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Export Bans as Price Control

March 30, 2017 Leave a comment

A great post by Alex Tabbarok: A Visit to the Lasalgaon Onion Market. In class today we’ll discuss this:

When prices are high the government bans exports and blames farmers for hoarding (when prices are low as is true today, exports are allowed).

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Videos on Rent Control

October 29, 2016 1 comment

To supplement the chapter we just covered on price floors and price ceilings…

This video isn’t as entertaining to watch–no fancy graphics–but if any of my students will listen in on this conversation with Thomas Sowell, there’s a good chance they’ll get smarter!

Categories: Price Controls, Videos

Analyze This

There’s a lot more than minimum wage going on here:

Wendy’s (WEN) said that self-service ordering kiosks will be made available across its 6,000-plus restaurants in the second half of the year as minimum wage hikes and a tight labor market push up wages.

It will be up to franchisees whether to deploy the labor-saving technology, but Wendy’s President Todd Penegor did note that some franchise locations have been raising prices to offset wage hikes.

McDonald’s (MCD) has been testing self-service kiosks. But Wendy’s, which has been vocal about embracing labor-saving technology, is launching the biggest potential expansion.

Wendy’s Penegor said company-operated stores, only about 10% of the total, are seeing wage inflation of 5% to 6%, driven both by the minimum wage and some by the need to offer a competitive wage “to access good labor.”

It’s not surprising that some franchisees might face more of a labor-cost squeeze than company restaurants. All 258 Wendy’s restaurants in California, where the minimum wage rose to $10 an hour this year and will gradually rise to $15, are franchise-operated. Likewise, about 75% of 200-plus restaurants in New York are run by franchisees. New York’s fast-food industry wage rose to $10.50 in New York City and $9.75 in the rest of the state at the start of 2016, also on the way to $15.

Wendy’s plans to cut company-owned stores to just 5% of the total.

Still, Penegor said that increased customer counts more than price hikes drove the chain’s 3.6% same-store sales increase in the first quarter.

Although profit exceeded Wall Street estimates, Wendy’s shares dived nearly 9% Wednesday because of weak second-quarter sales.

Besides modeling the effect of minimum wage increases, there’s a lot of interesting things we can get into using this semester’s topics. Be ready to discuss (and model) factor substitution, the relationship between revenue, prices and profits, time value of money and short and long term price elasticity.

Predict The Unintended Consequences, Part…

January 17, 2016 Leave a comment

Bernie Sanders wants to impose price ceilings:

Speaking just blocks from Wall Street, Sanders vowed…an array of new protections for consumers. Among other steps, the Vermont senator called for capping interest rates on credit cards at 15 percent and capping ATM fees at $2.

I think I know who he’s trying to help. But hopefully my freshmen students can use what they’ve learned and predict some unintended consequences of these price ceilings.

Categories: Price Controls