Claire Spencer

Coming out of school, many students face challenges with their newly granted freedom. Some struggle dealing with the job market while others may have to deal with different financial issues (student loans, financial independence, etc.). A major question some are faced with upon graduation is “Where will I live?” Many factors go into deciding whether or not one should rent or buy (or find another alternative) and what type of place to live in. There is no correct answer, as there are advantages and disadvantages to all options.

A major deciding aspect for this question is opportunity cost. (For this assignment we will be under the assumption that free housing/living at home is not an option, as free housing is not common and I do not currently plan to live at home after graduation.) If one were to rent part of a house (or an apartment), they wouldn’t own any of it, but they may have extra money left over. This money could go toward short-term payments for food, clothes, etc., or long-term investments. An opportunity cost of renting a living space and not owning any of it but making money off of investments from left over money would be buying a house and accruing equity on it. One could view the house as an investment—put down a certain percent and borrow the rest. After the house is paid off over a certain amount of years it is owned by the buyer. As an owner one could rent part of the house. If the house had not been bought, the opportunity cost would be one not accruing ownership with payments but also not paying taxes, insurance, or other such payments on it. In that same situation, if one rented with less out of pocket, they could spend the money on certain educational training and earn extra in the long run or invest the money and earn on investment returns. Those investments may grow to a point where they could potentially buy the house sooner full-on. There are many opportunity cost scenarios associated with this decision.

Marginal utility is another component of this decision, especially when deciding on the size of the house. The marginal utility of the first few hundred square feet of a house is much larger than the last few, as for each amount of square feet added, the marginal utility of the space (most likely) would decrease. Is as much value from added space gotten in return for the increase in cost of buying a larger house? Elasticity can be tied into marginal utility with regards to this question. The amount of square footage here is elastic after the minimal amount of square footage is taken into consideration. The basic level of square footage would be relatively inelastic, since some form of living space is necessary. This can be viewed as if it was on a graph: the unit cost per square foot (price) would be the y-axis and the number of square feet (quantity) would be the x-axis. The demand (for square footage) curve would be negatively sloped with an inelastic curve at the beginning due to the necessary basis, but as the amount (quantity) of square footage increases (as the curve approaches the x-axis) the curve becomes more elastic and the curve’s slope approaches zero (horizontal). As the quantity of square footage reaches a certain amount, the house becomes unaffordable and unnecessary. The supply curve for this graph would be positively sloped, as usual. One’s personal level of elasticity determines where the two curves intersect to form the equilibrium point.

Determining a post-graduation living situation can be very challenging as there is so much that goes into making such a big decision. Some act accordingly and lay out all options to make the best decision—others don’t think it all the way through and end up worse off financially than they began. Using simple economic concepts can help make such a choice easier and better in both the short run and the long run.

This article regards taxes on firms lowering their employment rates. The article, written by Jim Spencer (my uncle), discusses how a tax that was approved to help pay for national health care reform is costing the med-tech industry 33,000 jobs and causing many companies to “cut spending on research and development as a result of the new 2.3 percent tax on gross revenue.” Some companies even “expanded overseas operations as a result of the tax.” Repealing this tax has become a new priority to the U.S. medical device industry.

This can be related to what we’ve learned thus far in class in multiple ways; however, the main way is through the taxes we studied. When making our graphs in class, we labeled the original price and the price the buyers pay as well as the price the seller receives after paying the tax. Due to the circumstances, it appears the sellers here (at least, for the most part) are the ones bearing the most burden from the tax, causing them to cut employees and cut spending elsewhere. In these graphs we also calculated the amount of government revenue being produced from taxes. It is the area of the rectangle enclosed by the difference in the price the buyer pays and the price the seller receives after paying tax (width) multiplied by the new equilibrium quantity after the tax (length). Here, the government revenue is reflected by the 2.3% tax on gross revenue.

This tax on Advamed may be causing their company to become less efficient. The companies involved are losing potential gains due to the government raising the tax by laying off workers who could have increased the company’s productivity. The tax is being used to fund health care reform. Much of today’s medical care involves medical devices, but this tax may cause less medical devices to be produced or less research to be done to create new devices. It may be the case that this tax ends up hurting what its funding.

Claire Spencer

Fall term of this school year I made my first ever hair appointment (shocking). Being that I was so new to this, I went out of my way to make sure I was doing everything I could to ensure it wouldn’t be a nightmare. Up until then, I had only ever had my mom cut my hair because I didn’t trust anyone else. However, my hair was reaching my hips and had been thinning at an increasingly rapid rate, so I knew it was time to let it go. In deciding which salon to go to I was dealing with opportunity costs in all sorts of ways (though I didn’t know it at the time as I’d never taken an economics class). The first choice I had to make was which salon to go to. I ultimately narrowed it down to two salons (Marguerite’s and City Image) since they had the best reviews of all the salons in Northfield (and I checked every single one). If I chose Marguerite’s, I would be going with the more popular salon, though the opportunity cost would have been (slightly) cheaper prices. I treasured my hair so I didn’t really worry about the price and tried to schedule an appointment with them, but they were full for the next four weeks. In fear of talking myself out of getting my hair cut off I scheduled an appointment at City Image, even though I knew the opportunity cost was (potentially) better quality and a much shorter walk from campus. However, their availability made up for it and I donated 12 inches of my hair that weekend.

Being that my hair was so precious to me I would consider my hair appointment price inelastic. I was willing to pay higher prices for a better cut (though City Image did a fantastic job). In addition, I am scheduling another appointment for next weekend to get it layered, and I am just as excited about this upcoming appointment as I was about the previous, but since my hair isn’t thinning rapidly I would say the marginal utility from the first hair appointment to this upcoming second one has decreased slightly. Finally, not only did I donate my hair in the fall, but I got it partially foiled black as well. I am currently deciding what I am going to do this time around with regards to coloring my hair. Adding color is expensive, especially for such subtle changes, but I can set up an imaginary budget constraint with one axis being an all over color job and the other axis being a full foil, with the connecting budget constraint showing all possible combinations of color, partial foils, and additional accent foils for no more than $80 (I set an $80 budget constraint for color since it shouldn’t need to surpass that).

Another way my appointment could relate to economics is that, since I donated my hair to Locks of Love, the entire cost of my appointment could have been tax deductible but I forgot to remind my dad about that before he did my taxes even though I kept the receipt. Bummer.