ECON 439: Public Policy Analysis

Here is a link to a very nice paper that discusses the challenge of isolating causation in social data.

As the 2014 Sochi Olympic games approach next month, I am just as excited as the next person to watch the world’s top athletes compete for the ultimate gold medal. I mean who can resist the Curling events, right? But when you spend close to 50 billion dollars in building an Olympics compound when do say enough is enough? Well Russia, who originally set their Winter Olympic budget to 12 billion dollars, which was already the most ever spent by a country has overspent, topping out at about 50 billion dollars spent, and that is money that they will not get back. To give you a picture of what 50 billion dollars is it is roughly the GDP of the country of Burma. I can understand why countries want to host the Olympics; it is an honor. It gives countries a chance to show their patriotism. They get the show other countries, in a somewhat friendly competition, their heritage. It is also their privilege to spend hundreds of millions, if not billions as it is in this case.

My question is though, why is Russia spending this much when most of their country is poor? Scott Minto, director of the Sports Business MBA program at San Diego State University says, “the problem is they don’t see the issues that come 8 or 10 years out after they actually host them. The politicians who pushed for the games are long gone and don’t have to face the problems of cost overrides and empty stadiums that aren’t being used after the games end.” It would make more sense and more cost efficient for the games to go around to cities and countries who already have the facilities to host the games.

I have often wondered while at a convenience store why a bottle of soda is either the same price or sometimes even less than a bottle of water. Considering soda is simply water with many things added into it, this pricing cannot reflect the true cost of production. The bottling is also extremely similar. With soda being something that people can become somewhat addicted to, one would assume that the demand of soda would be higher than that of water, especially in the US. To me, the only plausible explanation for this price discrimination is that soda companies want their customers to buy the soda because it could lead to more sales with people becoming dependent on the large amounts of sugar and caffeine. Water, although healthier and with many less ingredients, doesn’t have the same dependent producing results as its overpriced counterpart.

Why in the world would one country decide to use a system of measurement that is different from every other nation?  This question has plagued me for years and in economic terms the cost to switch over is not as horrible as I think the U.S. population is lead to believe.  It makes sense to have units of measure to be in tens.  We have ten toes and ten fingers.  Why 12?  While there would be a cost up front to change all the highway signs and such to metric, in the long run the United States would be better off when it comes to tools, import cars, importing weighed goods, etc.  It would not take very long for the population to get use to the new measurement system, after all, anyone who immigrates to the U.S., they have to learn our system of measurement.  It is more cost effective for me as a consumer to have one set of tools in metric measurement than metric and standard. I have magnets on my refrigerator that give me the measurement conversion for cooking.  It doesn’t take long to learn those conversions just from a cooks’ stand point.  All vehicles have kilometers on the speedometer.  The word speedometer references to the metric system all on its own.  Why not just switch over and be done with it.  Of course there would be some time lag when it comes to American made good that use units of measurement in the U.S. standard that would have to switch over to metric, but overall I believe that the switch would benefit future generations.

For those who have not heard of the new, popular mobile phone game, Candy Crush, allow me enlighten you.

Under its heartwarming exterior lies a scene of dark psychological persuasion. It is both a game and an addiction. Though I have never personally played Candy Crush, I have seen it take hold of those near and dear to me. The land of Candy Crush is the place where social interactions go to die. People become so involved in the game to the point that I feel as though I’ve befriended zombies.

I understand that people become rather addicted to video games, but what leads people to spend real money for in game power-ups such as lollipops and who knows what other kind of odd sugary paraphernalia. This abnormal rational has even led to blogs being dedicated to confessing how much one has spent on in-game purchases (See Below).

[http://www.imore.com/confession-time-how-much-have-you-spent-candy-crush-tell-us-and-we-just-might-pay-your-bill]

This question of what leads people to spend absurd amounts of real money on in-game purchases draws parallels to why brides spend so much on a wedding dress when they will only wear it once. It is merely a matter of emotional investment into the situation. The bride is so emotionally invested into her ideal storybook wedding dress that she may not be making rational purchasing decisions. The same goes for Candy Crushers (Yes, this is now a term for those who partake in the game). They let emotions of anger and frustration towards certain levels overwhelm their economic rationale. Though a lot has been said about the consumer end of this game, I will also quickly examine the video game makers economic rationale.

King, the company that makes Candy Crush, is nothing short of brilliant. They entice people to play this fun new game and its 100% free to download. The first levels are supposedly quite easy and hook the player. Once a certain level of commitment and traction has been hit by the player, the levels become more and more difficult until they no longer enjoy the game and begin to experience frustration. By having people get addicted to beating these levels and imposing a negative conditioning stimulus, people are inclined to pay for these in-game purchases to progress in the game. Thus, by offering a free game and playing with emotions, King has built a revenue powerhouse of a game. This makes total economic sense for them and this brilliant scheme explains why consumers act irrationally.

[Note: I realize this may have been a heavy analysis on baffling behavior as opposed to a tangible object]

As sports coverage has developed, so has the way in which the common fan can feel incorporated in the mystic of their favorite teams. The rapid expansions of media have lead to constant exposure to teams and players, exposure that surpasses international and even language barriers. The hardest decision for the heads of leagues or franchises is how to make as much money off of their rampant fan bases. Enter the NBA marketing heads. Want to capitalize on success or a marque player? Sell anything and everything in as many colors and varieties as possible. The monopoly that professional sports hold on their merchandise makes it easy to price fix the plethora of jerseys, hats, hoodies and whatever else they can find a willing buyer for. The most recent example are the NBA’s deemed player “nickname” jerseys in which players on elite teams choose what nickname they want to wear on the back of their jersey during a marquee game in the season. For example Lebron James had “King James” on the back of his. Why make jerseys like this for a player to wear for only a single game? If everyone already buys the jerseys of their favorite players for prices over $100 why make more?  if you can sell the normal version, then a special, limited edition version is still going to be a hot commodity. A monopolistic firm structure allows this. With the growing devotion sports fans across the globe, the weird products are going to keep getting made and purchased. Why someone would want to buy a Ray Allen “Jesus Shuttleworth” jersey is beyond me, the NBA executives will take it. Money is money and people will buy just about anything to support their team no matter how outrageous.

When you buy a lower-tier (less expensive) computer processor, you’ve actually purchased a top-tier model which has been deliberately modified to lower its performance level.  Why would a company artificially reduce the performance of their product in this way?

One reason for this is similar to the example we were given regarding Braille on drive-up ATM keypads. The materials and manufacturing process for computer processors is incredibly expensive, and to make a separate model of processor for each performance level would simply cost too much. Better instead to manufacture one processor and then partially disable some of them.

In addition, this practice allows companies to reduce waste during the manufacturing process, thereby lowering their costs and consequently the prices. Some of the processors manufactured do not meet the performance standards of the top-tier model, but can be altered so they can be salvaged and sold as a lower-cost model. This process is referred to as “binning.” Some people have even figured out how to re-enable the “switched off” parts of their less-expensive processors, effectively giving themselves a free upgrade.  This might lead you to ask why anyone ever bothers to buy anything but the cheapest processors. However, if the cheap processor you’ve bought and attempted to upgrade turns out to be one of the damaged ones, you’re out of luck! A few years ago, Intel actually attempted to sell “Upgrade Cards” containing codes that would unlock disabled components of some of their cheaper processors, but this didn’t go over well and the “product” has since been abandoned.

Here’s an article that explains the concept in some more detail, although this author is specifically referring to graphics processors rather than the central processor.  (same idea, different component.)

http://www.anandtech.com/show/2679/3

Brandy

I’m not sure if anyone else was as seriously affected by Trix cereal’s change from fruit shapes to plain balls but his was devastating to me as an adolescent. I truly believed that the cereals taste was compromised due to the boring shift in shape and I haven’t eaten the colorful cereal since. The manufacturer of Trix cereal in 2006 switched from producing cereal in the shapes and colors of  certain fruits (bananas, watermelons, grapes, etc…), to only colorful balls. While I cannot forgive General Mills for betraying me, economically I can try to assume and understand their reasoning for making the change.

The cereal had about six different colors and shapes, which in turn meant that six different devices were necessary in order to create the variation. The machinery had to create each shape, dye each shape according to it’s fruit color, and then combine all six shapes together in order to create the magical cereal that used to be Trix. This was somewhat of a strenuous process, and more than likely more costly to produce than the now seen fruit balls. Now, the machinery only needs to produce one shape and the balls do not have a specific color attached to them, making the time and therefore cost of production decrease. General Mills can now produce a identical tasting product for less, and even appeal to a wider audience. I also believe that was another reason for the switch, less exotically shaped cereals equals a larger appeal to adults; and since the kids are already addicted to the sugary goodness they won’t be able to make the switch, despite their disappointment. With the switch Trix has decreased production costs, broadened their market share allowing them to increase supply, and hopefully increase profits.

Why are Newspapers sold in vending machines that allow consumers to take more than one unit as opposed soda vending machines which only supply one item at a time?

Throughout the last few decades there have been noticeable changes in the technology associated with snack and soda vending machines.  From the simple machines where you insert a dollar bill and push a lighted button on the side to receive your soda, to the advanced touch screen machines that are able to accept Epayments through PayPal. However even with all the changes to the look of the machines the concept remains similar; put in X amount of money and receive ONE soda/snack in return.  While these machines are constantly evolving becoming bigger and flashier to attract more customers, newspaper vending machines have seemingly remained unchanged.  When looking at a newspaper vending machine they are usually old, banged up, mechanically simple and allow consumers to take as many papers as they would like once money has been deposited.  As such they are obviously simpler to repair, do not require much (if any) maintenance and cost a fraction to produce in comparison to their counterparts.  On the cost side of things it is easy to see that a newspaper vending machine is much cheaper to build and soda/snack vending machines would also be cheaper if built using the same method.  However the distinction is present on the benefit side of the analysis, whereas individuals who consume newspapers get very little utility from getting two or more of the same paper, individuals who consume sugary soda or salty snacks gain much more utility from consuming more than one unit (especially if two units can be consumed for the price of one).  The result of this difference in benefit/consumption is the need for heightened security with the distribution of soda as opposed to newspapers.

The only instance I could think of in which this wouldn’t be the case, is if it’s cold outside and a homeless person would gain utility from consuming more than one newspaper (for a blanket or whatnot).

When my roommate and I were trying to decide on a cable bundle we only wanted a few channels. ABC Family, Fox, and AMC. Others would be nice of course, but we were really only interested in those 3 which seems like it wouldn’t be very expensive.  Since Comcast has a monopoly over apartment cable in Corvallis we could only purchase cable from them. This is a huge advantage to them because they don’t need to make their bundles appeal to everyone as much because they don’t have any competition. The link below is a list of channels in the bundles Comcast offers. Comcast doesn’t even offer a bundle that has less than 80 channels. This way Comcast can avoid people only purchasing a small bundle for less money. Comcast frustrates many people when it comes to purchasing bundles. Unfortunately, it wouldn’t be worthwhile for Comcast to offer smaller bundles. The amount of time and money it takes for them to simply come out to a home to set up the cable boxes would exceed the amount of money they would earn from the smaller bundles. Plus, if people were willing to buy the bundles with channels they don’t need, then why would Comcast change anything?

http://www.comcast.com/customers/clu/channellineup.ashx