Price Discrimination

Airlines are among the biggest culprits of price discrimination.The ticket prices for air travel are so inconsistent among the different vendors that it will be difficult to find two different passengers who bought a ticket for the same price for the same flight. There are so many different “deals” and “discounts” for air tickets, and the fact that tickets are now mostly bought online, there are so many different deals depending on many factors.

One of the many factors is also the time that you buy the tickets. As one nears the time of take off, the price of the air tickets fall dramatically. There are many reasons for these price discriminations, and the airlines use them deliberately to maximize profit.

VISIT PLEASE

https://kevinseconblog.wordpress.com/

The iPad: Bloomberg

http://www.bloomberg.com/apps/news?pid=20601087&sid=aDY05wQ8zoGM&pos=3

Apple has just recently released a new gadget for all those eager tech-savvy cool boys. The iPad. The iPad is basically a bigger version of the iPod touch, with a few improved features such as magazine and article browsing.

The iPad should create “a whole other gold rush” for developers

Nike cuts down costs

Nike reported better-than-expected second-quarter earnings Thursday as cost-cutting and a steadier order book helped offset weak sales in mature markets, and its shares rose more than 3 percent. Nike has countered declines in consumer spending mainly by cutting costs, streamlining operations and reducing marketing. It has slashed 5 percent of its global workforce, or some 1,750 jobs

http://www.nytimes.com/2009/12/18/business/18nike.html

The economic recession has caused a decline in the sales of Nike goods, and therefore the total revenue of Nike has decreased. A decline in total revenue means that the total cost must be cut down in order to keep the same amount of profit. To do this, Nike has cut costs by reducing the amount of workers (who are part of the variable costs).

Nike has also reduced its number of advertisements, which may have been for the best. Nike is now such a huge brand that the excessive amount of advertisements is no longer as effective, demonstrating the diminishing marginal utility. Therefore by lowering the amount spent on advertisements, Nike has also increased profit.

This article shows that Nike, by reducing production costs, has in fact, increased the profits. By doing this, Nike will be able to stay afloat during the economic recession and bloom again after an improvement in the economic climate.

Tennis ball activity

In our economics class today, we did an activity involving transferring tennis balls from one side of the room to another. The purpose of this activity is to observe the Total, Average, and Marginal product while increasing the units of labor. Our observations were unexpected especially for the graph of Marginal Product. This is most likely due to the amount of random errors and change of methods. However, the trend of overall total product was fairly close to our expectations.

Although economic theories are applied with the assumption that all people are equal and like machines, it is still applicable to the real world (to a certain extent).

Commentary Reflection

This past month before the winter break, we submitted the practice copy of our very first IB Economics Commentary.

Being that this was our very first attempt at writing a commentary paper about economics, we struggled in the many aspects that are crucial in writing a good IB commentary. The formatting of the commentary was slightly confusing to many of us including myself, and I personally struggled in keeping my total word count below the limit of 750. The 750-word limit forced me to leave out several important points in my paper which otherwise would have further supported and enhanced my position. To fix this, I must learn to be more “economical” in my writing and cut out all the unneccesary frill and baubles to make space for the actual beams and supports that strengthen my paper.

We were given an opportunity to re-do and revise our commentary using Dr.Anthony’s paper as a guide. However, I did not have enough time given the extremely busy schedule I had on the last day of week and therefore could not submit a second copy. Even though I could not revise and improve my paper (as well as my grade), I still was able to learn a great deal about writing an IB economics commentary.

Cocoa shortage

This article reports that there is a shortage of cocoa due to the El Nino weather phenomenon that had hit the major cocoa suppliers. This shortage of cocoa is now pressuring chocolate prices to go up. Meanwhile, demand for chocolate is also rising, as eastern countries such as India and China are wishing to consume more chocolate. The result of these two changes in the market may be a rise in the price of cocoa.

With the reduction in supply of Cocoa (due to the poor weather) resulting in a shift in the supplycurve, the equilibrium price and quantity of chocolate also shifts. The supply shifts left and therefore the equilibrium quantity of chocolate will go down while the equilibrium price of chocolate will go up. The elasticity of the demand of chocolate is fairly inelastic, as the price of chocolate is small in proportion to a consumer’s income. Therefore, the shift in supply would cause a great shift in price and a small shift in quantity. In addition to the shift in supply, there is also a noticeable shift in demand of chocolate. This means that the equilibrium quantity of chocolate will rise, creating an even larger boost in prices for chocolate. Although there may be concern of a cocoa shortage, this large boost in cocoa prices will cause more people to enter the cocoa market (there will be more suppliers). This will cause the supply shift to shift right again, and to restore the equilibrium chocolate prices back to a more familiar level.

Extended Response

This past week, the IB Economics Year 1 students took an in-class extended response assessment. As we were given the two possible questions a week prior to the assessment, the only difficulty of writing this extended response was to be able to prepare adequately and to be able to write down all the necessary information within the given hour.

During the assessment, I was constantly checking the time to make sure that I was on pace to finish in 60 minutes. I learned from the mistake made in my very first IB economics test, when I only had 3 minutes to answer the second question. This time, I was able to utilize and make use of the full 60 minutes and was able to finish writing everything that I had prepared. Unfortunately, my constant state of urgency to finish writing on time led me to drawing several messy diagrams. I will hopefully remember to bring rulers to my next assessment.

Another blunder that I had made during the preparation period was that I had completely forgot to consider taxes and its relation to PED and YED. I may need to delve further into my notes and resources during my preparation for the next extended response assessment.

All in all, I believe that this was a valuable learning experience. I am slowly being able to recognize the grading style of the IB; hopefully my next assessment will be a testimony to that fact.

Sex sells

This past week, an unbelievable phenomenon has hit the big-screens world-wide.

…

Scratch that. TWO massive figures have hit the big-screens world wide, and they’re walking away with a 338 million dollar gross revenue.

In addition to that, the world has just experienced the greatest surge in estrogen levels ever.

Yes, New Moon of the Twilight Saga has just been released this past week, and ladies of all ages are hoarding into cinemas to try and get an eyeful of Edward and Jacob. The box office numbers for New Moon has been recorded as the third largest ever, even surpassing its previous installation of the Twilight series.

The secret to it’s success? Two “gorgeous” main actors, and a handful of guys revealing as much skin as legally possible for a PG-13 movie.

As we compare  the first movie and the second, we instantly notice that the second movie is significantly more successful.

Another observation that we make is that Edward and Jacob both have significant screen-time, as compared to only Edward in the first movie.

Oh yeah, and the second movie has more topless men.

So, to portray this comparison in a diagram:

The supply of movies is almost perfectly price inelastic: almost all movie theaters keep their ticket prices constant.

However, the demand shift for the 2nd movie shifts right because of consumer tastes and preferences. Put yourself in a girl’s position: would you watch a movie featuring 1 hot guy or 2 hot guys? The answer is pretty obvious. The equilibrium quantity is higher and therefore, the total revenue for the second movie is larger than the total revenue for the first movie.

Now, let’s not bully the female population here. A few months ago, the sequel of the movie Transformers was released, featuring the sexy Megan Fox. This sequel (just like New Moon), exceeded the box office numbers of its prequel.

How did Transformers do it?

Unlike New Moon, the directors of Transformers did not increase the number of sexually appealing actresses featured in the movie. (The alien that was disguised as a girl does not count) Instead, they decided to further expose Megan Fox through skimpier clothes and longer screen time.

And the result?

Identical.

So a word of advice to future directors: if you are planning to direct a movie targeted at young audiences, increase the number of sexually appealing actors and/or actresses, and decrease the number of clothing articles worn by these actors/actresses. Sex sells.

Black Friday: Blacker than ever

Friday, the day after Thanksgiving in the U.S., is known as the “Black Friday”, when stores provide large discounts to start off the holiday shopping.

Surveys and observations show that the number of “Black Friday” shoppers seemed to have increased this year. Now, this information may seem to oppose our view of the recent economy. Why would more people be shopping for goods during an economic recession?

However, a closer (step by step) look at the supply shift and the elasticity of demand may reveal the answer to our question.

Diagram 1.

This first diagram shows the effect of Black Fridays in the past (before 2009). The discount of Black Fridays is represented by the temporary shift in supply. As we can see, the equilibrium price is lowered. The diagram shows that the shift in supply causes a change in equilibrium quantity. This change in equilibrium quantity indicates the increase in quantity of goods sold on Black Fridays.

Diagram 2.

This second diagram shows the effect of the economic recession. The economic recession takes a toll on the market by shifting the demand curve to the left. Less people are willing and able to pay for certain goods. However, the recession also causes a change in the elasticity of demand. Now that people’s incomes are lowering, and now that people have a tighter clutch on their wallets, they are more affected by changes in price. In the past, people may not have reacted to a small change in price. However, the economic recession causes people to be more responsive to that “small change in price”. (this is also due to all goods becoming a larger portion of the consumers’ incomes)

As shown on the diagram above, the shift and change in the demand causes a change in the equilibrium quantity. The equilibrium quantity consumed has gone down (as expected).

Diagram 3:

In diagram 3, the Black Friday shift of supply was added to the original diagram 2.

D1 represents consumers’ demand from the past, while D2 represents consumers’ demand in the year 2009 (the economic recession). This diagram shows that the equilibrium quantity consumed in the year 2009 (during the recession) would be more than the equilibrium quantity consumed in the past.

So through these diagrams we can see that although the economic recession has caused a decrease in the overall annual sales, the sales during Black Friday has actually increased. This is caused mainly by the change in the elasticity of demand. People are now more responsive to price changes, and therefore the large discounts provided during Black Fridays initiates a great change in the quantity demanded.

So a friendly warning to the suppliers: don’t be alarmed when a troop of holiday shoppers swarm into your shop during the Black Friday. They are just being responsive to the change in price.