Attachment to the Grid

According to Elizabeth Souder's article in the Dallas Morning News on October 27, 2011 entitled "Double jolt: higher bills, less reliability" Texans attached to the electricity grid are about to go on "a free-market roller coaster."  Souder reveals that in the decade to come, electricity prices are sure to steadily increase for many factors, including the growing population and Texas’ climate vulnerable to extreme heat and cold.  With more Texans “Reliant” on electricity than ever, the demand is extraordinarily high and the consumers' demand is very inelastic.  Currently, with the high demand for electricity and low supply, there is a shortage.  This can be accredited to electricity companies not building more electricity generating plants because they are simply too expensive for electric companies to expand their capital in the tough and highly competitive electricity market.  One would think that according to the law of supply, with electricity prices high more supply would be offered.  However, experts who work for these companies worry that these prices are temporarily inflated and that investment in more capital could be hard to pay off in the future.  The supply of electricity is relatively inelastic as far as producing more electricity, resulting from more capital.  This is because plants right now seem to be running at full capacity, with little ability to increase production, without expanding and producing new power sources by bringing old, shutdown ones to code or by building new facilities.  In addition, many companies are being forced to shut down their electricity production plants because the facilities do not comply with the newly enforced pollution regulations, which increase the cost of production as well.  Natural gas pipelines in Texas have historically set a trend for the prices of other sources of alternative energy.  With natural gas costs relatively low, there has been deterrence from producing new sources of electricity, furthering the shortage due to the lump amount of profit allowed to companies by natural gas.  In Texas' "deregulated market" when supply cannot meet the demand of the consumers, the equilibrium price of electricity skyrockets.  ERCOT Chief Executive Tripp Doggett says that increased regulations to protect the environment alone will increase customer’s bill by 10%.  Our attachment to the grid is extraordinary, and with government setting a price ceiling of $3,000 per mega-watt hour, there is little incentive to increase supply, forcing rolling blackouts to occur.

Guilty Plea to Kidney-Selling Charges

The secondary market demand for kidneys has never been higher as the waiting list for legal transplants grows longer and longer. The once trust-worthy doctor, Levy-Izhak Rosenbaum, pleaded guilty in the federal court that he had partaken in illegal transplants for jaw-dropping payments of $120,000 or more. However, Dr. Rosenbaum never saught out the recpients but instead they asked him and theu had consenting donors who were completly aware of the consequences. Rosenbaum was buying organs from donors in Israel for $10,000 and that he was selling the organs for much more to wealthy Americans so they could skip out on the waiting list. Paul J. Fishman, the United States attorney for New Jersey, said that “A black market in human organs is not only a grave threat to public health, it reserves lifesaving treatment for those who can best afford it at the expense of those who cannot.” The black market allows wealthy people with a demand to purchase organs at whatever price the seller wants. The black market process is definately not a fair one, but is the long waiting line for those in dire situations fair too?

Netflix: Flushed Down The Toilet

Most everyone is familiar with the popular company called Netflix. Some of us even use Netflix to get DVD's in the mail, watch movies online, or how most of my friends use it, through XBOX 360 to watch movies and TV shows. Netflix became a booming company with total revenue toping out at $822 million at the end of the second quarter. However, Netflix has entered itself into an enormous collapse, some what like the collapse the Boston Red Socks had at the end of this years MLB regular season. Because of all excess demand, Netflix believed its price was below equilibrium, so they raised the price of streaming movies online and receiving DVDs in the mail in order to maximize profit. Streaming and receiving movies and TV shows by mail were previously offered together for $8.99, but with the current price increase, Netflix split streaming and receiving by mail into two individual services both costing $7.99. This price increases has destroyed Netflix, causing the demand to drop immensely. In the third quarter, Netflix lost 800,000 subscribers!!! As well as stocks plunging 35% (numbers which are predicted to worsen a lot more). Now, their is no excess demand, but now excess supply, showing that Netflix moved its price to far above equilibrium. I am a current Netflix subcriber and when they announced their price change, I cancelled my mail subscription, but not my streaming subscription. However, most Netflix customers do not have any inelastic demand, and left the company all together. If Netflix wants to stay in business, they need to make a change, especially in price.

Link: http://money.cnn.com/2011/10/25/technology/netflix_stock/index.htm

Rodgers Bringing in the Green

Big shocker, Aaron Rodgers jerseys have the highest sales out of all NFL jerseys according to Darren Rovell. Green Bay fans probably have Rodgers shrines in their homes and worship their local hero on a daily basis. Rodgers has continued the Packers winning streak and the Super Bowl champs have a 7-0 record so far this season. Naturally, the demand for Aaron Rodgers jerseys is very high and will continue to be so for awhile. To my surprise, Michael Vick was number three on the list. Yes he's a good quarterback and has been racking up the fantasy points but with all the PETA people and dog lovers out there, it doesn't seem like Vick jerseys would be wanted that bad. After his recent shenanigans and poor performance this season, Big Ben Roethlisberger has dropped out of the top selling list. He's not that great anymore and Pittsburgh isn't too hot this season, weakening the demand for Roethlisberger jerseys. No one is really going to want to shell out quite a bit of cash for a player who isn't having a good season and isn't that popular amongst viewers. But rookie Cam Newton, who is breaking records left and right, has made it onto the list. He's been fun to watch, fans love him, and even though his team is 2-5 the demand for Cam is high. This just goes to show that demand is dependent on so many variables and when it comes to sports, popularity and success mean everything.

The Magical Limited Sandwich

What has a saucy barbecue flavor, sells for a limited time, is sold under the two golden arches logo and has helped its market? The McDonald's McRib! America's favorite sandwich has come back for a limited time in all available McDonald's fast food restaurants causing excitement amongst its costumers and the hope of more to come. Making the McRib a scarcity by saying it is available for a limited time has the costumers jumping out of their seats and running to get the sandwich making an inelastic decision because they buy the sandwich no matter what godly price it is. This is actually a great strategic way for the market to increase its profits because the sandwich is so good, according to 7,000 fans, customers would buy the sandwich for the time it is placed on the menu. How extreme do people go for this infamous sandwich? Many people drive more than 500 miles from one McDonalds to another just so they can get their hands on the sandwich not paying caring how much money they spend on gas (check out link 1). Other people have gone to the point to post where the McRibs are being sold(check out link 2). Now, if the McRib is such a successful way to earn money, why not make it permanent? Aha! That's where advertisement comes in persuading people to buy as much as possible before they all sell out making huge profits from a simple sandwich. Ronald McDonald, you have showed us yet another side of money you attain.
Source: http://www.inc.com/articles/201110/marketing-lessons-from-the-mcdonalds-mcrib.html
Link to source: http://www.gobankingrates.com/savings-account/how-much-is-a-mcdonalds-mcrib-sandwich-worth-to-you/
Link 2 to source: http://www.kleincast.com/maps/mcrib.php

With New Labor Contracts, Detroit Protects Turnaround

General Motors, Ford and Chrysler met with the United Automobile Workers (UAW) union this week and discussed the future of their companies after the ratification of their last four year agreement. All three of the Detroit-based companies made progress in closing the gap between foreign competition and can now be substituted because they are desired more by consumers. The American companies decided to keep cost down but they keep production the same and hire more workers. Howeever the companies evaded increasing wages for long-time workers which was a main point of the UAW's contracts. In the past, the companies hired around 300,000 workers in 2001 but now it has shrunk to only 112,000 workers! The companies claimed to reduce workers to match their decreasing market shares but their total output has decreased as well. Their marginal output of labor was shown in reverse- the less the hired, the less they produced. However, American companies pay workers about $50-57 an hour while the foregn competetors only pay below $50 an hour. The higher salary for the American companies increase the incentive for laborers to work there than for the foreign companies. This might cause in increase in the supply of labow and a decrease for the demand, but all of the American companies are looking to increase their marginall product of labor so they are looking for new workers. Will this drastic change in employees and production rate make the companies sucsessful again, or will the demand for locally produced cars decrease even more?

Not Cured, but Getting Healthier

The new GDP numbers from last quarter have just been released. As talked about in the article "U.S. Economy Picks Up Pace, Averting Stall," the details of these new numbers can be seen. The real GDP increased from a 1.3% increase to a 2.5% increase in the last quarter, that's a 1.2% increase for all you folks that are a little slow at math. This 1.2% growth was the largest in the past year. The rise in GDP can be credited to consumer spending and business investment. According to the article, consumers spent more on healthcare, and businesses invested in software and vehicles. Even though this growth in GDP is definitely a great thing for the economy, we are still not in the clear. A economy is considered healthy when economic growth is 3% for the year, meaning all four quarters average out to 3%. Sitting at 2.5% right now, our economy is not considered healthy. Hey, at least we are heading in the right direction! But, to recover from the recent recession, the GDP needs to keep increasing, even at higher rates, in order to lower unemployment by a significant amount and get our economy healthy. This task is a difficult one to say the least. According to the article, economist don't expect growth to rise in the next few quarters, but as the wise and knowingly Mr. Ostroff said, "Economists can't predict the future, they can only analyze the past."

Link: http://www.nytimes.com/2011/10/28/business/economy/us-economy-shows-modest-growth.html?ref=todayspaper