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.

My friends and I recently discovered a shocking price change on the menu at the Tavern of Northfield.  The breakfast special had been raised from $4 to $4.75.  On the track team, going to the Tavern is sort of a ritual.  Members on the team go almost every week and they always order the same thing — the breakfast special.  The meal comes with two eggs, bacon, and a side of toast, which people on the team unanimously agree is a pretty good bargain.  So, after hearing about the price change I immediately wondered if we would still go to the tavern as often to buy the breakfast special.  Put in economic terms, what is our price elasticity for this meal?

One important consideration is the other substitutes for the breakfast special available in Northfield.   As far as I know, there are no other restaurants in town that offer the high quality breakfast food that the tavern does.  Restaurants like Chapati and Hogan Brothers are good, but they are not really substitutes for a breakfast meal because they serve and indian food and hoagies.  Tandem Bagels comes closer to being a substitute, considering that some enjoy eating bagels for breakfast and could potentially pick it over the tavern.  Yet, it is still does not offer the same traditional breakfast meal — bacon, eggs, and toast — that the tavern does.  Moreover, Tandem Bagels is relatively more expensive to start with, so it seems unlikely that a price increase of 75 cents at the tavern would cause someone to choose Tandem bagels instead.

Ultimately, I think it is unlikely that the price increase at the tavern will cause the track team to go there any less.  Going there has become a tradition and the dining experience is somewhat irreplaceable.  Even though it’s kind of goofy, team members have a special attachment to the restaurant and the breakfast special.   As a result, their price elasticity for the meal is relatively low.

More broadly, this example sheds light on how tradition can affect price elasticity.  As is the case with the track team and the breakfast special, there are some things that have people weird and irrational affinities for and are unlikely to give it up if they have to pay more.  I wonder to what extent firms consider the idea tradition in their decisions on pricing.

Neighbors destroys Spider-Man at the box-office

Sony executives are not having a good week. The company’s The Amazing Spider-Man 2 apparently just can’t stick: after a $91 million first-place opening last weekend (which, for everyone who doesn’t read box office reports like a film nerd, is a huge opening), the sequel dropped to a second-place $37.2 million, with newcomer comedy Neighbors taking the top spot with $51 million – more than $10 million above most box-office predictions, and a huge success for an $18 million comedy (again, for non-film nerds: a movie typically needs to make at least double its production budget in theaters to make a profit, since marketing costs are not included in budgets; Neighbors passed that mark in three days, while Spider-Man needs to make about $750 million worldwide to be considered a success).

Why the upset? More specifically, why did Spider-Man fall so far (it had a bigger drop than is typical for a tentpole in week 2) and Neighbors absolutely crush expectations? There’s a couple of possibilities when looking at the situation economically (since as much as I would like this to be about the actual quality of the movies, this is an econ class post), involving supply and demand. It’s entirely possible that Spider-Man is the victim of “blockbuster fatigue” – it’s entirely a formula movie, sold to audiences entirely on the basis of its spectacle. And audiences have a lot of spectacle to choose from. The film market is flush with images and films that were impossible even five years ago; now every film studio is off on a special-effect superhero blockbuster craze. Moviegoers have a lot of superhero movies to choose from (Captain America: The Winter Soldier is still in theaters; X-Men: Days of Future Past is coming out soon and audiences may be waiting for that), so if the product is mediocre, skeptical filmgoers might choose to see something else, and wait for a better blockbuster. Demand for superhero blockbusters is high, sure, but not so high that audiences don’t discriminate at least a little. Longevity in theaters is often determined by quality and resulting word-of-mouth (i.e. Captain America, which got great reviews (and was pretty damn good too), topped the box office for three weeks running).  Hence, Spider-Man‘s massive opening weekend haul and fast drop off.

The success of Neighbors is perhaps easier to explain in supply-demand terms: there’s a distinct lack of comedies in theaters at the moment (the most recent prior to neighbors was The Other Women, and that was the first in a while), so Neighbors was able to satisfy a greater-than-expected audience demand. And it should have a good run – the supply of comedies is fairly low for the next few weeks until Adam Sandler’s Blended is released (and will likely be swallowed opposite Days of Future Past). And it doesn’t hurt that the movie is supposed to be hilarious to boot.

The New York Times Article “Reading, Writing, Arithmetic, and lately, Coding” highlights the new role that programming is finding for itself in education, from Kindergarten through the twelfth grade.

We can first start to think of the supply of education by the schools and the demand generated by parents. As technology keeps on taking a larger role in our everyday lives, coding to “many parents […] coding [has started] look[ing] less like an extracurricular activity and more like a basic life skill”. In addition, we live in a time where children’s attention is much too often focused on iPads, TVs, consoles, etc….the list is endless, electronics are seen as a parents’ biggest foes. However, “parents love the idea of giving children something to do with computers that they see as productive”, which has lead to the surge of demand of CS (computer science) programs.

As parents have increased their demand of CS curriculums, schools have increased their supply of CS courses, “Chicago’s public school system hopes to have CS as a graduation requirement at all of its 187 high schools in five years”. Competition between suppliers has also lead to this change in education. Free after-school classes have started being offered, which attracts a larger amount of students and generates an increase the school’s reputation, attracting parents such as the “director of engineering at Twitter”. Another reason for suppliers to further develop their CS programs is external funding; some teachers even worry about the technology “industry’s heavy role” in shaping education due to financial support.

Yes, the role of technology has increased in our lives, but why have parents really started to value CS and why has there been such involvement on all levels to promote CS instead, and not only by suppliers. The reason is the opportunity cost of CS when thinking of children’s futures. CS according to the interviewees “might someday lead to a great job or even instant riches” and that is what children would be losing by not having learned programing. The job opportunities, the happiness generated by being able to learn while being on a computer, that of the parents who see their spend their children waste less time, who then see themselves as more successful parents, the specific skills which CS teaches and its overarching importance in our society are some of the principle factors which contribute to its unmatched opportunity cost.

The vegan in me couldn’t resist. I found a post by one of the authors of our book, Alex Tabbarok, that touched on some of the economic reasons that “in-vitro” meat (that is, meat grown in a laboratory as opposed to on an animal) might be a good thing, you can check it out here.

The post has a very interesting quote from a 1932 article by Winston Churchill, “Fifty years hence we shall escape the absurdity of growing a whole chicken in order to eat the breast or wing by growing these parts separately under a suitable medium.” Upon reflection, I hope that many of you will find, as I have, that it really is ridiculous to raise an entire chicken just for the breast and thigh meat. Economics is the study of how we allocate scarce resources. It does not make a lot of sense to raise an entire animal and proceed to only use the parts that we find appetizing. And, while, many left over “parts” of animals are used for everything from hog feed to hotdogs, the fact remains that in-vitro meat provides a much more economical alternative.

Leaving aside the fact that it will take some time to perfect the technology to “grow” meat, there are some advantages to “in-vitro” meat. Firms would be able to cut their variable costs by only growing the parts of an animal that they know consumers would eat. Variable costs would also be reduced because the factors of production would change. The water used in electric shock tanks to stun chickens would be gone: replaced instead by petri dishes.

The consumer side of things is a little bit harder. Perhaps the most important questions is: Will consumers buy and consume meat that is grown in a laboratory? If the answer is yes, then the demand for meat will probably stay about the same, or even increase (more on this in a minute). If the answer is no, then consumers’ demand for meat will probably drop. However, this drop seems unlikely. It will take time for cultural attitudes to changes, but I think that people will warm up to the idea of “in-vitro” meat.

How is that demand for meat could increase if consumers are receptive to “in-vitro” meat? Some vegetarians and vegans may decide that ethics are no longer an issue and that it is perfectly okay to consume meat products. In this case, the demand for meat will increase.

Of course “in-vitro” meat brings up many more ethical, environmental, and social questions, but for now, it seems as though they provide economic benefits.

http://www.marcgunther.com/behavioral-economics-at-starbucks/

Very few people, including me prior to reading this article, know of the 10¢ discount Starbucks offers every time you bring in your own coffee mug. Environmental activists suggest that if Starbucks were to charge 10¢ for a paper cup instead of offering a 10¢ discount for personal mug use, the vast amount of Starbucks waste would decrease because people are more motivated by avoiding cost than gaining profit. This article evaluates the behavioral economics behind why people are more inclined to bring their own mugs if they are presented with a 10¢ paper cup charge instead of the alternative 10¢ discount when using their own mug. Since economics is really the study of decision-making, this is a really interesting behavioral economic, or even psychological, evaluation of how the habits of people change when presented with a discount versus an additional charge.

As fascinating as this is, I would like to take this economic evaluation one step further. Behaviorally, yes, many people will probably go out of their way to avoid that charge if a charge were implemented instead of a discount. Others still might find personal motivation to reduce the vast amount of Starbucks paper and plastic cup waste that accumulates every day. However, I think it is also important to note that Starbucks is a luxury good—in other words, Starbucks can be easily substituted with other cheaper coffee brands. A cup of McDonald’s coffee is a good example of a far cheaper, yet similar product (a 24 ounce McDonald’s coffee is only $1.29, yet a 20 ounce Starbucks coffee is $2.25, and millions of people have yet to give up on Starbucks). If people were looking to cut coffee cost corners, they would probably avoid Starbucks altogether.

With this in mind, a Starbucks good is definitely elastic to some degree. A serious raise in price would probably lose quite a bit of Starbucks clientele, but a tiny price increase (or an apparent price increase of 10¢ that would occur instead of the discount) on an already luxury good probably, and I’m theorizing, won’t cause a great disturbance to the number of cups Starbucks sells. Plus, this is not even technically a price increase—people would just be charged an additional 10¢ for a paper cup, which means posted coffee prices would decrease. Ultimately, I’m not sure a 10¢ charge on paper cups would change consumer behavior as much as this article implies. People buy Starbucks in part for convenience, and bringing a mug from home just doesn’t fit that bill. I would think that the price difference would have to be more drastic to save the planet from Starbucks cup waste increase. People who can afford to buy from Starbucks regularly probably won’t jump into eco-friendly mode simply due to an imposed 10¢ paper cup charge instead of a 10¢ discount.

Since my life is pretty much confined to being within the Carleton bubble, I want to talk about how the principles of microeconomics apply to my life here: specifically to how I spend my money at Sayles.  We have talked in class about how the income and substitution effects impact our consumption patterns, but I want to examine a more general trend, why do I always tend to save my money at Sayles until the end of each term.

I’m on the 14-meal plan meaning that I start out each term with 300 dollars at Sayles.  Assuming that I eat Sayles equally throughout the term, I should be around 150 dollars by fifth week.  However, both terms I have been on the 14-meal plan, I have been closer to 200 or 250.  By the end of the term, I always end up at 0.  I think this tendency to save early on in the term and spend later can be explained using the economic concept of opportunity cost and utility.

First off, it is important to note that Sayles gives me high utility. I far prefer it to LDC or Burton.  Another important note is that I never end up eating my full 14 meals in the dining halls.  To me, dining hall meals are essentially free and infinite.  One reason I think I save my Sayles money at the start of the term is because the opportunity cost of eating at Sayles is higher.  Why would I eat Sayles when I can get free LDC?  As the term goes on the opportunity cost of eating Sayles goes down, since if I don’t bring the balance down to 0 I miss out on utility.  Utility is the other reason I believe I save my Sayles dollars.  To me, there is high utility in being able to eat during times of the day when the dining halls are closed.  I would prefer to save my available Sayles dollars for meals during times like this, and eat free dining hall food the other times.  Finally, I do not experience diminishing marginal utility from Sayles, except in extreme cases.  That said, even if I do have 50 dollars at sayles at the end of the term, I could always spend it on mango juices and other items I can bring home with me and eat there.  Therefore, I save my dining dollars at Sayles to be spent during times when it would be of high utility to me, which tend to be later on in the term.  I also begin to spend money later in the term as I see that I risk running out of time to spend the rest of my money.

Recently for my job, I was offered a one week shift to work 40 hours over the summer at Carleton College.  I can work only right after the finals period so the week of June 8 to June 12 or for one week anytime in August. I was having a hard time choosing when to work because of implicit and explicit costs. For the total cost of working, I am willing to pay 70 dollars  over the summer.  The form for summer housing is due Tuesday, May 13 and as I was looking up the payment options, June 8 to June 13 costs $120 because it is commencement week, whereas weeks in August cost $70.  This means that my explicit costs is higher for June and thus I should go for August as that met the maximum price I was willing to pay, but to get housing in August compared to commencement week means that I have to find a proxy that was living on campus in the summer for over 7 weeks and I do not know anyone planning to stay on campus over the summer. The housing application, again noted, is due in two days so the implicit costs added to my total cost for August is actually higher.

I thought, then, to myself since from June 8 to June 12, housing will still be open for students until Tuesday, June 10. I will technically only need two days for extra payment for housing and the $120 cost of that is not reasonable as that is $60 per day and quantitatively I will be only earning about 300 dollars over that one week period (a third of my paycheck will be gone for housing). I looked up Northfield lines options for transportation costs as a way of substitution for housing since I live in Saint Paul, MN.  It costs 26 dollars to travel from the cities to Northfield, and Northfield back to the cities in one day. I would need transportation for two days; thus that will be a total of $52. If I compare the opportunity cost, now, of working the week of June or working a week in August, it saves me more money to work in June if I commute for two days ($26/2 days), rather then dorming for one week in August($14/5 days).

If you’re in Econ 111, you’ve come to the right place. This is the site to post your blog entries and comment on other posts.