FLORIDA ECONNECTION
August 2013
Volume 2, Issue 1
PUBLISHER: BRETT BURKEY/SENIOR EDUCATION ADVISOR
FLORIDA COUNCIL ON ECONOMIC EDUCATION
Special Interest
Articles:
Welcome Back!!
• Market Prices
• Market
Concentration
• Market
Interference
Individual Highlights:
Ticket Scalping
1
Helium Prices
2
Wedding Premium
2
Prices Speak
2
Praise Gouging
3
China Loves Nuts
3
Soda Pop Wars
4
McDonald’s Reality
4
Supermarket Choice? 4
Price Floors
5
Destroy Beer
5
Purchasing Power
6
Argentina’s Pride
6
Allow me to be the 47th
person to say “welcome
back, how was your
summer?”, since you’ve
arrived back at school. I
guess there is no avoiding
the truth. I’m excited to
bring you a second year of
monthly newsletters,
beginning with this August
issue that will focus on
markets. These articles
will be helpful in
articulating the
mechanisms of the market
and what can go wrong
when they are meddled
with. It is unbelievable
how many great examples
there are of markets at
work in everyday life.
That is success in
teaching Economics, in
my opinion, when you can
illustrate for your students
that the subject is woven
through every aspect of
life. Two of the examples
I am offering reference the
adult beverage market,
one illustrates market
concentration in the beer
industry and the other
provides an example of
price floors in the spirit
industry. If those aren’t
subjects you want to
tackle in your classroom,
there are plenty of others.
As always, I encourage
you to communicate your
thoughts and suggestions
on how I can make this
better. I hope you have a
successful school year
and that you are refreshed
and ready to go.
Brett
AN ALTRUISTIC MUSICIAN IS A SCALPER’S DREAM
http://www.nytimes.com/2013/06/09/magazine/the-secret-science-of-scalpingtickets.html?pagewanted=all&_r=0
http://www.npr.org/blogs/money/2013/06/27/196277836/kid-rock-takes-onthe-scalpers
Your favorite musical artist is always thinking of his fans. Yes, he can sell out the
biggest arenas but prefers smaller venues for a more intimate concert experience.
Yes, he can charge hundreds of dollars for seats but would rather keep ticket prices
low for the legion of blue-collar followers. The heart might be in the right place but
ticket scalpers salivate when a small supply of tickets are kept at below market prices
in the face of frenzied demand. Few products are so frequently underpriced that an
entire secondary market thrives in both shadow and light to take advantage of the
discrepancy. There is the traditional individual hovering at the margins of an event
hawking tickets inconspicuously and then there are companies like Stubhub and
Ticketmaster that control vast online resell markets.
1. Why is there a greater degree of acceptance in paying the market price from
a scalper than the artist themselves?
2. Why is it clear that Taylor Swift underpriced her tickets?
3. Why is it that artists that charge the least tend to see the most scalping?
Page 2 of 6
FLORIDA ECONNECTION
The Price of Helium is Floating Away
http://www.nytimes.com/
2013/05/26/sundayreview/up-up-andaway.html?nl=todayshea
dlines&emc=edit_th_201
30526
“Shopping for my
wedding dress was a
bizarre and emotional
experience.”
For most of us, helium
serves two functions; a
continuous source of lift
for our party balloons
and a sure-fire source of
entertainment when it’s
inhaled. But, for the
uninitiated, we are
unaware of all the
fabulous medical and
technological uses. The
strange thing is that
helium is the second most
abundant element in the
universe, but the supply
cannot keep up with
demand. As a result, the
market price has more
than doubled in the last
five years. Though
abundant, helium is
difficult to capture and
there a few methods and
locations for it that are
economically prudent.
The Federal government
has been stockpiling
helium for over 50 years
and in the mid-1990s
decided to begin selling it
off. The odd feature to
this story provides an
unusual example of a
price floor turned price
ceiling, as recent
discoveries of its
usefulness have relegated
the market for helium to a
state of disequilibrium.
How Much Does the Word “Wedding” Cost?
http://www.npr.org/blogs/
money/2012/04/03/14992
9993/why-did-mywedding-dress-cost-somuch?sc=fb&cc=fp
When shopping for a
wedding dress or
preparing the final resting
place of a loved one, the
consumer enters the
market in an emotional
state. This represents
rare times when price is
not necessarily a key
factor in making that
market connection. Both
of these events are also
moments that few of us
rehearse for and
(hopefully) have little
experience with. As a
result, the sellers of the
items we seek tend to
have a significant
advantage. They benefit
from asymmetric
information, in other
words, the deck is stacked
in their favor. Few people
really know the cost
involved in making a
wedding dress or casket.
People are most
interested in the look or
legacy, thus pay little mind
to the significant sacrifices
necessary to pay for these
milestone occasions. The
link connects to a video
clip of a woman pursuing
the truth about her
wedding dress in the
weeks after her wedding.
She ultimately learns a lot,
but you hope she’ll never
have to apply it.
What Do Prices Know That You Don’t?
http://www.youtube.com/w
atch?feature=player_emb
edded&v=WPy-QKXofQs
Listen to the price system.
The narrator compares
prices to a genie that
knows everything in the
world and tells you exactly
what goods and services
humanity needs most. He
tells a story of two
hypothetical farmers. One
ignores the price system
and tries to plant what the
world needs most.
Overwhelmed by the
quantity and complexity of
the data needed to figure
out what crop is most
needed, he eventually
fails. The other farmer is
selfish and profit-driven.
He doesn't understand
that the high soybean
price reflects increased
demand for a new soybased product in Asia -he just wants to make
money. But by listening to
the price system, he
produces exactly what the
world needs most.
Page 3 of 6
FLORIDA ECONNECTION
In Praise of Price Gouging
http://www.foxnews.com/opinion/2012/11/01/in-praise-price-gouging/
It’s hurricane season in Florida, heck it’s hurricane season everywhere considering the
crazy weather patterns we have endured recently. Crossing everything, you hope for
one more uneventful year but inevitability rules. Despite the mountain of information out
there on preparedness, some people invariably don’t and find themselves scrambling in
the aftermath for the basics. The urgency changes the market conditions and this is
bound to cause prices to rise. But 34 states have passed versions of anti-price gouging
laws to prevent price spikes. This may seem like benevolent governing, but the article
offers a different opinion.
Caption describing picture or
graphic.
1. According to the author, what do the politicians get wrong when they pursue
people they call “price gougers”?
2. In the author’s opinion, what three things would change if New Jersey dropped
its laws forbidding price increases during an emergency?
3. Why might a roofer in Texas hesitate to travel to New Jersey where the crisis
has created a great demand for his skills?
4. Describe the experience of the Shepperson family from Kentucky in the
aftermath of Hurricane Katrina.
China Goes Nuts Over Our Nuts
http://online.wsj.com/article/SB10001424052748704076804576180774248237738.html
When the Chinese consumer speaks, the world listens. Read about how their increased
taste for pecans has turned the nut world upside down.
Instructions: After reading the article found at the link above, review each of the
statements below. In each case decide if the information will cause a change in the
current market demand for pecans. If so, decide if it is an increase or a decrease, and
write the correct answer. For example, if you think headline 1 means there will be a
decrease in demand, write "decrease". For headline 2, if you think demand will increase,
write "increase." If the event causes no change in demand, write "no change."
1. Chinese authorities reveal to their citizens that pecans are more nutritious than
walnuts or hickory nuts.
2. For the second Christmas in a row, sales of holiday fruitcakes slump.
3. Prices of walnuts increase.
4. The household income for Chinese families increases for the third year in a row.
5. Price of pecans increases dramatically.
6. Europeans begin consuming more fruit and cream pies.
7. Pecan prices expected to be higher next year, pecans freeze well.
8. Stuckey’s is successful in introducing its pecan roll to Chinese consumers.
“Five years ago, China
bought hardly any
pecans. In 2009, China
bought one-quarter of
the U.S. crop, and
there's no sign demand
is abating.”
Page 4 of 6
FLORIDA ECONNECTION
Where Soda Pop Prices Never Go Up
“In such a crowded
market, a price increase
by any company would
be an open invitation for
an onslaught of rivals to
wrestle away market
share, industry insiders
say..”
http://www.nytimes.com/2
013/06/01/business/global
/in-japan-a-hard-to-budgeobstacle-looms-over-thefight-withdeflation.html?nl=todaysh
eadlines&emc=edit_th_20
130601
Japan has embarked on
an aggressive monetary
expansion that, at the
outset, has begun to move
prices upward after close
to two decades of
deflation. The lengthy
period of falling prices has
led to consumer
expectations of lower
prices and delayed
purchases. This article
addresses the one
stubborn item that refuses
to budge, soft drinks. The
vending machines are so
common and so widely
owned with no one having
significant market share.
As a result, the cutthroat
competition makes
suppliers reluctant to raise
prices even though their
costs have been rising. It
is not uncommon to pay
less today for a beverage
than one did twenty years
ago.
McDonalds’ Gaffe and a Sad Reality
http://finance.yahoo.com/n
ews/mcdonalds-cantfigure-workers-survive153900349.html
McDonald’s, probably with
good intentions, provided
a blueprint for its
employees recently on
how to manage their
finances. A sample
budget showing income
and expenditures was
offered as a template.
The problem was that the
author couldn’t conceive
how a worker could live
solely on their McDonald’s
wages and was in fantasy
land when estimating what
typical living expenses
would be. As you will see
in the article, a second
income was assumed. In
the last few weeks, fast
food workers across the
nation have walked off the
job on prescribed days to
demand a living wage for
their labor. This budget
has clearly provided
ammunition for the cause.
Choice at the Supermarket?
“Seventy-one percent of
chicken farmers live
below the federal
poverty line.”
http://www.forbes.com/site
s/csr/2012/08/06/choiceat-the-supermarket-is-ourfood-system-the-perfectoligopoly/
between growers and
eaters sit a handful of
giant corporations, what
economists call an
oligopoly.”
“Our food system is an
hourglass. In one
chamber are tens of
thousands of farmers and
ranchers, but their sands
are steadily receding. In
the other are hundreds of
millions of eaters, whose
sands continue to swell. In
the narrow middle
Just five companies
account for almost half of
the supermarket food
sales in the U.S. Just four
companies provide us with
79 percent of our beef, 65
percent of our pork, and
57 percent of our poultry.
Though the typical grocery
store is stocked with three
times the number of
choices offered thirty
years ago, more and more
of these items are
emanating from a very
small number of sources.
These mega-food
companies control taste
and dictate conditions on
the farms and in the
factories where they are
produced. Huge debtloads have them
continually cutting costs
which affects wages and
your dinner plate.
Page 5 of 6
FLORIDA ECONNECTION
Back Page Story Headline
Price Floors and Unintended Consequences
http://news.heartland.org/
newspaperarticle/2011/10/12/liquored
-why-michigan-shouldexit-its-liquor-wholesalebusiness
Michigan is one of
eighteen states in which
the government is the
statewide wholesaler for
all hard liquor (or “spirits”)
sold to consumers by
retailers, bars, and
restaurants. The
presumption is that
concentrated control will
result in less crime and
alcohol related fatalities.
Yet, the consequences of
this control have resulted
in no appreciable
difference in safety when
compared to nonregulated states but
unquestionably higher
prices for the consumer.
As wholesaler, the state is
in a unique position to
drive up the cost of liquor.
The Michigan Liquor
Control Commission tacks
on a 65 percent markup
on every bottle sold, plus
four separate taxes
earmarked for various
purposes. On top of this
the state imposes a 6
percent retail sales tax.
Michigan then artificially
restricts competition
between retailers by
imposing a price control
floor, below which stores
may not sell. The idea of
state control was born in
1933 after the end of
Prohibition, due in part to
teetotalers’ fears that
bootleggers would
smuggle in illegal or
adulterated products. Yet
ironically, Michigan still
has a smuggling
problem—in part because
of state-mandated price
differentials with other
states. It has been
estimated that Michigan
loses $14 million a year in
revenue to smuggling
from neighboring states
and recently a truck filled
with liquor was hijacked
and the driver shot.
The Plot to Destroy America’s Beer
http://www.businessweek.
com/printer/articles/78040the-plot-to-destroyamericas-beer
When one thinks of soft
drink producers, the
duopoly of Coke and Pepsi
come immediately to mind.
Breakfast cereal?
Kellogg’s, General Mills,
and Post are the dominant
forces.
Telecommunications?
AT&T and Verizon control
the vast majority of the
market’s share. Now, the
U.S. pays a great amount
of attention to beer, but
few can accurately name
the primary purveyors of
this classically American
libation. Brands are
familiar and most
consumers probably
believe they can tell a
domestic from an imported
name. But, the reality is
that the picture is cloudier
than ever because of a
monster company called
AB InBev. It was created
in 2008 when InBev, the
Leuven (Belgium)-based
owner of Beck’s and Stella
Artois, swallowed
Anheuser-Busch, the
maker of Budweiser, in a
$52 billion hostile
takeover. Today, AB InBev
is the dominant beer
company in the U.S., with
48 percent of the market. It
controls 69 percent in
Brazil; it’s the secondlargest brewer in Russia
and the third-largest in
China. The company owns
more than 200 different
beers around the world.
Though the company has
been wildly profitable, beer
connoisseurs have come
to realize that many of
their beers have begun to
taste very similar. Thus,
while you think you’ve
purchased an import, it
may only be true if you
believe that St. Louis is
located in another country.
“What will AB InBev buy
after this? There’s not
much left. There is
Pepsi, of course.
Analysts speculate that
it will acquire SABMiller
the world’s secondlargest brewer.
Page 6 of 6
FLORIDA ECONNECTION
Brett Burkey can be reached
via:
PHONE:
561-302-4143
E-MAIL:
BBURKEY@FCEE.ORG
BRETT.BURKEY @
PALMBEACHSCHOOLS.ORG
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Argentina No Longer the King of Beef
http://www.nytimes.com/2013/06/14/world/americas/argentina-falls-from-its-throneas-king-ofbeef.html?pagewanted=1&_r=0&nl=todaysheadlines&emc=edit_th_20130614
At one time, not too long ago, beef was such an integral part of Argentina’s identity
that the president declared that vegetarians were not welcome in the country. Once
the biggest per capita beef consumer in the world, tastes and concerns for health
have knocked the country off that perch and forced an entire national re-evaluation.
The graphic on the left indicates that Argentinians have reduced their annual per
capita consumption by 100lbs. in the last 50 years, but they still digest more than
double that of the average American. As is often the case, there are multiple causes
for the change. Farmers have found more profitable things to grow in catering to the
voracious appetites of the Chinese consumer. The Argentinian economy collapsed in
2001 and has slowly recovered. But, a significant accelerant has been the
government’s attempts at fixing the problem through export limits and price controls.
Have students respond to the following questions.
1. List and describe all of the determinants of demand you can uncover in the
story resulting in the significant change in Argentinian demand for beef.
2. What methods has the government implemented to reverse the trend of
declining beef consumption?
3. What have been the unintended consequences of the government’s actions
in the market for beef?
4. What are some signs that this might be an irreversible movement in the
nature of the Argentinian diet?