ECON 230: Milestone 2 | Economics Blog

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)

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