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by Sheryl Fox

 

With the upcoming election, examples of economics in action abound. To illustrate one, I will examine Massachusetts Question 4, a proposition to end marijuana prohibition1, which provides an opportunity to use ideas from the third week of class about markets, trade, and taxes.

To start, we might think of a farmer who typically grows tomatoes. If he decides to take part in providing newly legal marijuana to market, he must grow fewer tomatoes. A PPF curve could have the typical bowed out curve because he already has some infrastructure and expertise that’s good for tomatoes and less good for marijuana.

Despite being illegal, there is of course, a market for marijuana. If it were legalized, what might that do to the supply and demand for it? According to an article in Forbes magazine, the current price of marijuana in Massachusetts is $342 per ounce2. Although hard numbers are hard to come by due to the illegal nature of marijuana use, some estimates put the value of the U.S. market at $10-40 billion3. Taking the average of $25 billion and a Massachusetts population of 6.8 million4 compared to a U.S. population of 325 million people5 this translates to a Massachusetts market of $523 million (this is NOT an actual observation, just a rough estimate based on averages), and 1.5 million ounces of marijuana. This gives us the following supply and demand curve:

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Now, let’s imagine that the proposition passes and marijuana is legalized. The demand curve will shift up from D1 to D2 as more people want to legally buy marijuana. We then would expect the price to rise to $410 with suppliers willing to sell 2 million ounces, as seen at E2. But growers will likely quickly adjust to this new income opportunity and supply will increase. In Oregon for instance, the price of an ounce is $204. If growers anywhere in the U.S. can send their products to Massachusetts, the equilibrium might drop to this price, and consumption in Massachusetts would increase as seen at E3.

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Not surprisingly, the government would be delighted to collect tax on this new source of revenue as they already do for alcohol and cigarettes, and so might increase the price by 30%, as was done in Colorado. The effect of tax is to reduce both production and consumption, with a higher price and a lower quantity than before the addition of the tax. This new price of $265 of which $61 is tax is reflected in area A, which consists of the deadweight that is consumer surplus loss and area B, which consists of the deadweight that is producer surplus loss. One imagines that the deadweight loss will be quite large at a taxation rate of 30% on a good with presumably elastic demand. But profitable nonetheless for the state coffers!

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By the time we get to vote on November 8th, our class will have covered many additional economic tools to take this further. For example, my diagrams so far have just one market. How would having a legal market in Massachusetts be affected by smuggling of marijuana from elsewhere? Also, my diagram doesn’t yet have any externalities from marijuana use. We know that alcohol and opioid use cause a lot of collateral damage. Does marijuana use cause similar harm to users’ children, neighbors, employers or other bystanders? Any quick google search provides interesting reading on the topic of the economics of cannabis legalization6,7,8 all which can be seen through an economic lens.

 

References:

  1. https://ballotpedia.org/Massachusetts_Marijuana_Legalization,_Question_4_(2016)
  2. http://www.forbes.com/sites/frankbi/2015/05/12/the-most-and-least-expensive-states-to-buy-marijuana/#402e877c27ed
  3. http://www.cnbc.com/id/36179677
  4. http://www.census.gov/quickfacts/table/PST045215/25
  5. http://www.census.gov/popclock/
  6. http://norml.org/library/item/revenues-from-legalization
  7. http://www.dailydot.com/via/marijuana-legalization-economic-argument/
  8. http://aupa.wrlc.org/bitstream/handle/11204/3240/The%20Economic%20Impacts%20of%20Marijuana%20Legalization.pdf?sequence=3
 

By Cherie Asgeirsson

Last spring I wanted to have a garden, to grow tomatoes.  There is nothing better than a fresh juicy, vine-ripened tomato!  I have had a garden at our home in the past, but water is increasingly expensive and restricted, and my home garden plot is more shaded this year due to tree growth.  Fortunately, my employer has a large fenced plot for community gardens where residents and employees grow vegetables and flowers.  The value of unrestricted free water and full sun was too good to pass up.  To add to the attractiveness of the venture, I partnered with one of my coworkers to share the cost and work in the garden.   How did this turn out?  Read on.

In the past, I had decided not to garden at work. It would have meant staying after hours to weed and water, not to mention the 26-mile commute on weekends.  The opportunity cost of time away from my family was too high.   Now with a grown family and a gardening partner at work, conditions have changed.  As my partner and I got to know other workplace gardeners, we found that some lived locally and were willing to water our plot on the weekends.  In exchange, we watered their plots during weekday lunch breaks.  My gardening partner wanted to plant squash, cucumbers, watermelons and herbs, while I wanted the tomatoes.  The differences among us created gains from trade, and an equilibrium through which each of us could go further towards our goals.  Principles of economics were in play!Cherie's garden at work

The garden area at work sits by wooded conservation land.  It has a fence around it to keep out rabbits, gophers and woodchucks that have been known to help themselves to crops in years past. We planted crops that had no history of being eaten by the aforementioned creatures.   In early June we composted and planted the young plants, surrounding the tomatoes with cages to support their soon-to-be heavy vines.   We watered our garden watching the Yellow Gold Cherry; Ensalada and Black Krim tomatoes and other plants grow quickly with abundant sun and water.  Blossoms developed, we could taste the fruit to come.  Squash and cucumber vines stretched their tendrils out, running over the black weed covering.  The basil reached up into the sky.  We were on course for a bumper crop, but…

We had plenty of well water to irrigate the garden, and yet this summer’s low rainfall affected us indirectly: animals were desperate for moisture and food.  Who knew that deer could scale the five-foot high fence?  We noticed many young shoots eaten to the quick.  Blossoms were there one day and gone the next!  Almost-ripe tomatoes and cucumbers had small bites taken out of them!  Local farmers too reported grazing deer—something they have never experienced before.

Although much of our work ended up feeding the deer, I am glad to have done this gardening at work.  In the end we harvested enough tomatoes and cucumbers for ourselves and also to trade for raspberries grown by a fellow gardener.  And fortunately for our food supplies, the garden was not our sole source of vegetables!  We loved time in the garden, enjoyed the tomatoes and other vegetables that survived, traded our crops and nurtured our friendship.  Other relationships were forged in the garden, outside of the work arena.  The supply and demand for land, water and labor among co-workers and our employer creates a steady stream of satisfied gardeners.  The benefits went well beyond the delicious tomatoes we took home, and are why we plan on gardening at work again next year.

 

 

by Connie Ray

Economic thinking has helped me understand why it’s so hard to make friends as an introvert. Like everyone else, we introverts crave meaningful relationships, but the very actions necessary to establish friendships require us to behave in ways contrary to our every instinct. Introverts notoriously dread “small talk,” but try jumping from stranger to friend status without a few “Boy, it’s hot out there”s or “How was the traffic getting here”s. Friendships also require initiating, accepting, and following through with social invitations, which means leaving the comfortable cocoon of aloneness. Beginning friendships entails interacting with strangers, which we may know is potentially rewarding, but it drains an introvert’s energy.

The particular story of one friendship I made when I first moved to Southwest Virginia can be nicely explained using economic thinking. I was 6 months pregnant. My husband was starting medical school and was always either in class or studying (I guess they want doctors to be smart and educated or something). Soon after we arrived in Virginia, I met another woman whom I’ll call Sally. Here’s how we became friends:

 

I: Our goals

I desperately wanted a social outlet, support when the baby arrived, and, above all, a meaningful and comfortable friendship. Enter, Sally. Sally is an extrovert who thrives off of social interaction and derives personal satisfaction from being useful to others. She wanted more friends and opportunities to serve. Our goals were aligned. It could not have been more perfect. Except—

 

II: Our constraints

As an introvert, my constraints include extreme dislike of small talk, avoidance of phone conversations, and an instinct to avoid the “drain” of being around other people. Sally’s constraint at the time was a flip phone without texting, so her go-to option for contacting people was always a phone call.

 

III: Our first equilibrium: A failure to communicate

Sally decided she wanted to be my friend. I wanted to be hers. She began regularly calling and leaving me voicemails asking to chat or hang out. She left voicemails, because – of course – I didn’t answer. Normally I would default to a text response, but that wasn’t an option with Sally, so a lot of her calls went unreturned despite my desire to be friends. Put in economic terms, her reliance on voice calls and my need to use texts prevented the market for friendship from functioning. Each of us was optimizing, but our constraints prevented us from getting anywhere near our goals.

 

IV: A better equilibrium

Sally did not give up on me, and eventually, I overcame my social anxieties and started returning her phone calls. I even accepted and kept social invitations (sometimes). As a result, Sally and I developed a deep friendship that has promoted our mutual satisfaction in a stable and mutually beneficial equilibrium.

 

V: Can social rules help everyone build more meaningful friendships?

The very nature of socialization is unfriendly terrain to an introvert. Will drew my attention to an article listing ways that employers can make workplaces friendlier to introverts, and it is full of great suggestions. Whether the social scene can do the same, however, is debatable. The invention of texting is an advantage for introverts, as is social media (we can be social while sitting in the comfortable isolation of our own homes). Ultimately, however, it remains an introvert’s responsibility to overcome personal constraints if he/she wants to develop any friendship not totally confined to texting and Facebooking.

My Goal: Fix Dinner

The promise of Home Chef (and other similar meal kit delivery services) is appealing – everything you need to make a home-cooked meal, from scratch, in 30 minutes, delivered right to your door without a visit to the grocery store. As I reflect on the choices that led to the decision to try Home Chef, the phrase “we can do better than this” comes to mind.

My husband and I both work and both like to cook, but find cooking after work for young, picky eaters exhausting and frustrating. We have several failed attempts at weekly meal planning under our belts, harpooned by: not sticking to the planned meal (him); forgetting to buy ingredients needed for the meals (me); and failure to execute on the plan because of the paralyzing weariness of raising little boys (both.)

My Home Chef Artifacts

My Home Chef Artifacts

We throw together meals at the last minute, or end up eating leftovers or takeout. We also waste an incredible amount of food that we buy with good intent and then let expire. We are dependent on frozen and pantry items (think frozen vegetables, canned sauces, prepared fruit cups.) Our menus have become narrow and not as healthy as this dietitian mom wants.

Home Chef seemed like a good solution. The recipes were simple, I felt confident cooking them and the food was tasty. For two weeks, I was I able to cook three meals a week after I was done with work. My husband seemed very happy.  It made me feel really good to cook dinner.

There was just one problem: the packaging of “everyday” and shelf-stable ingredients.  As a family of four, they would send two meal kits and I had to double the recipe. It was double the packaging – double everything. They sent EVERY ingredient in exact portions. I would receive two tiny plastic bottles of Sherry Cooking Wine, 8 cloves of garlic and 12 single pats of butter. All the packaging was recyclable, but it was SO much waste.

Each meal costs around $9.00, so I found myself calculating how much I just spent on garlic, sherry cooking wine and butter, already found in my pantry and refrigerator. After two weeks, I discerned that the good feelings created by the cooking were not from the service itself, but from the well-orchestrated preparation. I suspended the service – giving them my feedback – and decided that we would follow the principles of the Home Chef service (good recipes and ingredient prep) and try another attempt at meal planning.

That attempt was short-lived and admittedly we are back at square one.  While I regret cancelling the Home Chef service, I also have not clicked the “reorder” button, so the choice was probably optimal.

The Goals of Others: Satisfy the Target Consumer

My husband gets home from work before me and he is a great cook. I’ve gotten into the habit of just letting him cook dinner nearly every day of the week, though it makes me feel guilty.  He, obviously, would like to NOT have to cook every night. But, he dutifully comes home and whips up a dinner that is mostly kid-pleasing starch with frozen veggies and a frozen protein. I do the dishes and we call it a day.  He seemed happy with the Home Chef recipes and he was supportive of the whole process.  He also supported the decision to stop, because he agreed the packaging was over the top and we could mimic the principles if we tried harder.

For the team at Home Chef making decisions on how to produce and package meal kits, we think that to simplify their production they must be producing recipes and kits for a model customer. The archetype they have in mind is a couple with no kids, in a small urban space, who keep very little stock on hand. They don’t cook, or are just learning to cook, and they haven’t built up the pantry that more seasoned cooks might have.  Instead of adapting their model to different types of households, they simply use the same meal kits and multiply it times X to accommodate different household sizes.

In my work and when I food shop, I also see more and more that food manufacturer and retailers are building up their offerings in the “almost home cooking” space. Pre-cut ingredients. Prepared spice blends. Meal and salad kits with a recipe. These offerings come at a premium price – just as Home Chef is a premium service. It’s an attractive market because the target consumer is working professionals with disposable income, but not disposable time.

Societal Influences: Conflicting Agendas

There are societal norms at play about the role of working supermoms cooking for their families – I certainly feel that pressure. It’s embarrassing that I’m a mom who can’t get it together to cook dinner…made more embarrassing because I’m a dietitian and actually have studied (and taught!)  meal preparation and planning. Nonetheless, this RD mom is waving the flag to say it is REALLY hard to have a dual-career family and make dinner work.

There are also societal norms around working hours in the U.S., which generally fall in the range of 8 a.m. to 5 p.m. with a 40+-hour work week. Somewhere in there we also ask ourselves to exercise, spend quality time with our spouse and kids, volunteer, and practice some basic physical and mental hygiene. If you layer on school activities, childcare scheduling plus evening activities, it’s easy to understand why cooking dinner becomes so hard.  When are you supposed to do it? (DISCLOSURE: I’m listening to “168 Hours: You Have More Time Than You Think” on Audible, so I might sing a different tune when I’m done!)

I think there is a model – maybe it’s out there already and I don’t know about it – where a household could use this style of delivery service and commit to a meal plan where they self-purchase a specific basket of staple items that they will reuse in the plan. Then the delivery service would only send the fresh produce, proteins, and unusual items that can confound meal planning. In any case, there is certainly a market for innovation to make all of this easier, and Home Chef and its competitors are just at the beginning of something really transformational.

Maybe this is something I could work on…if I only had the time!