Archive

Archive for the ‘B2’ Category

FIFA and Economics

May 21, 2013 1 comment

World of Warcraft AuctioneerRecently, a few friends and I have become overly consumed with FIFA 13, an online soccer simulator played on the Xbox 360, PS3, or PC. FIFA has several different game modes but our favorite game mode is called FIFA Ultimate Team. Ultimate team places you at the head of a team where you can form a squad and play as that squad against on, or offline opponents. What is so  such as World of Warcraft or Eve- where Ultimate Team players from all over the globe can buy, sell, and trade any footballer to generate an economy driven by player-made pricing and purchasing. Similar to a stock market, certain players have valuable stock and others do not. The similarities between the Ultimate Team auction house and a real market present evident trends such as supply and demand which can be connected back to our study of economics. But how close do these online simulators come to the real deal?

Surprisingly enough, some games have pulled off very successful artificial economies. An unknown blogger writes, “I’ve studied economics, and can safely say that MMO economies have measurably advanced our understanding of real world economics.” By giving the player the freedom to price an item however they choose, it creates a highly competitive market where equilibrium fluctuates regularly. What adds more competition, though, is a timed auction feature that is found any artificial marketplace from FIFA to Ebay. Especially in FIFA, the timed auction feature allows for drastic changes in equilibrium price daily, since the maximum time you can list a player for is 24 hours. Take for example the picture of Lionel Messi’s stock (ingame) below; one card is listed for 840,000 buy now while the other selected card is listed at 1,000,000 buy now.

Notice the selected card has a buy now price of 840,000 coins while the card being scrolled over has a buy now price of 1,000,000 coins

Notice the selected card has a buy now price of 840,000 coins while the card being scrolled over has a buy now price of 1,000,000 coins

Thus, a “get-in, get-out” mentality is needed if you really want to profit in these games. The methods used for success in FIFA can be very closely linked with the methods used for success in day trading in the stock market. I have learned from experience which players I can buy low and sell high. If I have enough disposable income (ingame) then I can buy several cards of a certain player and control the market price of that player. In other games, take World of Warcraft for example, someone can buy low and sell lower in order to help lower level players to increase their skills. A blogger nails this market exploit when they wrote, “In [World of Warcraft], I’ve driven down wool prices to help lowbie (low level character) crafters” (rpg.net). A rare occurrence to see a benefactor spend in order to help those who can’t necessarily afford to spend. Nonetheless, with such a vast amount of auctionable items in these games, presents endless opportunity for players to make a profit, which I think fully captures the essence of real life marketing.

Games that include an auction house feature develope unique economies that begin the same way that any real economy would. Though it may not be real, the work ethic required to produce profit is similar to that of a real market as well. What we can conclude about video games that include an auction house feature, such as FIFA 13, is that they help us experience a real life market without real life currency. Its nice to know that by playing videogames I can not only make connections back to my studies of economics but I gain a great deal of experience in a field that could possible be a part of my future.

Quality versus Price

The economic struggle is causing the fast food chains to lower their prices even further making many people think that the US is officially in the gutter. Fast-food chains such as McDonalds, Burger King, and Wendy’s have been lowering the “bar” of food pricing which in turn causes the consumers to think that the quality of the product has gone down with it. I personally believe that this is just something that people are seeing as a sort of “scapegoat” instead of facing reality and seeing that maybe it has always been this low of a quality and the fast food chains are actually just trying to bring in more customers rather than selling them “miscellaneous spam” because they are getting too cheap.

Many fast food places, according to Lisa Scherzer of The Exchange, “contend with increased competition, cost-conscious consumers and a still-uncertain economy, they’re trying to outdo each other by slashing prices ever more in the hopes of getting customers through the door. But some franchisees are grousing, suggesting those rock-bottom prices are getting too cheap for their comfort.” This has always been a given in the business world as companies compete with each other by changing up their pricing, but for their customers to start thinking that the lower prices mean otherwise is a big problem for all the businesses. I think that businesses should be a bit smarter and use this thought to their advantage, an example being the $1 menu at McDonalds. McDonalds knows that people are always going to look for fast cheap food, and during these economic times they knew that they could attract more business by creating the incentive of having a menu in which almost anyone can afford to buy. The economic efficiency was a success in their $1 menu as more and more customers gathered to their restaurants, however as the fast food chains caught on and did the same, the only thing left to do was to lower the prices of their main items; a mistake all the franchises would regret. Though the law of demand states that the lower the price of an item the more consumers would buy it, it also states that if it is too low many people will overlook it.

As the ‘invisible hand’ did its business, the fast food chains realized what was going on with their customers and decided to start bringing back their regular prices that finally brought back their regular amount of customers. This was shown in McDonalds as their “sales trend was up 7.7% in January 2012 (for the U.S.), 11.1% in February and 8.0% in March (Scherzer).” Now all the fast food franchises are relying on promotional goods and are thinking about the opportunity costs of their customers as they decide whether to buy their food because it is cheaper or because the value is respectable to the price, meaning that the customers either buy low quality versus quality that is decent and fair to the price. Honestly, as a customer I would think that if a business is trying to hard in getting people to buy their food then that business is going in the gutter, however if a business does it without shoving commercial after commercial in a person’s face all the time then that business must be thriving more than the rest. So in conclusion, fast food franchises need to keep the bar constant since they are already a low standard of food, and people need to realize that what they are buying is not necessarily bad in quality rather it is not as good as homemade or restaurant food.

Categories: B2 Tags: , , , ,

Handling the Booming Housing Market

May 20, 2013 Leave a comment

After going through a “housing bust,” the housing market appears to be rising out of the ashes (Wall Street Journal). Homeowners are hungry to sell and buy – in March, “75% of agents with broken Redfin said their clients’ offers were countered by rival bids” (CNN). Builders are pleased with the surge in bids, but are finding it difficult to balance supply with demand. In economic terms, the housing market is not at equilibrium. The problem lies within the market of the desired construction location. Jeff Culbertson, president of Coldwell Banker’s Southern California operations, explains that new home construction “is still moving forward at a snail’s pace” because “the cost to build the homes is often more than what the property ends up selling for” (CNN). This imbalance in cost can be mainly attributed to the housing bust, which impacted many housing markets throughout America.

In order to manage the dramatic increase in demand, one method builders have turned to is the lottery. GL Homes division president Marcie DePlaza reasons that “the lottery is the fairest way to determine the priority in which customers will be able to purchase our model homes” (CNN). It seems that these builders aren’t so much handling the demand as they are making the bidding wars a more pleasurable experience for homeowners. However, they are using commercial appeal and giving the consumer incentive to purchase with their company, ensuring that demand will not fall undesirably at any point. The process is simple: Each homeowner, pre-qualified for a mortgage and with down payments in place, is assigned a number. The number on the withdrawn bingo ball is declared the winner – and the new owner of the model home. Many of those who don’t win return to try their luck on another property, because of the reasonable pricing set forth by the builder. Buyers seem to prefer this method to the competition of bidding because, as lottery participant Neal Rosen puts it, “There was no rushing” (CNN). During the lottery, while numbers are being assigned, prospective homeowners are greeted with food and entertainment to pass the time. By making the experience more pleasurable, builders are satisfying their potential customers and making the struggle for a new home worthwhile.

Image

Holding lotteries won’t fix the issue of excess demand for housing, but it will make the process easier on consumers and producers alike. Meanwhile, builders are “trying to build faster and get as much inventory on the market as they can” (CNN). Using my knowledge of supply and demand in the economy, I was able to more fully understand this event in the housing market and the reasoning behind lotteries. It’s clear that supply and demand must reach equilibrium, and builders are taking great strides towards that goal by simultaneously enticing the consumer – maintaining the demand they desire – and building new homes to meet that demand. The lottery method, with its less-competitive scene, would appeal to me personally as a consumer in multiple situations. For example, many girls compete viciously to be first in line to meet a celebrity, because often times the line is cut off after a certain number of people. It would be much less violent to enact a game of chance, such as a bingo lottery, that would determine who got to meet said celebrity. Home builders, in an attempt to manage demand, have presented us as an economy with a potentially inspirational way to make recovery from disequilibrium a more relaxing process.

To read more about builders’ personal reactions to this sudden housing demand, check out this article by Catherine Rampell from the New York Times.

Works Cited:

March, In. “Housing: The Bidding Wars Are Back.” CNNMoney. Cable News Network, 04 Apr. 2013. Web. 20 May 2013.

Sunnyvale, O’Brien Homes Started Holding a Monthly Housing Lottery for Its 228-unit Development Called Fusion in. “Builders Hold Lotteries for Eager New Homebuyers.” CNNMoney. Cable News Network, 30 Apr. 2013. Web. 20 May 2013.

YouTube. Perf. WSJDigitalNetwork. YouTube. YouTube, 11 July 2012. Web. 20 May 2013.
Categories: B2 Tags: , ,

“The Best Way to Rent Movies”

April 25, 2013 Leave a comment

Netflix is undeniably one of the most popular entertainment sources of all time. In the beginning Blockbuster was the go to store for movie rentals, eventually they suffocated their customers with late fees. Suddenly, during customer dissatisfaction a new service called Netflix came out and offered a convenient and sensible way to rent movies. The rapid growth from just mailing movies to streaming and viewing documentaries, a TV shows, and movies through almost all internet connected devices was unbelievable. Netflix is also inexpensive. Instead of having to pay for individual movies, which could be anywhere from 5-10 dollars a movie, customer’s pay a monthly fee for unlimited movies and TV shows. Considering the extreme change in price of viewing movies, Netflix was immediately a preferred substitute to the regular movie rental store. Netflix grew to be a good used in place of another.

In economic terms Netflix is used as a substitute for regular movie rentals. Originally the best feature of Netflix was that the movies were sent to you. Customers preferred having a movie sent to them rather than a car trip to the movie rental store so they substituted the store with Netflix. Netflix also has a large selection, around 100,000 movies while a competitor, Blockbuster Online, has just 80,000. Some of the factors that attracted customers to substitute their normal movie rental companies was the low price, fast delivery, and no late fees.

The Wall Street Journal says that Netflix claims it has added a net 2.03 million domestic streaming subscribers in the first quarter of 2013. This compares with the 1.74 million in the first quarter of 2012. The growth is obvious and as their subscribers increase Netflix will need to raise their prices in order to boost revenue. Netflix is currently working out a four-stream plan that is priced higher than the regular subscription.

Although it may seem like Netflix still has not reached it’s full potential, it seems as though 2013 will be a tough year for the company. Netflix directs its business plan in investing in content for its customers within its profitability goals. But, by looking at the cost Netflix has coming in the next year for new content and technology, they may need to reevaluate their financial plan. A graph from Seeking Alpha shows the relationship of revenues, streaming library amortization costs, technology cost, and earning in Billions from the past three years.

Recently, Netflix has had to deal with password sharing accounts and not gaining profit because of sharing. They have made a plan where customers can buy a four streaming plan at $11.99, this plan is for families. Netflix will need to find ways to raise costs so that they can pay for their additions in programs to their selection. Netflix has stated that they are improving their profits and reducing losses in all markets.

They have currently added the popular TV series called “House of Cards.” Their profit is up now as more subscribers are wanting to view the series. Their current total number of subscribers is up to 29.2 million which has beaten out other streaming companies such as HBOgo. According to The Celebrity Cafe, “prices will not have to go up. But that means that Netflix will have to continue to bring in more subscribers, since it is not supported by advertisers.”

Netflix’s original substitute of mailing movies to driving to a local blockbuster was the reason they became such a popular service. Netflix is in current competition with other streaming companies such as Apple’s iTunes and Amazon. Netflix’s streaming revenue is around four times larger than their older DVD mailing service. Because Netflix came in at the right time they were immediately used as a substitute good. Although it may seem that they are a stable and profitable company they have to deal with the debt they accumulated by adding content to their media library.

Netflix is a substitute good because it is a good in which, as a result of a change in conditions replaced another good in use. Because of its growth Netflix is now the number two video subscription service behind Comcast. The idea of driving to stores to rent movies is now almost completely forgotten and Netflix has defined current standards of viewing movies and TV series. Netflix is an example of an influential substitute good and has become a dominant entertainment provider.

Categories: B2 Tags: , ,

The Crabs are Running Out!

March 19, 2013 Leave a comment

feisty_blue_crab_300Although out time in economics class had been short so far, it has been truly interesting. We began by talking about crabs in the Chesapeake Bay, an important current event for crab fisherman, middle men, and crab eaters.  The problem is that there is a shortage of crabs in the Chesapeake Bay, and the fishermen are fishing them at a high rate. Soon the numbers will dwindle and the prices will skyrocket. There are many things to think about in this subject, from scarcity to cost and benefit to opportunity cost, a decision must be made.

We begin with the crab fishermen, who are having both positives and negatives. The positives are the price of their goods, or crab is going up, making them more money. However, many problems are occurring. The first problem is the scarcity of their goods. The crabs are running out. The fisherman must go further and further out in order to fish enough to make enough money, and must consider cost and benefit. The cost is a longer day with more gas or fuel wasted, while the benefit is more crabs, meaning more profit. The crab fishermen are also having trouble with the middle men, the people who buy crabs from the fishermen and sell it to the restaurant. As the prices in the market are going up, the middlemen must bend prices in order to make enough profit. They are having arguments with the fishermen about fatality rates of the crab, and the prices are changing for them. The middlemen have an opportunity cost with the crab fisherman. They are choosing to overcharge, perhaps ruining their ties with the fishermen. This is positive in the short term but perhaps damaging in the long term. Also, the restaurants are in a bind. They must compete with high crab prices, deciding whether or not to spend the money on the crab or not. Some customers are definitely going to eat crabs, while others are being cautious and deciding they don’t want to spend the money on them. The cost is just too high for some customers to continue eating them regularly, perhaps hurting the entire crab market.

The capitals of labor are also evident in this problem. The land, or the sea, is seeing declines in crab population. This shortage isFishermen_1 affecting everyone, and the fishermen must decide whether or not to make money in the short term and continue fishing heavily, or gain money in the long term a slow down to let the crab populations to recuperate. The labor is also evident, as the fishermen are doing labor by catching the crab, the middle men are doing labor by buying and selling the crab, and the restaurant owners are deciding how much crab to buy in order to make as much profit as possible. Capital is also evident, such as the boats and cages and other manmade objects. These factors of production are very evident in this topic, and are greatly influential over the entire problem.

The three economic questions are also being answered. The first, or ‘What goods and services should be produced?’ is answered by the crab fishermen, who decide how much crab to catch in order to not waste too much while still gaining as much profit as possible. The second- ‘How should these goods and services be produced is also answered by the fishermen, deciding how to catch the crabs without getting too small or not enough of them. The third is easily answered- ‘Who consumes the goods and services?’ The consumers are the people who go to the restaurants of course; however they are perhaps the most important. Without the price or quality being just right, the customers could easily stop eating the crab, disrupting the while market. They are the most important when answering the three key economic questions.

blue-crab-378-640x360Economics has taught me how our economies work, as well as other economies around us. From scarcity to opportunity cost, making decisions is tough but necessary, and economics class is helping to teach me to make the right decisions. Although the crab market is in trouble, it is up to the components of the market to make decisions to fix it.

Categories: B2 Tags: , ,

Amazon vs eBay:In economic terms

March 19, 2013 16 comments

The recent wave of online shoppers has created hot debate over which online store is better, eBay or Amazon? Both are very similar. Both are online stores are where sellers can operate their business out of and where buyers can buy a plethora of goods out of just one site. But which web-site do consumers and businesses recommend? It all depends on the most you could get with the least of your resources. Or in other words they are trying to make the most cost-efficient decision to fit their needs. What sellers need to think about is the cost it takes to sell an item on either site. According to Economic-times, “It costs $3.92 to sell a $10 item on Amazon and $2.72 on eBay” Economic-Times.

Costs and Benefits

This is one thing to consider but they also say that, “eBay takes more time and most merchants store inventory themselves” Economic-Times. In making these decisions, retailers make trade-offs; sell out of Amazon without having to stock your own inventory which is easier and faster at a higher price, or sell out of eBay being less efficient and having to stock your own inventory but at lower prices. These economic trade-offs are decisions suppliers need to make, and it all depends on what they value more, time and efficiency or money. Consumers also make decisions that involve trade-offs when considering buying from wither online store. If a consumer buys from Amazon, they are most likely making that decision based off of the convenience and quickness the company provides for its customers, rather than considering the price compared to eBay. A customer choosing eBay most likely chose this alternative site because of its lower price, not valuing time and efficiency as much as they value money. But most consumers value time and efficiency over cost. This is why their choice is usually Amazon. Vice President of Amazon’s FBA business, Tom Taylor says, “Customers like lower prices, but customers also like greater convenience, faster shipping and great selection” Economic-Times. Consumers also state their opinion on consumer surveys on squidoo.com. They say that, “If we were going to choose just one to live with for the rest of our lives, we’d pick Amazon. Why? It’s easy to shop there, the items are always represented correctly, checkout is a snap” Squidoo. The experience is also a major factor for buying things at either store. According to Clark Howard of CNN, “In their testing, the best overall experience for shoppers – not necessarily always the lowest price – was amazon.com.” CNN. It is clear that these consumers weigh the cost and benefits.

Pros Vs Cons

The cost of choosing Amazon is more money for their product, while the benefit is the efficiency, simplicity of getting the product bought and delivered, and the overall experience. In my economics class we have studied these terms used to describe the economic process that consumers and producers use. By applying these terms to the choice between buying and selling on either Amazon or eBay, it is easier to decipher my specific value of time and efficiency versus money.

Making Decisions

I have always bought from Amazon because of its simplicity and efficiency. Although the cost of buying from Amazon is the higher price (compared to eBay), the benefits are efficiency and good experiences. The trade-off of this decision is buying from eBay with a lower price, but without a good experience. These decisions are small but are indeed involving economic thinking. By studying economics in school, I am able to apply my studies to everyday decisions, helping me make the most cost-efficient decisions possible. These terms I have learned to describe my economic decisions have given me the possibility to break down the economical processes people and I take, helping us see the best possible, cost-efficient decision to make for our benefit.

Nuclear Productivity in Israel

March 19, 2013 Leave a comment

Aa123According to CNN, before the president’s first trip to israel, President Obama addressed the israeli government to cease nuclear production or face further isolation from the U.S. President Obama recognized that clearing the past and present disputes is much easier said than done, as well as recognizing the strong mistrust. He goes on to say that it will take quite a long time to fix all things between the two countries. In attempts to gain some of the israeli public Obama stated that their government was detrimental inside the countries border. Obama also was worried about their civilians having all the rights they are deserving of. Obama still searches for a diplomatic solution to the touchy relationship of the two countries. Obama visiting Israel will help the relationship greatly showing an “olive branch” attitude.

Obama’s actions indicate that he isn’t intending on having another military conflict. Any new military conflict would cost money that the U.S. doesn’t have. If israel continues nuclear production the threat will increase and thats the last thing Obama wants. He is choosing a diplomatic and peaceful way so that no aggression will be shown. While being peaceful and diplomatic Obama is also criticizing their government saying its detrimental inside its borders. By choosing to present an ultimatum to israel with the “isolation” statement he is sacrificing the relationship with israel.

In this decision to resolve this matter in a peaceful way Obama is giving up his decision to go find the nuclear activity and stop it, this is a trade-off. He trades off having a sure stop to the threat of nuclear production for saving lots of money and being diplomatic. He was also thinking about his marginal benefits by seeing that by being as humble as he could he would get his desired result. This also has a side of opportunity cost because by both options being desirable it makes his diplomatic decision a result of giving up the other costing him that decision.

%d bloggers like this: