Economics @ ITT

Should smokers pay more for health insurance?

Posted in economics, environment, externalities, Policy Issues by ittecon on March 29, 2013

The answer, should you want to know, is an unqualified yes.

Like lots of people who enjoy their vices, smokers like to invoke their constitutional right to light up. I don’t dispute that. So feel free to get lung cancer, American freedom fighter, but don’t forget that the rest of us are sucking up your second-hand smoke and helping foot your considerably heftier medical bills.

via Should smokers pay more for health insurance? –

Price Discrimination is All Around You

Posted in economics by ittecon on March 6, 2013

A nice article on price discrimination to follow up yesterday’s topic.

Price discrimination, more euphemistically known as differential pricing and dynamic pricing, exploits the fact that in any transaction each customer has a different “willingness to pay.”

What is “willingness to pay,” and how does the seller determine it?

via Price Discrimination is All Around You | 33 Bits of Entropy.

Instituting Price Discrimination

Posted in economics by ittecon on March 5, 2013

Safeway recently introduced a new personalized shopper program called “Just for U” which extends additional coupons and savings to the company’s Club Card holders based on their product interests and purchase history.

Safeway supermarkets leverages information captured through their loyalty programmes, offering deals for certain users. This is the opposite of what Orbitz did to Mac users. What is more interesting to me is that more ecommerce sites don’t do this. In the B2B world, it is common to offer negotiated contract pricing. Is it only a matter of time until the price I pay for a book or a shirt is different to the price you pay? Given exhibited behaviours, a business can get a better sense of price elasticity of demand and so can charge accordingly.

Ref Loyalty Pays Off for Safeway – Think customers: The 1to1 Blog.

A Big Enough Soda Tax Could Have Legs

Posted in economics, microeconomics, Regulation by ittecon on June 18, 2012

When the USDA crunched the numbers PDF on a 20 percent increase in cost of sugared beverages in 2010 study, it found that more expensive drinks could spur an average loss of 3.8 pounds a year for adults and 4.5 pounds a year for kids.

via A Big Enough Soda Tax Could Have Legs | Mother Jones.

A Tax on Christmas Trees?

Posted in economics, microeconomics, Taxation by ittecon on November 9, 2011

The Obama administration has imposed a 15-cent tax on Christmas trees in order to pay for a new board tasked with promoting the Christmas tree industry. 

In classic media reporting bias, Fox released this non-news article in faux outrage. The author trips over himself trying to position this as a slam on the Obama administration.

Nonetheless, the article has intermingled with tid-bits of facts a heaping dose of subterfuge. The bottom line is this, economically, the tax incidence is likely to be shared between suppliers and consumers. I don’t presume Christmas trees to be particularly inelastic, so there may not be a lot of leeway anyway.

Of course, Fox and its Conservative ilk, go on at length to marginalise government involvement in private affairs, and so when a private industry group effectively requests assistance and government agrees (and wants to do the sensible thing, which is to ensure the programme costs are covered), we hear complaints about government meddling.

Moreover, whether government assessed the fee or not, the industry would still have to pay for the campaign, in which case the costs still need to be covered.

Finally as with any advertising or PR campaign, the goal is to increase demand in order to diminish the marginal costs of operation. So, sorry, Judson Burger, you are the Grinch here.

via Merry Christmas? Agriculture Department Imposes Christmas Tree Tax | Fox News.

Ending Minimum Wage Won’t Create Many Jobs

Posted in economics, employment, microeconomics, Policy Issues by ittecon on July 6, 2011

Republican Presidential candidate Michele Bachmann has soft-pedaled her opposition to the minimum wage law considerably since 2005, when she was quoted as saying, at a Minnesota State Senate hearing, “Literally, if we took away the minimum wage — if conceivably it was gone — we could potentially virtually wipe out unemployment completely because we would be able to offer jobs at whatever level.”

Ending minimum wage won’t create many jobs.

What’s wrong with this logic?

Not Lovin’ It — McDonald’s to Increase Prices

Posted in economics, microeconomics by ittecon on January 24, 2011

Chief Financial Officer Pete Bensen said McDonald’s would “raise prices where it makes sense” to offset some, but not all, of the cost increases.

via Not lovin’ it — McDonald’s to increase prices – Business – Consumer news – Food Inc. –

Consumers make trade-offs as gas prices rise

Posted in economics, microeconomics by ittecon on January 18, 2011

For every penny the price at the pump increases, it costs consumers overall an additional $4 million, according to Cameron Hanover analyst Peter Beutel. If the price goes up a dime, it means consumers pay $40 million more each day that 10-cent hike is in place.

via Consumers make trade-offs as gas prices rise – Business – Oil & energy –

Do Tax Credits Stimulate Investment?

Posted in economics by ittecon on January 12, 2011

The Externalities Strike Back

Posted in economics, externalities, microeconomics, Policy Issues, Regulation by ittecon on March 7, 2010

Society as a whole will end up picking up the tab for over $2,200,000,000,000 (that’s two point two trillion dollars) per year in damages to the environment not accounted for in the cost of manufacture or the price paid by consumers. This is reported in an article published by The Guardian newspaper. Economically speaking, these costs are externalities. An unpublished report by the United Nations estimates that one-third of corporate profits would be lost if these companies were forced to pay for these damages. Worse,  much of this pollution is caused by government-subsidised products. And worse still, this esimate only accounts for the manufacture and distribution costs. It does not account for the externalities raised in the consumptions and disposal of these goods.

The Cost of Damage to the Environment by Business Sectors

What does Classical economic theory teach us about such external costs? On one hand, the so-called rational market should signal a price change, but it doesn’t. This is a clear case of market failure. Free Marketists, on the other hand, fear government intervention into these matters as market manipulation. In order to reestablish clear market signals, the goal is to internalise costs, so they will be confined to the buyers and sellers of these products. Standard supply-demand-equilibrium theory predicts that with the added cost of inputs (presumably through a tax assessment) the increase in the cost of production will lead to a leftward shift in the supply of these goods, which results in a higher cost to consumers, which leads to a reduction in quantity demanded. Of course the amount of this additional cost that can be passed along to the consumer depends upon the elasticity of demand for the final product.

Still there is a conflict. Conflicting signals don’t help the market to establish the correct quantity. It makes little sense to subsidise goods we don’t need and at the same time tax them. Our first goal should be to eliminate the subsidies. The market will react to those signals—though likely after the corporations complain how unfair this is. If the elimination of subsidies is not enough, we can look at taxing the undesireable behaviour to further reduce quantities supplied and demanded.