Subway’s five-dollar foot-long deal is no more. But when and why did this renowned campaign end? Simple economics can shed light into this decision: it was no longer profitable for Subway to continue to offer a sandwich for such a low price. In fact, in some locations it never was profitable, and many individual store owners have been contesting it since the beginning. Unlike many fast food chains in the United States, it is up to each Subway store owner to set the prices for their location that maximizes their individual profits. However, in 2004, Stuart Frankel had an idea Continue reading $5 Foot-gone
The United States, Canada, and Mexico finalized a new trade agreement on Sunday that could overhaul the North American Free Trade Agreement (NAFTA); but, let’s back up a little bit. In introductory economics, we learn that trade increases efficiency and thus benefits all parties involved. Different countries produce the goods for which they have the lowest opportunity cost; in other words, those countries have a comparative advantage. The maximum amount of stuff gets made and the economy is productive. This is a tight deductive argument that economists have broadly agreed on and taught since David Ricardo wrote about it in Continue reading The World vs. The Classroom: Does Trade Make Everyone Better Off?
People, especially economists, love incentives. Incentives motivate people to do things. Even when one may feel like they have no control over those around them, they can create incentives in hopes of changing others’ behaviors. The other day UPS incentivized seniors to attend the “Senior Class Gift Kickoff” by serving every attendee two beers and it worked. Not only did I see many classmates there but I even heard them say they would not have attended if they had not received free alcohol. Further, if you actually donate to the senior class gift you get a special pin to wear Continue reading The Cobra Effect Strikes Again