# Ask an Economist

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.

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?

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?

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?

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!

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...

Question:
[Warning: Lots of text. Will probably take 10 minutes to read and 10 minutes to digest.]

We recently had a ruling in Canada that found it illegal for credit card networks (Visa / Mastercard) to prevent merchants from applying a credit card surcharge. As of last week, merchants are now allowed to add a fee when a customer pays using a credit card.

There have been a lot of posts on the r/Canada and r/PersonalFinanceCanada subreddits and the consensus from most people (who are likely consumers) is that this is another way to fleece the customer. I think this is a misguided point of view so I wrote a post trying explain as carefully as I can why this will eventually benefit the customer. The vast majority of the comments to my post were negative so I'd like to get an actual economist to look at my argument to see if it is on the whole is sound.

Link to original post with better formatting (text also reproduced below)

# Why having credit card surcharges is the right thing to do. A long read on the history, economics, business and the prisoner's dilemma of the credit card industry.

There's been a lot of discussion and debate on r/Canada, r/PersonalFinanceCanada and r/Ontario about the new court decision that allows merchants to apply credit card surcharges which were previously not allowed or greatly restricted. A lot of the blame seems to be directed at the merchants (i.e., the retailers / stores), and perhaps rightly so, since one can make an argument that these "surcharges" have certainly already been factored into the price of goods and services.

This purpose of this post is not to discuss that any further. Instead, it's to shed light on how we got here in the first place, and how restricting credit card surcharges have led us down a rather pernicious path of excessive fees. The forces that have upheld the ban on credit card surcharges are both governments (which in some countries/states outright ban merchants from adding a credit card surcharge) and the credit card duopoly of Visa and Mastercard (who force merchants to not apply a surcharge in their terms and conditions where the law doesn't prohibit this).

Some of the downsides of not having credit card surcharges are:

1. Visa/Mastercard have created a market dynamic where a rational consumer has no choice but to pay using a credit card (since the perks make using a credit card make it on net cheaper than paying by cash)
2. As a consequence of this, the credit card fees (which are ultimately footed by the consumer) are almost certainly higher than you'd expect in a properly functioning market
3. This fact that credit card fees are paid by all customers, regardless of whether they pay by card or cash, mean that certain populations who are less likely to use credit cards (usually poorer) subsidise the credit card usage of populations who are more likely to use credit cards (usually richer).

Let me make my stance clear before we proceed. I am not justifying the new surcharges that some merchants (such as Telus) seem to want to apply. If a merchant is sincere about adding a credit card surcharge to cover credit card fees, it should go hand in hand with an equivalent decrease in price for anyone paying by cash.

What I am arguing for is that it is wrong that credit card surcharges have been restricted in the past. I'll show how the ideal outcome for the consumer is not only for credit card surcharges to be legal but for it to be mandatory for the consumer to pay as a surcharge the exact credit card fee caused by the use of card. This will benefit both cash users, who will no longer have to subsidize the fees of credit card users, and card users, since this will likely apply pressure to decrease credit card fees.

While I have idealized much, and for the most part ignored factors like the costs involved in using cash (for instance, added security), I believe much of my argument still stands even if you were to account for this.

# How Credit Cards Work #

Before we get into the details of why having credit card fees are the right thing to do, we need to understand the seemingly convoluted dynamics of how the credit card industry works.

When you purchase something with a credit card, the merchant has to pay the credit card network (Visa/Mastercard) and the bank issuing the credit card which transfers the funds. For simplicity's sake I'm going to refer to both of these fees as the 'credit card fee' or simply 'fee' but there's a more detailed break down in the appendix at the bottom of this post. The credit card networks such as Visa and Mastercard set the rules for how this fee is calculated but the issuing bank gets most of the money (since it is the bank that handles the money and takes on the risk in issuing you a line of credit). In a way this is backwards from how things usually are. Usually, if you take a loan out to purchase something, you pay the interest on the loan, not the merchant. However, in this case, it is the merchant that pays the bank for the credit used by the consumer.

The credit card fee can vary widely. In Canada it is usually between 1-3% of the amount of the total transaction. The bank gets about 80% of the total fee and the credit card network gets about 5-10% of the fee. The rest go to the payment processor whom I'm going to ignore for the most part since they neither set the rules for the bulk of the fees nor get the bulk of the fees.

Many credit cards also come with a range of "benefits" that I'll collectively refer to as "perks". This includes any feature of using a credit card that has nothing to do with facilitating a transaction. The more obvious ones are Air Miles, airport lounge privileges, extended warranties on electronics and any amount of "cashback" (in quotes since it's not really cashback if they take your money to give it back to you). As I'll explain below these "rewards" are probably the most brazen part of the market failure that the credit card networks have created.

There are a couple of points that are important to understand for the rest of the discussion:

1. The credit card fee varies greatly between 1-3% of the total transaction. The primary reason for this wide range of fees is the type of card you use. Premium cards (for Visa, this would be Visa Infinite and for Mastercard this would be World Elite) have a higher credit card fee rate for a merchant compared to the same transaction for a basic card. This is how you get more "perks" such as Air Miles or "cashback" when you use these premium cards.
2. The credit card networks (Visa/Mastercard) set the terms and conditions for the merchants that accept these networks. In jurisdictions where this is not illegal, this usually means that merchants are prohibited from passing on the credit card fee to the consumer in the form of a surcharge. For instance, if a store sells apples for \$1 in cash, if it is to accept credit cards, the final price to a consumer using a credit card must be the same. This means that to cover the additional credit card charge, merchants have to inflate the price of the apple for everyone, including consumers who pay by cash. The same apple now perhaps costs \$1.015 for everyone, including cash payers.

# Externalities, Market Failure and The Prisoner's Dilemma, or in other words, how credit card networks can never lose #

> Externalities

When you pay using a credit card and there is no credit card surcharge, all of the customers of that merchant indirectly pay higher prices to cover your card fees. This [often affects poorer people disproportionately](https://www.brookings.edu/opinions/americas-poor-subsidize-wealthier-consumers-in-a-vicious-income-inequality-cycle/) since it is harder for them to get a credit card. It's doubtless wrong to have someone else pay a part of your bill, worse when it's a poorer person paying a richer person's bill.

Externalities are bad in economics because when you don't have to pay full price, you often take actions that are bad for society as a whole. For instance, if you run a chemical factory and there were no government regulations on pollution, you would probably save on costs to minimize pollution so that you can increase your profits. This might mean than you save \$100 on costs, but at the same time the cost to society as a result of disease caused by your polluting could be \$1000. Thus, your actions are globally suboptimal and should probably be prohibited.

In many cases, government regulations reduce the extent of the externality, but with no regulations credit cards fees are a perfect externality with the card user paying 0% of the fee.

> The Prisoner's Dilemma of Using a Credit Card or why the credit card system is rigged against consumers

In a world without credit card surcharges, holding all other factors constant, as a rational consumer you can only make one choice; sign up for the most premium credit card your bank offers you and use it to pay for everything.

Let's go back to our example of the \$1 apple and see how this works out. Let's also increase the credit card fee to 15% and have a perk of 5% cashback to better illustrate the problem (treat 5% cashback as 5 cents cashback for simplicity's sake).

There are four scenarios depending on who decides to pay using card or cash:

1. **You pay by: Cash, Others pay by: Cash**
The apple *costs \$1.00 for everyone*. In this scenario, both you and everyone else is irrational to not use a credit card and get 5% cashback. However, go to the fourth scenario to see how this actually pans out.
2. **You pay by: Cash, Others pay by: Cash**
You pay \$1.00 but you get 5% cashback making the *net price \$0.95 for you*.Since you are the only person using a card, the credit card surcharge as a proportion of all sales is negligible to the merchant and the price of the apple remains at \$1.00.*Everyone else pays \$1.00*.In this scenario the other customers are irrational to use cash.
3. **You pay by: Cash, Others pay by: Card**
The sticker price of the apple has now gone up to \$1.15 since the merchant has to cover the credit card fee for almost all customers.*You pay \$1.15* for the apple.Everyone else pays \$1.15 at the counter but then gets 5% cashback which leaves them with a *net price of \$1.10*.In this scenario you are irrational to use cash.
4. **You pay by: Card, Others pay by: Card**
The sticker price of the apple is \$1.15 since the merchant has to cover the credit card fee.You pay \$1.15 but get 5% cashback so *your net price is \$1.10*.Everyone else has a *net price of \$1.10* as well for the same reason.

Notice how regardless of how the other customers pay, the optimal solution for you is to pay by credit card. Eventually all of the other customers pick up on this trick as well and what ends up happening is that everyone pays by credit card regardless of how much the fees are. Even in this example with massively inflated credit card fees, **you have no choice but to use a credit card**.

> Market Failure

See the problem here? You may or may not have a preference to pay using a credit card, but the only rational choice you can make is to pay using credit card. You may well prefer to pay by card for convenience’s sake but that's irrelevant here. What this shows is that you have no choice. This compounded with the fact that governments do not regulate credit card fees means that there really is nothing stopping the credit card networks from charging 50% or even 100% of the transaction amount as a fee.

In reality this doesn't happen because such a move will almost certainly elicit a severe regulatory crackdown from governments. At the same time, this makes it plain to see that whatever the credit card fees are now, they must be exorbitantly higher than what they ought to be. So even if you're comfortable with a 2% added fee, you should know that this might well be 5-10x what it ought to be).

This next sentence describes, perhaps, what I find most egregious about all of this.

**In credit cards, not only do you have a perfect externality where those who benefit from it's use pay \$0 and offload all of the costs to all consumers, but when it comes to "perks" the externality is effectively used to pay for an additional product (Air Miles, cashback, etc.) that has nothing to do with facilitating a transaction.** These features are unnecessary and unnecessarily inflate the fees. In a sense even the line of credit that you have though the bank is an unnecessary perk if you pay you credit card bill on time. The only feature of value, then, is the ability to make an electronic cashless transaction. In many cases, not even those who receive these additional perks would want them if they knew that they are paying more as a result of it.

# Why Credit card fees should not only be allowed but also be mandatory #

Regardless of whether a merchant decides to apply a credit card surcharge or not, the fees will eventually be passed on to the consumer. Therefore, it is in the consumer's interest that credit card fees are lowered, not in the merchant's interest.

The only way consumers can apply pressure on the credit card networks to reduce their fees and to stop bundling pointless "perks" is if consumers are given a legitimate option on whether to use a credit card or not. The only way to have this option is if you aren't forced to indirectly pay credit card fees if you pay by cash. In other words, if a consumer uses a credit card, they ought to be obligated (with no exceptions even if the merchant is against it) to pay as a surcharge the exact credit card fee. Not a penny less, not a penny more. At the same time, merchants should be obligated to reduce the current prices for consumers paying by cash. Note that the current ruling that allows merchants to apply a credit card surcharge is still suboptimal since merchants are still free to not apply a surcharge.

**Having a mandatory credit card surcharge means that if consumers feel they are being unfairly charged high card fees, they will switch to cash which would incentivize the credit card networks to lower their fees. Similarly if they feel that the additional fees incurred by using a premium card are not worth it, they will switch to using a basic credit card.**

Other options to lower fees are to have government intervention to set limits on credit card fees or to outlaw bundling "perks". Intervention like this is difficult to do correctly and might lead to further problems that increase costs on the consumer.

# Conclusion #

In conclusion, the prisoner's dilemma of using a credit card means that we have no legitimate choice on whether or not to use a credit card. Credit card networks have intentionally further exploited the consumers inability to (indirectly) not pay these fees by bundling unwanted "perks" that further increase credit card fees, making it even more suboptimal to not use a credit card. This market failure leads to considerably higher credit card fees which eventually make us all, collectively, worse off.

Hopefully you now have a better understanding of how credit cards work, and how the credit card networks have created a system that increases costs on the consumer.

# Appendix #

The major fees paid by the merchant are:

1. Interchange fee. Set by the credit card network but paid to the issuing bank. Covers the risk to the bank for issuing you a line of credit. Between 1-3% of the transaction amount. For debit transactions, this drops to about 0.3%.
2. Assessment fee. Set by the credit card network and paid to the credit card network. Covers the cost to use a credit card network such as Visa or Mastercard. Usually around 0.1% of the transaction amount in the U.S. and probably similar in Canada.
3. Payment processing fees (set by the payment processor and paid to the payment processor). In Canada, these are companies like Moneris, Global Payments, and Square. These companies facilitate the transaction, handle the fees when a transaction occurs and pays the various fees out to the bank and the credit card network. Fees vary but the numbers online seem to suggest this is either under 0.15% of the transaction amount or a flat fee around \$0.15 in the U.S. Some payment processors charge one flat overarching fee that includes the interchange fee, assessment fee and the processing fee which makes it hard to tell how much of a cut they're actually getting. Unlike the interchange and Assessment fee, the retailer is free to choose their payment processor, so you'd expect market dynamics to push this fee down.

I appreciate your sharing your view on a specific policy issue based on the systematic application of economic concepts.

My understanding of the suggestion is that the mandatory surcharging rule on credit card payments would be better for...

Question:
The regulation of Interest rates has historically been used to control inflation. Higher interest rates dampen demand. At present, inflation is not caused by excessive demand. Inflation is caused by shortages of supply. The global pandemic and Ukrainian war have caused supply disruptions. There are now shortages in materials and labor. How will raising interest rates increase the supply of materials and labor to fix the problem? If the Fed aims is to dampen demand down to match the level of current shortages then that will cause a recession. Is that a smart thing to do?

Without a doubt, demand has outpaced supply over the past 18 months.  In labor markets, there are currently 4.9 million more jobs available than there are individuals looking for work (i.e., comparing job openings from the JOLTS release to...

Question:
Raising interest rates has been the traditional approach to an inflationary economy. The logic being that inflation is caused by too much money going after too few products. This approach addresses the money part of the equation but not the product side. This inflationary cycle seems much different than past cycles. The problem isn't too much money, it's too little products. A visit to the grocery store will demonstrate this thesis. Shelves are empty and the number and range of products is more limited. Could the Fed be attacking the wrong side of the equation. By reducing the money supply and making borrowing more expensive, manufacturers may hold off expanding production lines to produce more products. Since demand can't be met, prices will continue to rise. I guess my question is; is the Fed going after this all wrong?

Without a doubt, demand has outpaced supply over the past 18 months.  In labor markets, there are currently 4.9 million more jobs available than there are individuals looking for work (i.e., comparing job openings from the JOLTS release to...

Question:
In college sports, there is a rapidly growing cottage industry around the financial value of an athlete's Name, Image and Likeness. College athletes can now sign endorsement deals, promote products on social media, give private lessons, etc. The market is pretty new (only about a year old) and collecting accurate data has been a major challenge.

The largest service that tries to predict "value" of an athlete's NIL comes from a company called On3. They explain their algorithm here that they use to assign valuations. Most notably, to an idiot like me, they say that their service is not a deal tracker, and does not adjust their ratings based on deal flow or current deal activity.

I'm not asking for specific projections about social media marketing or the NIL industry...but I would like to know, as an economist, what data is typically required to be able to confidently project a range for a product or service's 'valuation?', especially in a newer market? Consumers can get a relatively reliable range for what their home might sell for, what they could earn in a particular job, how to pay for a used car...what would they need to be able to do the same for say, what their Instagram might be worth as a college soccer player?

I believe the question being asked is how to calculate what an NIL deal might be worth to a college athlete?  In particular, the focus of the question also seems to be on determining what a college athlete could get paid to be a sponsor, a...

Question:
Hi, my classmates and I were having a discussion on what exactly constitutes a "production externality" and a "consumption externality". In our class notes, we were given the following definition of a "consumption externality": when a consumer cares about the consumption or production activities of other agents in society. And as an example of this, we were given the following scenario: when the burning of crop stubble by rice farmers affect residents living a city nearby due to the air pollution generated.

My issue with this was that, if the pollution is generated as a result of a rice farmer's production activity (i.e. the burning of the crop stubble to clear the land for his next harvest), then how can it be considered a "consumption externality"? Isn't a consumption externality a side effect (which can be good/bad) that results from a consumption activity and not a production activity? Likewise, isn't a production externality a side effect (which also can be good/bad) that results from a production activity?

Yes, it is as you say. A production externality is generated when the production activities of one firm adversely or positively affects the production activities of another firm. Similarly, a consumption externality is generated when my...

Question:
Hello! I am in a debate with someone about which has more impact on the market - supply or demand. I wanted to consult an expert to see which one is more impactful.

That's a bit like asking which of your two eyes is more important. As in many cases in economics, the answer to your question is: it depends. There are markets where, at a point in time, supply is more important. Take an interval of time when...

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.

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?

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.

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.

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?

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.

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?

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?

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.

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.

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?

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.

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?

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…