Price of a Movie Ticket Compared to a Video Game

Today on Grinnell plans, someone asked why in comparison to movies tickets are video games so expensive. For example you can see the new Indiana Jones movie for $10-$12 or you can purchase the Lego Indian Jones video game for $40. As the person who asked the question points out the budget for top video games is about 1/10 to 1/5 that of a top movie.

The price difference is caused by a couple of things. First, there is a strong
connection between both movies and video games in the type of good they are. In some sense a movie studio or video game company has a monopoly on any movie or game, but there are many movie and video game choices so it is not quite a monopoly. Economists call this monopolistic competition, which just means at some point a video game company or movie studio has to worry about competition if they price the product too high.

So now how is price determined? Prices will be influenced by the number of people willing to buy it at a given price (demand) and the cost of production. However, for movies and video games most of the cost are up front. Once a video game is developed another copy can be produced for the cost of the packaging and the CD, probably a couple of dollars. A movie at a movie theater is a little different in that there is the cost of running a theater and the employees, but once a theater is running the cost of one more patron is low. Video games companies will maximize the difference in the money coming in from sales and the cost of making another CD. As long as they make profits the game’s development cost should not impact price.

On the demand side I think there is another factor at play. Although I have not played video games regularly, since a brief minor addiction with Grand Theft Auto and MLB 2006. I do know that someone who buys a video game will likely play it for more than the couple hour run time of a movie. In that sense the price per hour of enjoyment may be lower than the movie.

Don’t be a Shirk! Monitored Behavior.

I guess like most people I goof off a bit (perhaps a bit too much) during the day. Between reading blogs, the NY Times, baseball stuff ect., I take breaks throughout the day. However, over the last two days I hardly took any. What changed was I was in Madison Wisconsin jump starting a project on fair trade coffee. With my former Ph.D. advisor and a grad student, we transformed a data set to get some summary statistics and started formulating ideas for future papers. To transform the data the grad student and I sat side by side working on two computers editing different parts of the data. She helped me with some Spanish and we helped each other with coding issues. Sitting right next to each other though I didn’t want to shift from having STATA (my data program up) to the NY Times or my e-mail because she was working hard and that would not be fare. I talked to her about this result and she felt the same.

This is a classic economic example of a common good. Often when people work together on a project that all will share in the results, people do not work as hard. You probably know this if you did a group project in school. Not working as hard as you could in economics is called shirking. One way to prevent shirking is to monitor behavior and another way is to feel a sense of duty to the group, which usually comes out of repeated interaction.

This is clearly a common good, since we both can use the data once it is together. Monitoring in this case was easy since both of our screens were in view of the other and I have known and been friends with the grad student for almost 6 years.

Perhaps I should have brought her back to California this summer so I can keep up working hard on the other hand I do enjoying shirking.

Fertility Age and Income

Time magazine features an article on Gloucester High School in Gloucester, MA where there has been a sharp increase in teen pregnancies from 4 to 16 out of 1,200 students. The story has a strange twist in that it appears the growth in pregnancy is due to a pact formed by 8 of the girls to get pregnant. One of the reasons pointed to in the article for this pact was that Gloucester is a blue color fishing town with poor economic prospects.

The age at which mothers have children is strongly related to income prospects. A more global perspective from this graph at Gapminder, shows that as GDP per capita (income) rises the number of teen births decreases. In Africa, there is about 1 birth for every 10 women under 19 per year, while it is a little less than ½ that in the United States (.4 births per 10 women). So Gloucester was still below the national average this year.

This negative relationship between income and having children young is generally explained by if women have more prospects economically, then giving up some of those prospects through pregnancy seems less attractive. Interestingly though the US is a bit above where you would expect in terms of the number of teen pregnancies given our GDP per capita. My guess is this is due to a combination of culture, inequality, and availability of contraceptives.

h/t to broadsheet at Solon.com


Or if you prefer a map of fertility see the below.

Adolescent Fertility Rate (Births per 1,000 Women Aged 15-19)
2004

Global health data provided by GlobalHealthFacts.org
Customize a map for your website

Perot and his Charts are Back

Before Al Gore and his PowerPoint presentations there was H. Ross Perot and his charts. For those of you who don’t remember Perot ran as an independent for President in 1992 and 1996 on a platform of deficit reduction and being anti-NAFTA. The deficit problems highlighted in those elections seem to have disappeared from the media attention, although discussion about Medicare and social security seem to be around from time to time.

Perot is back and trying to bring the perceived problems of the deficit to the national spotlight. Perot has created a website Perotcharts.com to highlight the national debt, health care, and social security problems. I have not had a chance to explore the website too much, but I think these are worthwhile issues, and as an economist I appreciate a good chart.

What does middle class mean in the developing world?

The Journal of Economic Perspectives has a spring issue on development economics. This is a great journal to read if you want to learn what’s going in economics, but don’t want to/can’t read a bunch a bunch of Greek letters. The first paper in the issue by Abhijit Banerjee and Esther Duflo uses household surveys from 13 countries (including Mexico, Pakistan, South Africa, and India) to give an overview of what the middle class is like in the developing world. To start with Banerjee and Duflo define middle class as those living off of between $2-10 a day per person. To compare a family of 5 at the poverty line in the US would spend $13 a day per person. I like the Table 2 from the paper (shown in the picture to the right) to give you an idea of the relationship between income and spending. For the most part until people reach $2 a day per person more money goes to more/better food. The percent of income spent on food drop for those earning between $2-4 a day per person and even further for those earning $6-10.

With that extra money households can get increased access to water, more education, and get televisions.

Perhaps the most telling results from their overview is the employment of the different levels of consumption. Those who live off of less than $1 a day tend have temporary employment, while those living off $6-10 a day are much more likely. As the authors put it “Nothing seems more middle class than the fact of having a steady well-paying job.”

Economics of Disaster Relief: How to Recover from the Floods and Lessons from Katrina

I have been trying to follow the flooding stories in Iowa. I went to undergraduate in Iowa (Grinnell College), which has managed to avoid the floods, but I have fond memories of visiting Des Moines, Cedar Rapids and Iowa City during my time in Iowa. Those three cities have been hit hard. To get an idea of the damage see the Gazette, Cedar Rapids local newspaper.

Over the weekend I began to think about how best to help people recover from a flood. Should government assistance be offered and if so what kind? I’m not experienced enough to give a good answer to that question, but I do have some thoughts.

First, I think most people's inclination would be to provide government help. But from a federal level that would mean FEMA would probably be leading it and after the New Orleans recovery (or lack thereof), I’m guessing people are a little more wary of having the government try to help.

So why has FEMA failed in New Orleans, and what might be learned for Cedar Rapids? A policy brief, which is a short and good read, by Emily Chamlee-Wright and Dan Rothschild* from George Mason’s Mercatus Center suggests five things.

• Make only commitments that can be kept, and do them so as soon as possible.
• Minimize revisions to land use plans, and make these plans both simple and transparent.
• Encourage flexible commercial solutions to housing problems by suspending onerous regulations in the aftermath of disaster. Such regulations are appropriate for everyday conditions, but they often hamper redevelopment after a major disaster.
• Allow for the suspension of some employment regulations to make it easier for jobs to return to disaster stricken locales.
• Unless absolutely necessary, avoid providing goods and services that the private sector can supply.

The fifth one is interesting and not something I had thought about. As the paper says, FEMA came in after Katrina and hired a lot of the local worker and provided substantial unemployment benefits undercutting the ability of local businesses to recover by raising wages.

It is worth noting these lessons as Iowa goes forward with its recovery.
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* disclosure I taught at Beloit with Emily and I'm friends with Dan

Chuck Norris: Black Belt, Movie Star, and Energy Economist.

Chuck Norris is stepping into the ring to fight high gas prices. He penned an article with a 12 point plan for congress, which boils down to the title “Congress, Get Off Your Gas, and Drill”. Chuck Norris’s plan follows a simple economic principle if you increase supply the price will go down. Of his suggestions most go toward as the title suggested increased drilling in areas were drilling is currently not allowed and building oil refineries.
So would the average economist think this is a good plan? I don’t think so given the strong reaction against cutting the gas tax. When Hilary Clinton and John McCain proposed a gas tax cut, no one could find an economist for it. Economists tend to believe that the externalities of using oil are such that price of oil should be about where it is and taxes shouldn’t be lowered. That is the more oil we use the more pollution and traffic created so cheap oil might not be best.

Economists also note that in the short run prices will rise as people can’t change their gas usage that much. But after a while people move closer to their jobs and buy more fuel efficient cars, so demand for gas starts to decrease. This will bring back down the price of gasoline.

I have not researched Chuck Norris’s proposal individually, so there may be some places increasing supply makes sense, but I think focusing on demand is going to be the key way to solve the gas price problem in the long run.

One final note. Chuck Norris fact, Chuck Norris can eat a free lunch.