Archive for July 17th, 2012

How productivity creates jobs … and how gov’t stifles productivity.

July 17, 2012

Nice piece in today’s WSJ … here are snippets:

Punch line: Productivity — the ultimate engine of growth and better living standards — always  swims upstream against those that fight it. Unions, regulations and a bizarre tax code  lock in the status quo.

But, doesn’t productivity — getting more output with less inputs — destroy jobs?

Sure, but it creates way more than it destroys by creating technological avenues and lowering the cost of business

So how does productivity result in more employment?

Some new technology comes along that allows something never before possible. Cash from an ATM, stock trading from an airplane’s aisle seat, ads next to Google search results.

Cheaper technology becomes a platform for others to create or expand businesses that never before made economic sense. Think, eBay and Amazon.

Productivity  attracts capital to satisfy new consumer demands. In a competitive economy, productivity—doing more with less—always lowers the cost of products or services:

And, private investment does a better job of allocating capital than any elite economist or politician picking pork-barrel projects and relabeling them as “investments.”

Entire WSJ article is worth reading

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Posted in Employment - Jobs, Productivity, Technology | Leave a Comment »

Quick, pick one: a 33% discount or 33% more for free …

July 17, 2012

According to a study at the University of Minnesota’s Carlson School of Management, report in The Economist …

When offered two deals on loose coffee beans: 33% extra free or 33% off the price, most shoppers considered them equivalent though he discount is by far the better proposition … it would take a 50% increase in quantity to be equivalent.

More generally, the researchers found, that shoppers prefer getting something extra for free to getting something cheaper.

For example, the researchers sold 73% more hand lotion when it was offered in a bonus pack than when it carried an equivalent discount (even after all other effects, such as a desire to stockpile, were controlled for).

The main reason is  “consumer innumeracy” … e.g. people can’t do fractions or simple math in their head.

* * * * *
How can retailers compensate for (or exploit) consumers’ math blind spots?

One way is to befuddle them with double discounting.

People are more likely to think that a product that has been reduced by 20%, and then by an additional 25%, is a better deal than one which has been subject to an equivalent, one-off, 40% reduction.

Similarly, when evaluating a car’s fuel efficiency, consumers understand the number of extra miles per gallon it gets, more so than the equivalent percentage fall in fuel consumption.

We’re not talking calculus, we’re talking fractions … ouch.

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Posted in Math & arithmetic, Mktg - Consumer Behavior, Mktg - Pricing | 3 Comments »