Daphne Johnson
ECON 230
Dr Jeff Bajah
November 21, 2021
Milestone 2
Section I
Inflation
Both countries mentioned in Milestone 1 manufactured the same products with different GDP out comes for the year 2006. Aruba, $20.83per $14.0 billion of GDP of the Big Mac and Fiji, $13.42 per 14.1 billion of GDP of the Big Mac. (Steven Foley) I was able to find a graph that represents the overall inflation index of the Big Mac.
According to D.H. Taylor below is a graph of the official data released by the United States Bureau of Labor Statistics on the CPI inflation. CPI inflation is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. (U.S para. 1) In this graph Taylor is comparing the Big Mac price to the CPI adjusted price. From 2001 the CPI was pretty close to same adjusted price but let’s look at 2008 the CPI rose just a tad. The Big Mac price continued to rise from $2.50 in 2001 to $3.50 in 2008 despite the inflation rate.
Section II
Unemployment and Profitability
The economy has seen its share of unemployment rates skyrocketing over the pass few years with the pandemic COVID-19. An article I read from the Monthly Labor Review says, “The unemployment rate fell to 8.8 percent in the third quarter and to 6.7 percent in the fourth quarter. This was still 3.1 percentage points higher than a year earlier and reflected the 10.8 million people who were unemployed in the fourth quarter of 2020, which was 4.9 million more than at the end of 2019.3” (para 8) I don’t you about you, but I was not really affected by the pandemic, besides having to help my grandkids with home schooling as we know schools closed.
I am a visual person and saw something that we have been studying in class, a chart on Labor fore participation. (chart 2 para 1). I wanted to share that in 2003 the LFPR was 66.3% and in 2020 not shown, dropped to 61.5%. I believe this through the world in a recession according to MLR reports.
Section III
Aggregated demand and supply
If aggregated demand increases and aggregate supply decreases, the price level: will increase, but real output may increase, decrease, or remain unchanged. Prices and wages tend to be flexible upward, but inflexible downward. (Davis) For example, if McDonalds sells the Big Mac for $5.75 without the fries and drink, that is the price the company is willing to sell the single most popular sandwich in the world at. Now, if there is a situation like a recession according to Ben Davis, “The supply and demand curves also attest to this, since a leftward shift in the demand curve will result in lower equilibrium price and demand levels, where supply and demand meet. Not all demand curves are hit equally hard during a recession, however.” (para 1) In the long run, the aggregate supply is affected only by capital, labor, and technology. (para 2) (Davis)
Section IV
Intertemporal substitution
Intertemporal substitution takes me back to when I was a manager for the fast-food giant in the 80’s. I would always use this mechanism in my daily routine. Lunchtime was one of the busiest times of the day so I would save on labor (employee’s) during breakfast and up the labor of employee’s during lunch to maintain the flow of demand for productivity. I also realized I used another term from the text while managing in the fast – food chain, labor adjustment cost.
Labor adjustment cost
Labor adjustment cost is when a company shifts workers from a declining sector to the growing sectors. (Cowen, Tabarrok, pg704, para 4) This technique was very useful while managing during the peak hour’s vs the non-peak hours. It allowed me to shift employees from the breakfast sector which was not as busy to the lunch sector which is a more productive time period. Also, during this time frame, I was also able to gage how many employee’s I needed to care out the lunch period and save on labor cost.
Time Bunching
The giant fast-food chain utilizes time bunching during the holidays. McDonalds is teaming up with celebrities to launch its Holiday Freebies. “Starting Dec. 14, each day, McDonald's will feature a different character and give away* the menu item they crave, exclusively through the App with a $1 minimum purchase. The daily deals will conclude on Dec. 24 with a certain jolly someone's most treasured treat, free soft-baked Chocolate Chip Cookies (glass of milk not included). (para 2) Way to go McDonalds, figuring out a way to keep customers and boost your productivity.
References
How does recession affect aggregate demand and supply?
Ben Davis, June 28,2019
McDonald's franchisees blame hiring challenges on unemployment benefits, and warn that an 'inflationary time bomb' will force them to hike Big Mac prices
Kate Taylor; May 10,2021
Modern Principles: Macroeconomics Fourth Edition
by Tyler Cowen (Author), Alex Tabarrok (Author)
by Tyler Cowen (Author), Alex Tabarrok (Author)
The Big Mac Index May Be Telling the Truth About Inflation, Nov. 01, 2017 5:08 PM ET, D.H Taylor
The Fast-food Giant Eating Up the World, Stephen Foley Sunday 23 October 2011
U. S Bureau of Labor Statistics; Consumer Index; https://www.bls.gov/
Unemployment rises in 2020, as the country battles the COVID-19 pandemic
Monthly labor Review JUNE 2021
Thank you for feedback Drew
Hello Daphne,
I think your post was super insightful and really think that it gave me a better understanding of some of the terms that are the mechanisms for my own milestone paper. I found it really interesting how you spoke about peak hours and labor adjustments. I think that in a fast food type setting it is so vital that they are staffed properly in a way that would give the consumer a best experience. You explaining how McDonald's has more employees during the peak hours due to labor adjustments really was super insightful. This will allow better consumer service while also being counter balanced with the extra employees which obviously has its benefits. I have found that in today's food industry there is a significant need to have labor adjustment or really just a general hiring of more workers because many food service places are severely understaffed and the industry as a whole is reeling from this. I thought you were super insightful and enjoyed reading your post.
Tesla’s Global Impact
Drew Aiken
Regent University
Professor Bajah
11/7/2021
The inflation of the US economy especially in recent years have had a definitive effect on Tesla as a company. As inflation rises it is normal for a company to be impacted as companies have to adjust prices as the currency value rises and falls. According to Torque News, Elon Musk said that the during the pandemic because of the inflation and the excess amount of money being printed this inflation caused Tesla to adjust the price of the vehicles, which he was none too happy about. Raw materials during this time saw prices and need go up which causes the ability to build a vehicle at the same price as before become impossible. However during the period Musk made the decision via his Twitter Account to remove a lumbar support system that was barely being used according the the data that the vehicles were giving back to the company. This is the type of adjustments that make Tesla unique as the cars have enough futuristic technology to provide data support to adjust prices effecting the consumer in a positive manner. It is important to recognize that these sort of adjustments are the mark of a successful company as the economy shifts and changes as does a successful company.
Throughout the pandemic it was widespread knowledge that the unemployment rates were rising as different restaurant chains and other entertainment facilities were seen shutting down and having a difficult business year. However even during a time when the US unemployment rates were high, this was not the same for Tesla. According to statisitcs from Electreck.co, Tesla had 48,016 full time employees at the end of 2019. This number has boomed to the point of 70,757 full time employees according to the 10k filed to the SEC in 2021. This indicates that the pandemic and its unemployment woes have had zero effect whatsoever on Tesla as a whole as the company continues to produce results.
The electric vehicle has seen a definitive rise in sales in the US and the demand for electric vehicles can be seen across the globe. New companies have begun to arise to try to supply this sort of vehicle craze such as the Chinese manufacturer Nio, and there are current car manufacturers like Cadillac creating electric vehicles in order to satay in competition with Tesla. According to ClimateWire “Electric vehicle sales are booming in the US with purchases nearly doubling from a year ago.” In one of the quotes from a policy director at Advanced Energy Economy, Ryan Gallentine asserted the electric vehicles was the future of the vehicle world and that many businesses shared his sentiment. “EV sales are pretty much going gangbusters. You see automakers moving to start building EV-only assembly plants and announcing these new battery manufacturing facilities- to me that says the’re betting their business on EV’s.” This shows a professional opinion maintaining that electric vehicles or “EV’s” are the future which only will spark a greater supply and demand need.
Tesla is a large company so the general public’s consumer habits have a definitive effect on the company. However this is not always the case as some mechanisms don’t necessarily have a direct correlation with Tesla. According to Econmodel.com “Intemporal substitution is the decision to forego current consumption in order to consume in the future.” While this might work in many other consumer cases many people do not forego consumption of a vehicle in order to use it later. People might save to buy a Tesla but at the rate people are purchasing new electric vehicles this doesn’t seem to be the case. There does seem to be some uncertainty though on investments made into Tesla, however there are a large portion of people that have invested heavily into Tesla since the beginning and are essentially in it for life. When the US economy was damaged during the pandemic there was not a huge impact on the stock of Tesla because the stock was volatile as is so a direct correlation to the collateral damage caused was hard to draw a distinct line to but since than Tesla has recovered nicely even expanding far beyond.
http://www.econmodel.com/classic/terms/intertemporal.htm
Elon Musk: Inflation forcing Tesla to raise vehicle prices - effects on consumers & stock price. Torque News. (n.d.). Retrieved December 1, 2021, from https://www.torquenews.com/11826/elon-musk-inflation-forcing-tesla-raise-vehicle-prices-effects-consumers-stock-price.
Ev sales have doubled. is a 'tidal wave' coming? E&E News. (n.d.). Retrieved December 1, 2021, from https://www.eenews.net/articles/ev-sales-have-doubled-is-a-tidal-wave-coming/.
Lambert, F., & Fred Lambert @FredericLambert Fred is the Editor in Chief and Main Writer at Electrek.You can send tips on Twitter (DMs open) or via email: fred@9to5mac.comThrough Zalkon.com. (2021, February 10). Tesla increased its workforce by over 20,000 employees in 2020. Electrek. Retrieved December 1, 2021, from https://electrek.co/2021/02/10/tesla-increased-workforce-by-over-20000-employees-2020/.
Thanks Christian
We touch on unemployment and COVID-19 great minds think alike. You have a wonderful holiday
Hey Daphne,
I really enjoyed reading your post this week! Something that instantly grabbed my attention is the unemployment rates you mentioned. Covid has hit international economies hard. However, it has provided us with an interesting point of examination. There is essentially no business that has not been affected by Covid, whether its social restrictions, supply shortages, or as you mentioned, the overall employment rate increasing. Of the five transmission mechanisms time bunching seems incredibly important for a fast-food chain such as McDonalds. The example you gave of how they introduce seasonal deals and limited time offer products will keep customers interested throughout the year. Do you think that McDonalds has already seen the worst effects of Covid? Or are they still working through obstacles from the pandemic? Thanks for the post and keep up the great work!
Hi Daphne,
As I was reading your post, I noticed that you did not mention McDonald's key market. On Milestone 1 and 2, I said China is the critical market because it is the second-largest consumer of McDonald's, next to the United States. Even though China's inflation and unemployment are not as high as the United States, it still impacted McDonald's profitability. Still, in a small way, as McDonald's CEO, Chris Kempczinski indicated that only "9% of the company's restaurants are in China, but the country represents only about 4% to 5% of sales system-wide" (Jones, 2020). McDonald's profitability in China has primarily impacted during the coronavirus in 2020 as 300 restaurants in central China shut down for fear of the coronavirus, while most McDonald's in the United States remained open by drive-through only made ordering available to online consumers. McDonald's customers can beat the traffic and skip the hassle of waiting in line on the drive-through with mobile apps and apple pay. Consumers can either have their food delivered to their homes or do a curbside pick-up (Jones F., 2020). The digitization implemented by McDonald's to keep its business operational helped serve the consumers and prevented collateral damage. McDonald's revenue did decline during the pandemic; however, its franchisees still managed to stay afloat. You can look up inflation and unemployment rate using Statista or Macro trends.
Reference
Jones, C. (2020, January 29). McDonald's sales soar but coronavirus leads to closure of hundreds of restaurants in China. USA TODAY https://www.usatoday.com/story/money/2020/01/29/mcdonalds-sales-highest-more-than-decade-company-reports/4602847002/
Jones, F (2020, May 17). McDonald's and KFC are taking mobile technology to China. Retrieved from https://fooddigital.com/franchising/mcdonalds-and-kfc-are-taking-mobile-technology-china