Critique

I am doing my critique on the underwater airplane. The article itself was very interesting to me. I agree with almost all of the reviewers key points on the article from CNN. There are not any other competitors for a business such as this. Their product being an underwater airplane is currently unmatched in the industry and is truly one of kind. The man that built it, Richard Branson, is a successful billionaire. He constructed this underwater bird of the sea. He believes that a ride in his plane should cost his guests 25,000 dollars. This is just where it starts. He then will charge his guests another 300,000 for staying on his privately owned island. These two costs along with miscellaneous ones run each guest a grand total of 400,000 dollars per stay. Clearly this does not appeal to everyone granted the cost is so high. The reviewer says that Branson will have a tough time coming out on top… I beg to differ. He is making the majority of his money from people simply staying at the island. He uses the plane as a tool to lure them there. Even though there are not hundreds of thousands of people with this amount of disposable income there are some that do. Of this smaller population of high income people they would be more interested in buying a product such as this. If there are only 100 people that visit his island every year that already puts him at 30,000,000 dollars. I have a hunch more than 100 people venture there every year.

The reason Branson is able to charge the prices he does is because he was able to use technology to get ahead of his competitors. Microsoft used this for a while to make all of their money. Since Branson’s underwater plane is one of a kind there are no substitutes for it that are out yet. By charging this high price in the beginning consumers have no choice but to spend if they want to experience it. These first years are when he will make his profit. I believe that once other competitors are in the market that his profit may stabilize and break even. This won’t be problematic granted his first couple years of income. The reviewer talks about variable costs being an issue but when you put things in perspective a pilots wages and filling up a large gasoline tank seem very minuscule.

I found this article very interesting to read and was surprised there is a thing such as an underwater airplane. The reviewer did a great job with this article and hit the key points; most importantly that this industry is indeed a monopoly.

Critique of "Poverty on the Economy"

The article, “1.2 million people want a job but aren’t looking” discusses the problem of the job market in America today. It states that there are 1.2 million people who want a job but have stopped looking for work. This statement directly relates to the game that we played in class the day before break. The game illustrated the different situations and factors that have an effect on certain people and their decision to either keep searching for jobs or to not search at all. Some examples of the different factors in the game that influenced people in their job search included whether or not there were fees to search and whether or not unemployment insurance was available. When there was a fee to search for jobs, people were more cautious of how often they decided to search for jobs. Unemployment insurance made people remain jobless longer even when jobs were available. The game demonstrated for us very well how the job market works in real life. These factors are present in our economy and result in ultimately the same outcomes.
I agree with the person who originally reviewed this article when they said that jobs that are open need to be taken in order to produce the maximum amount possible. The businesses that do have positions open are losing some of their prospective output because the efficiency there should be is not possible missing some of the workers needed. We have learned about business’s goal of maximizing profits. Maximizing profits involves producing the right amount of a product at the right price and with the right number of workers producing it. Too many workers can make production less efficient as well as having too few. A happy medium needs to be met by these businesses in order to get on track to get the economy back where it needs to be.
The reviewer of the article also said that the future looks promising with the idea of the baby boomers retiring in order for the new generation of workers to start their work. I think that some of the baby boomers will be able to retire in order for the younger generation to step in. I also read in the article how some workers in the 55 and older bracket will be unable to retire as a result of the economic state as it is now. The older workers who are able to retire will indeed open up job opportunities for those who are looking and will hopefully be a start to getting America’s economy back on its feet and where it needs to be.

Critique of Underwater Plane

The article I chose to critique is the Underwater Airplane article. The article talks about Necker Island located in the British Virgin Islands and a new invention that was to be released in February of this year. The new invention that is creating a lot of hype is an underwater airplane. The airplane is extremely eco-friendly. According to Virgin (the creators of the plane) the underwater plane has virtually no impact on the waters it will be running in. The underwater plane cost an extremely high amount of money to ride. The underwater plane costs 25,000 dollars for one week’s worth of usage. To stay of Necker Island it cost 300,000 so actually in comparison it is a reasonable cost for those who are wealthy enough to stay on this island.

The problem with this new form of travel/amusement is that it is brand new so there are no competitors. Because the underwater plane has no competitors it is a monopoly. There are several problems with the underwater plane, You have to be able to not only afford the 25,000 to ride it for a week but also a mere 300,000 to vacation at the Island that enables you to ride. Virgin can charge whatever they would like for people to come stay at their private island because there are many other options for people to visit. On the other hand there is only one under water airplane, which will draw a crowd to that island. The underwater plane is able to charge whatever they would like to ride it because there are no competitors and it is a monopoly. Whether or not the price is reasonable/fair for covering research and development, Virgin is able to charge whatever they would like because of the imperfect competition.

In the author of the original post’s evaluation of the article she is very thorough and does a good job of discussing all of the points of the monopoly. She talks about how it is a monopoly and Virgin is able to set the price at whatever they please. She also talks about how hard it would be for other competitors to break into the market. This is because the amount of money it cost to research and develop the product, as well as the cost of the materials. There is also the issue of a very small consumer population. She makes it clear that there are not too many people that are able to spend 325,000 dollars to ride in an underwater plane for a week and vacation. Overall the evaluation of the article is very complete and concepts that we have learned in class are nicely related to the Underwater Plane article.

Black Friday Sales

Black Friday sales increase from 2009

This year’s Black Friday sales increased from last years. Is this a good sign for the US economy? According to Shoppertrak the crowds were a little bigger with an increase of 2.2% customer traffic. The National Retail Federation issued a report stating that the traffic increased from 195 billion shoppers in 2009 to 215 billion shoppers in 2010 during the 4 day period. Also, it was stated that 33% of the shoppers bought items for themselves. This means that Americans are starting to feel more comfortable about spending this year. Over a year’s time, consumers learned to deal and budget their income while the economy is in a turmoil, which allowed them to spend slightly more this Christmas versus last year. The door buster deals that led to the $45 billion dollars spent may have caused some shoppers to purchase items for themselves that they may have not been able to afford which allowed them to purchase these goods. Although there was increase in sales during black Friday at over 70,000 stores, the big surprise was the pretty significant jump in online sales on Thanksgiving and Black Friday. Combined the two days increased sales by 37%. Indications show that more people are likely to stay at home and shop rather than deal with mad rushes of shoppers. A cause of the increase could be simply because many of the items were not purchased throughout the year, so the supply was high and the companies were able to deflate the prices of goods. Also, most Americans are looking for the “great buys” in today’s economy. Some companies may be going to an alternate material to create the product which allows companies to lower the cost of the product to the consumer. This still allows the manufactures and companies to make the same profits if not more due to the decrease in variable costs for each product produced. Although the Black Friday sales were diluted slightly because of increased sales in the first two weeks of November, the projected increase this holiday season is at about 3.2 %. As long as producers continue to give the good deals, consumers will continue to hunt them out and spend the extra dollars this Holiday season.

http://money.cnn.com/2010/11/27/news/economy/Black_friday_2010_sales/index.htm

Roanoke College Economics: What's new in the RC Economics Program

Roanoke College Economics: What's new in the RC Economics Program: "Yesterday I sent an email out to all of the alumni for whom I have an email address. The email encouraged them to drop by this blog and fil..."

Underwater Plane

The Virgin Conglomerate is now the proud owner of an underwater airplane. The airplane is for guest at Neckar Island, an Island owned by Richard Branson in the British Virgin Islands. Necker Island is rented out for $300,000 a week and if guests are interested they can also rent the underwater “Necker Nymph” for $25,000. The Nymph was designed by Hawkes Ocean Technologies and can go over 100 feet underwater. The Nymph gives a 360 degree view of underwater life. Guests who partake in the underwater experience must be accompanied by a certified pilot or follow SCUBA procedures. Another perk to the Nymph is its low environmental impact. It is quiet, very buoyant, and displays small amounts of light so that it does not disturb the underwater life.

Hawkes Ocean Technologies is currently the only company producing underwater airplanes, giving them complete control over the market. The threat of other firms entering this market is currently low because of the many barriers to entry. Firms interested in developing an underwater airplane would have to have large amounts of capital and be able to invest a lot of time in the development of the underwater airplane. The science and technology involved in making an underwater airplane would be very extensive.

On the consumer side of things, very few consumers are able to afford this Nymph’s $1.5 million price tag making the demand for this item very low. Because Hawkes Ocean Technologies currently has control of the market, there are also no substitutes for consumers to choose from. However in the long run, if Hawkes Ocean Technologies shows a profit, firms will begin to enter this market. If other firms enter this market, it will help drive down prices, create substitutes, and increase the supply available to consumers.

Virgin on the other hand may have trouble making profits in their market of renting the Nymph to vacationers on the island. It seems at first that Virgin would not have trouble making money considering they are charging $25,000 to rent the Nymph but after considering the variable costs it is questionable. Their variable costs would include the pilot’s wages, repairs, insurance, and expenses involved with each use like gasoline. These high variable costs paired with low demand from consumers may make it hard for Virgin to even break even. This underwater airplane does however serve as a good way to spark consumer’s interests in Neckar Island and give the island more publicity.

http://money.cnn.com/2010/02/01/technology/richard_branson_underwater_plane/index.htm

It's the global economy, stupid.

The US is not the only country whose economy is suffering right now. Investors have been watching the numbers around the globe for a while now, not just the numbers here at home. Many people believe that China is going to raise interest rates at their central bank due to high levels in inflation around the world. Countries in Europe are also struggling to maintain strong economic numbers, like China and America, during these hard economic times. The leaders from the world’s leading economic countries just wrapped up a meeting in South Korea about the struggling state of many nations. Of course everyone had good things to say but many people wonder how many will follow through on what was said as world leaders work to get the world economy back on track. Even after the meeting there were still no definite decisions about what to do to get things rolling again.

Investors will continue to keep careful track of other countries economic states as well as the economy here at home. Many want to see what will happen with countries whose markets are still emerging and have potential to be major players in the world market. Most investors are also keeping careful watch over the economy in China and economic decisions made by the Chinese government. There are some who believe China is purposefully trying to push down the value of the yuan, the Chinese currency. This is something that needs to be watched very closely by everyone because many say it is a ploy by China to one up the United States when it comes to trade. This is a major cause for concern since China “recently reported a $27.2 billion trade surplus while the United States posted a $44 billion trade deficit.” The possible hike in interest rates in China and the poor European economy need to be watched very closely along with the economy here at home. All are very important in today’s society because the world economy is so deeply intertwined.

China needs to be watched because they are relying very heavily on property investment to fuel their economy; property investment accounts for nearly sixty percent of their economy. This is an extremely high number, countries in the past have relied on property investment of up to thirty percent but their economies have fallen apart. It will be very hard for China to continue to maintain this high level of investment in property, if their economy slows down what will that mean for the rest of the world? Investors and economist need to keep a very close watch on every country’s economies, especially the major players around the world. If things get any worse than they already are in anyone country it could have major repercussions around the world.

http://money.cnn.com/2010/11/12/markets/thebuzz/index.htm

Critique- Poverty on the Economy

The article “1.2 Billion People Want a Job but Aren’t Looking” covers the topic of the recent raise in job offers and the recent decline in job takers. They also cover how older people have been taking over the job market with an 8% increase over the past decade in workers over the age of 55. This being the case, many younger people newly entering the job market find themselves jobless. The article claims the reason for this phenomenon is that people have simply given up hope in looking. With 151,000 new jobs on the market, doesn’t that sound a little strange?

What USA Today forgot to mention was the category and duration of jobs being offered. Thanks to Globalresearch.ca, we are able to find that 88,000 of these new job offers were only temporary and 48,000 of those temporary job offers were for the purpose of conducting the US census survey. Also, in the previous article they did not explain that of the 1.2 billion people were not simply unemployed, but underemployed, meaning that some of those 1.2 billion people are working, but they are only working part time. 9.1 million people throughout the US are trying to find full-time jobs, but they are forced to work part time.

Another very important aspect affecting the job market is the ratio of Gross Domestic Product (GDP) to Gross Domestic Income (GDI). We are now experiencing the largest gap ever recorded between GDP and GDI. In 2009, gross domestic product raised by 5.6 percent. The productivity, or input put into these productions then increased at a yearly rate of 6.9 percent. Even with input being in such high demand, labor costs decreased by 5.9 percent. Also, later in 2009, the gross domestic product rose by 2.2 percent while gross domestic income stayed at the same rate.

What all this comes down to is, how can USA Today claim that the American stereotype of laziness is the main factor of our failing job market? There is a plethora of evidence backing up the American public as to why it is impossible to find a sufficient job. The US government needs to have greater restrictions on gross domestic product and income as well as a better idea as to what counts as a job. It is unbelievable that they claim they have put so many jobs on the market when in fact they are only part time, temporary jobs which still leave people “underemployed”. In conclusion, it is the incompetence of the US government that is the cause for our high unemployment rates, not the spirit of the American people.

Websites used:

http://www.globalresearch.ca/index.php?context=va&aid=18552

http://www.usatoday.com/money/economy/employment/2010-11-08-discouragedworkers08_ST_N.htm

ECON Program Blog

Class,
I recently started a blog for the Economics Program.  Check it out at http://kassensroanokeecon.blogspot.com/  There are polls for you to vote in, a page for giving your contact info so that you can get our Newsletter (first edition is coming out in March 2011), and info/link for the Newsletter Title Contest.  Remember that if your title suggestion is selected, you will win a $25 gift card to MMCT.
Dr. Kassens

Unemployment in America: No Economic Recovery for the Working Class

The government keeps coming out with numbers and figures that are trying to show that the recession is over and recovery in the job market has begun. In March President Obama came out with a report saying that the net jobs went up by 162,000. A deeper look into the numbers showed that 88,000 of those jobs were temporary. On top of that the long-term unemployed shot up 414,00 to reach a staggering 6.5 million. As long unemployment numbers keep going down we are not going to see the end of this recession for a long time.

What companies don't seem to realize is that while they are letting go of more and more people to cut costs that means people are making less money and therefore have less money to spend on the companies goods. Therefore demand is going to keep taking hits so companies will have to start lowering prices or they will go out of business. Companies need to take a short term risk by employing more people. Sure there costs will go up but in the long term it is going to mean that the unemployed percentage is going to go down and people have more money to spend on goods meaning that although there costs went up there revenue is now going up as well. Creating more success not only for companies but also for the whole economy.

While companies are taking hits and revenues are going down the CEO's of many companies are still receiving ridiculously high pay checks, increasing from years past as there revenues are going down and more workers are being laid off. Spreading the wealth is something that needs to happen in America but the people who have all the wealth are not willing and prepared to spread it throughout there companies. If they used some of there millions of dollars to hire new employees they would ultimately be able to produce more and therefore make even more money.

Consumers marginal utility for products changes when they have little or no money to spend due to unemployment. Any companies selling luxury goods are sure to go out of business if things are not changed soon. Almost all facets of economics and what we know (supply and demand charts, utility, elasticity etc) will mean almost nothing if unemployment rates keep going up and people only have enough money for the bare necessities.

The government can keep publishing documents that tries to make people believe that the recession is over and employment is on the rise but in the end the only thing that is going to save our economy is action by both the government and companies.

http://www.globalresearch.ca/index.php?context=va&aid=18552
Richard Lachlan

Poverty On the Economy

http://www.usatoday.com/money/economy/employment/2010-11-08-discouragedworkers08_ST_N.htm

One of the major problems in America today is the job market. The unemployment rate is currently at a high point of 9.7 percent. People are starting to give up on their search for jobs and waiting for the market to recover itself. This is only worsening the problem. The natural unemployment rate is between 4 and 5 percent. That is basically stating that the country is operating to its fullest potential.

There is a rapid growth of jobs in United States and a surprisingly low number of people taking advantage of this. With the unemployment rate becoming so high you would think that the general public would be taking advantage of these new employment opportunities. Not only does this make the unemployment rate of our country go up but it also disables the United States from operating at its full potential. When there are industries that have open jobs, if these jobs are not taken then some of their potential output is going to waste because the company is not doing a sufficient job at acquiring workers for each position. It is all about utilizing the labor you have and perfectly combining it with technology to determine the best and most productive outcome.

People who are waiting to leap back into the job market after the market fixes itself is not a wise decision for the country as a whole. There are jobs that need to be taken to produce the maximum amount possible. If this could happen then this would trickle down into lower pricing for all types of goods and services. When you make the best out of the product you are producing then you can sell it for less as well as produce it for less. When the country is operating at its maximum potential or at least closer to that, then everyone will be better off.

The future does look promising for the up and coming generation of workers. It is expected that the baby boomers will indeed retire soon and get out of the labor force and make room for the up and coming workers. This could potentially close the unemployment gap and get the country on a track towards the natural unemployment rate which would in turn create a change in our current economic situation. This would also decrease prices to most goods because they would be being produced for cheaper with an adequate labor force.

America's Strugling Housing Market

It is no secret that our nations economy is in rough shape. Amidst various government programs and the chaos of the upcoming November Elections, our nation’s various markets continue to struggle, including America’s housing market. The very first line of the article explains the situation the best; “THE storm clouds have been gathering for months.” As a mode of government intervention, The Federal Housing Tax Credit was applied to home purchases, which occurred on or between January 1^st, 2009 to April 30^th, 2010. With the expiration of the tax credit at the end of April, the numbers, which are generated By Case-Shiller as a three month moving average (meaning August’s numbers actually reflect the sales of June, July, and August) now show the home price index ticking downwards.

Case-Shiller generates two different indexes, the broadest index being their 20-city survey. 19 /20 cities experienced decreases in housing prices. Five different cities had decreases of <1%, with the largest decrease coming from Las Vegas at 2.2%. The decrease in housing prices across America indicates over all there is a decrease in a demand for housing. The lack of demand in housing across America in turn generates an increase in the supply of housing. Since the supply of housing outweighs the demand of housing, it can be said that the housing market currently has a surplus, or an excess of goods.

While considering that the values across the nation are falling, another piece of data that is interesting to take a look at the change in renting across the nation. The Case-Shiller Home Price Index indicates that home prices fell from 2006-2009 (only to raise to for a little while before starting to fall once again with the expiration of the Federal Housing Tax Credit). During the same period, The Joint Center for Housing Studies of Harvard University, reported an increase, roughly 10%, in new renters. Within the article The Economist publishes a tool that allows readers to look at the average American income over several years. Looking the graph as a whole and then looking at the graph from 2006-2009, interestingly it can be seen that the average income was rising until it began to fall in 2006. Falling house prices are a result of the decrease in demand.

The ideas of normal goods verses inferior goods and substitutional goods vs. complimentary in conjunction with the definition of the “Basic Needs Approach” can help make better sense of the information in the above paragraph. The “Basic Needs Approach” is a tool used to measure poverty, which takes a look at peoples access to the three basic needs, food, clothing, and shelter; i.e. shelter is one cost, which can not just simply be cut from one’s life. As consumers’ incomes increase they graduate to purchasing higher priced goods (normal goods) and when their income falls consumers purchase more goods at lower prices (inferior goods). So because incomes have been falling since 2006, consumers have been seeing an increase in demand for the inferior good (renting) and a decrease in demand for the normal good (purchasing). Purchasing shelter (normal) verses renting shelter (inferior) are substitutes; they compete with one another. These two goods are substitutional goods because even though price of buying a home is falling, since income is falling and the consumer can’t afford the good, they substitute away from purchasing a home towards renting a home.

The public has heard that the housing market has been doing poorly but by having even some understanding of economics it all be comes so much easier to understand just exactly why.

http://www.economist.com/blogs/freeexchange/2010/10/housing_markets

http://www.claybennett.com/pages2/slump.html

http://www.jchs.harvard.edu/publications/markets/son2010/son2010.pdf

Rising Gasoline Prices

It happens during every holiday, the gasoline companies know people will be traveling to see family, and the demand for gasoline will be higher than normal. With this high demand for gasoline, I would presume that that would be the reason for the increased gas prices.

That is not so apparent. It is in turn the US economy is indirectly causing a rise in gas prices. The investors say that the reason for the increase in price is because the Federal Reserve is attempting to stimulate our economy by buying $600 billion dollars in bonds. It is a bad idea from the point of the government to buy that much in bonds because people need to travel for vacation, and if that means spending more money on gasoline and airplane travel, that means they have less income for other goods. This means that there is less spending on normal goods because of the increase in spending on gasoline.

Gasoline has positive price elasticity because when demand increases then supply increases. People drive daily and use a set amount of gasoline, but when there is an increase in a paycheck, i.e. a bonus, then people have extra money to spend. That is when people usually spend more money on normal goods. There is not enough money for superior goods though.

The Federal Reserve is going to be spending a steady seventy five billion dollars in bonds monthly throughout the middle of next year. I do not understand their reasoning to start the spending right as thanksgiving is approaching. This crisis is going to affect everyone, from a simple two-hour drive, to people buying airplane tickets across the country.

Once again, this is not the gasoline companies exploiting their customers by knowing they need to buy gasoline, but it is our own government that is doing this to us! Spending money to stimulate the economy does not sound like the best idea right now. With them spending money we in turn have to spend more money on gasoline, therefore cannot buy other goods that help companies.

It is hard to startup a new oil company, therefore there are a few companies that take control and earn the most revenue from increased prices. I hope that the government is making sure that they are not setting prices together and putting price ceilings on their products which force the customers to spend more money than needed. If demand for gasoline goes up then so does the price, but since demand hasn’t increased yet, then why have the prices?

http://www.foxnews.com/us/2010/11/08/retail-gas-prices-rise-thanksgiving-prep-begins/

Critique Blacksburg High School

Critique for Blacksburg Public County School Disaster

The disaster that took place in Blacksburg, VA affected the economy for this town in many ways. It not only affected Blacksburg High School, but also the surrounding schools that had to compensate for the students coming in to their schools while Blacksburg High School was closed for the remainder of the academic school year. A consulting firm, McGuire Woods Consulting, suggested the idea that the county of Montgomery should collide with a public and private partnership. This idea could help the county come up with alternatives to the problem they are facing. Montgomery County is also faced with the restoration and rebuilding of other schools in the district. The Public-Private Education and Infrastructure Act of 2002, PPEA, is an alternative to government traditional design-bid-build process for such projects as the rebuilding of the Blacksburg High School. The building of a new high school would take around three years to build, and the PPEA could possibly knock of 18 months of the construction process. This in return, could also cut back on some of the expenses such as construction worker hours. The down fall to building a new high school is that it will raise taxes for locals and cause the consumption of local goods to lower because they simply do not have the resources to purchase local goods as opposed to the cheaper alternatives at the neighborhood grocery store. Since Montgomery County’s income comes from the sale of local products at local convenience stores, the Law of Supply and Demand will affect the county’s income because its profits will be moved from resident business owners to a more universal company. The officials have considered repairing the old high school totaling a bill of about $19 million, while a new Blacksburg High School would cost $56 million. Many residents of the Blacksburg High community are afraid of sending their children back to a repaired school in fear of another tragic disaster. Why spend $19 million of tax payers’ money for the chance that something else could happen and put their children in danger?

As regards to the Virginia Tech professor, this shows the concern of sending residents children to a renovated school with possible of issues. The dilemma that Blacksburg High School is facing now is also affecting a major revenue source for their county, Virginia Tech. If top of the line professors do not want to teach at Virginia Tech due to problems outside the Tech community, then students may not want to come to a University that is not as prestigious due to the loss of highly respected professors. This could lead to more troubles for the Blacksburg community in the future.