves. The example was that the price is at equilibrium when producers produce 2,000 pounds of apples and charge $2 per pound - producing more than 2,000 apples at that price results in oversupply and producing less apples at that price does not satisfy demand. Meanwhile, according to the graph, producing 4,000 pounds of apples and charging $4 per pound is a vast oversupply because only 1,000 pounds of apples would be demanded at that price. The solution, according to the video, would be to drop the price and the production down to $2 and 2,000 pounds of apples to reach equilibrium.

What seemed obvious to me, though, was that charging $2 per pound and selling 2,000 pounds of apples results in a gross earning of $4,000, while if the producer still charged $4 per pound and only produced the 1,000 pounds of apples that he could sell at that price he would still make $4,000. Why then should the producer work twice as hard by producing 2,000 to sell at $2 per pound when only producing 1,000 pounds of apples and selling them at a price of $4 earns the exact same amount of money? Both options are meeting the maximum demand for the apples at their respective price levels and making the same amount of money, so why should the producer strive to reach market equilibrium if that means, in this case, working twice as hard for the same profit? Wouldn't that be horribly inefficient?

Thank you for your time.
Answer:

Your question relates to what we teach in our Principles of Microeconomics courses: “The Law of Supply.” Indeed, producing 4,000 pounds of apples and charging $4 per pound creates a surplus in this specific market you describe....

Question:
What is the ADJUSTED gender pay gap in Iowa? Such as when adjusting accordingly for choice of education, child rearing, profession such as manual labor jobs, dangerous jobs, and other life choices?
Answer:

The Male Female Wage Gap in Iowa compared to the U.S. by Peter F. Orazem and Levi Soborowicz

The Current Population Survey March Supplement includes questions about the last year’s annua earnings. The survey includes...

Question:
I don't quite understand the point of doing business if an entity is just going to enter a hedge on its investment. I appreciate that if there are adverse price movements, then the hedge would mitigate this loss, which is very useful. However, on the other hand, if any gains on an investment are wiped out when an entity's price movements are favourable, then what's the point in hedging in the first place?
Answer:

The answer is hidden in your question. The company hedges to mitigate risk, to guard against excessive downturns in profit. It “pays” for this risk protection by potentially foregoing some profit. There is of course a risk-return tradeoff.

...
Question:
In science you develop a hypothesis to explain the cause of an observed outcome. You then develop a laboratory test to see whether that hypothesis holds true under varying conditions. If the hypothesis fails the test, it is abandoned. If the hypothesis is validated, mathematical formulas are then developed to explain the hypothesis and to predict future outcomes.

In religion a hypothesis is presented as being fact without any credible test to validate its accuracy.

In economics, there is no laboratory testing of hypotheses and no mathematical formulas predicting future outcomes. Economics therefore qualifies as a religion. Do you agree?
Answer:

The question is interesting, provocative, and borderline polemical. Economics is not pure science. In physical science, lab experiments have repeatability and reproducibility. A sincere modern-day scientist can replicate the lab results of an...

Question:
I saw on a website that $100 in 1928 is worth $1,731.99 today... please feel free to use a different number if you believe that number to be inaccurate. Reese's peanut butter cups came out in 1928 with the nickname "penny cups" and they cost one cent each and I believe they were 0.9 ounces but this could be incorrect. The modern day size of 0.9 ounces was reduced to 0.8 ounces in 1981 and then reduced to 0.75 ounces in 2001. Also in recent years there are reports that they changed the chocolate/manufacturing process and ingredients as a measure for reducing costs. If a single cup was worth a penny in 1928 and if $1 is now worth $17.32 then one cup today would presumably be worth 17 cents and a two pack would be worth just under 35 cents retail. Of course this does not even consider the more than 20% reduction in size, and it does not consider the use of cheaper ingredients.

My question is this:

If we factor in the size reduction and substitute ingredients, the adjusted retail price of the two pack of candy is significant less than 35 cents in 2022 dollars. How do we then explain the fact that today the price is often over $1.00 per ounce and even when purchased in bulk packages it is commonly 40-50 cents per ounce or more?

(Please feel free to use your own numbers and data if that would help)

Thanks again!
Answer:

Think of a bundle of goods bought at $1 in 1928. This bundle would consist of many goods. The average increase in bundle price would be $17.31 in 2022. The idea is to recognize that the price of some commodities in the bundle would have increased...

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