Saturday, October 18, 2014

Ebola: Latest WHO report suggests deterioration in affected areas in NW Africa

For any of my readers interested in the latest regarding the Ebloa situation in Northwest Africa, here is an excellent resource for you or your students.  It is from the World Health Organization (WHO) and is dated October 15, so it is very recent.

All you need to do is read the first page of the report (and only the 3rd paragraph) to get the idea that at this point the virus is not close to being contained in either Liberia, Sierra Leon or Guinea Bissau.

The international community is going to be playing "Whack-a-Mole" with this for the foreseeable future. Not a good situation.

Also, if you are a data hound, here is a link to a source that is doing yeomans work by combing through unorganized data provided by the respective host countries and putting it on Github.

Thursday, October 16, 2014

NYT column on water in CA. Nice graphic that I think I make more clear.

Eduardo Porter at the New York Times has an excellent column on water policy in California. I highly recommend it.  It discusses many economic concepts, with prices and opportunity costs most prominent.

He includes this first graph that shows water consumption at different prices for several different developed countries:

Notice the "Quantity" is on the vertical axis and "Price" is on the horizontal axis.  In economics (by tradition) when we plot demand (or supply) we do the reverse---Price on the vertical, Quantity on the Horizontal.

To put it terms that an introductory econ student can better visualize, I took the plotted points on the graph, reversed the axis, and replotted the points to derive a traditional demand curve as we would recognize from a textbook.  That is below.

The Demand Curve DOES slope downward!

PLEASE NOTE:  I did this by hand "eyeballing" the points so it is not absolutely correct but I hope relatively correct for the most part.  Also, the RED Demand curve I drew is not necessarily mathematically correct either---eyeballed as well.  I accept there is a margin of error! :)

Three countries are outliers compared to the rest: the US, Australia and Canada.

Side by side, both of these help me visualize the issue better.  I hope it does for you as well.

Netflix and Elasticity of Demand. Nice article for illustration.

Rarely do I come across an article or commentary (like the one below) that is a great help in giving life to relatively difficult introductory economics concepts.  This from Slate regarding Netflix is a gift for teaching Elasticity of Demand:

Netflix Says a $1 Price Increase Crushed Its Subscriber Growth

Netflix tacked on about 3 million new users across the globe over the last three months, undershooting its forecast of 3.7 million. But perhaps more worrisome, it’s growth in the U.S. fell year over year, reaching just 1 million net new signups, down from 1.3 million in the third quarter of 2013. The company is blaming its $1 price hike in May, which raised the cost of a subscription to $8.99 per month.(emphasis mine) “As best we can tell, the primary cause is the slightly higher prices we now have compared to a year ago," management said in its letter to shareholders. "Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher adoption markets such as the US.”  
What is happening here is that subscriber growth is increasing (1 million more) BUT it is increasing at a decreasing rate (1.3 million last year). This works out to a year-over-year decrease in quantity demanded, relative to the prior year, of 300,000 subscribers.  In percentage terms that is a decrease of 23% (1.3M-300,000 divided by 1.3 M X100).

Over that period of time the price increased from  $7.99 to $8.99, an increase of 12.5%.

Using the simple Elasticity of Demand formula:
%Change in Quantity Demanded divided by %Change in Price
Doing the math, we have 23%/12.5% = 1.84.

An elasticity greater than 1.00 suggests the demand for a good or service is relatively ELASTIC. The higher the number the MORE sensitive consumers are to changes in the price of the good/service.
"Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher adoption markets such as the US."
Elasticity measures changes along an EXISTING Demand curve.  In order to counter this movement up and along its Demand curve, Netflix will have to figure out a way to shift that Demand curve to the RIGHT (an increase in Demand):
"Slightly less growth" is a bit of an understatement. The slowdown suggests that streaming customers might be more cost-conscious than it previously seemed. When prices first went up in the spring, subscription growth didn't seem to take a hit. But now, the company thinks that may have been due to  "the large positive reception to Season Two of Orange is the New Black." 
But maybe that's the silver lining here: If it just manages to come up with a few more decent programs, investors might buck up." (emphasis mine)
This suggests if Netflix produced more programs that people as a whole wanted to view, then the quantity demanded will increase at the new price.  Demand curve shifts right and revenues, ceterus paribus, will recover.

At least Netflix hopes so. Creative Destruction with new streaming services are just around the corner.
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