The Candemic Continues

There are a number of really small things that make me instantly happy, and I want to share one of those with you today! The principles courses at Penn State are designated as General Education courses for the university. Similar to principles courses at a lot of other universities, relatively few students go on to major in economics. In fact, only about 2% of students in the US earn a bachelor’s degree in economics.

In the Fall semesters, I teach a little over 1,000 students so that means only about 20 of them will likely go on to major in economics! For those students or the ones who may want to minor in economics, I want to prepare them for intermediate-level courses. At the same time, I have to realize that about 98% of my students will never see the material taught in upper-level courses. I need to be careful to think about what skills/concepts I want them to leave with.

I emphasize regularly that I want my students to “see” economics outside of our 150 minutes together each week. Sometimes that’s as simple as having them subscribe to the Morning Brew and talking about articles before/after class. Other times it involves “ruining” their favorite shows by pointing out the economics in particular scenes. Every year I have assigned Think Like a Freak for them to read throughout the semester. These additions to the course are part of my exams, so students take them seriously.

After all these years of teaching, I still get really excited when I see examples of economics outside of the classroom. The primary motivation for starting this newsletter was that I felt like I was seeing so many great examples, but I didn’t have my principles class to share it with. During spring semesters, I primarily teach upper-level classes for economics majors. I wanted to be able to share “economics in the wild” with a broader group of people, like this placard I found in Wegmans:

What felt so strange about the card was that it didn’t appear to be all that meaningful. Perhaps when things warm up around here the sparkling water will be flying off the shelves, but it didn’t seem like the grocery store was actually limited in their offerings. The shelves were mostly well stocked. The aluminum can shortage was one of the early supply chain concerns last summer, and it seems to still be an issue. Last year, beverage makers had to suddenly shift some production away from fountain soda and draft beer toward cans and bottles for home consumption. The issue facing beverage producers is not the actual aluminum ore, but the production facilities to create the can itself.

This situation is a great example of the application of substitutes in production. The production process is fairly similar for each of the different varieties that a beverage producer could make, but the increase in demand for canned beverages won’t be uniform. If consumers demand 10% more of each product offering, companies may need to stop the production of some products to ensure they have the resources (like aluminum cans) for their biggest product. Beverage companies have temporarily stopped producing their niche products (Cherry Coke Zero) to ensure there are enough aluminum cans for their main brand (Coca-Cola). In some cases, the demand shock was so big that companies have slowed down on producing all of their products. Here’s a tweet from Dr Pepper from last summer:

There are other factors impacting the canned beverage market besides the pandemic. Over the past few years, environmentally conscious consumers have moved away from plastic bottles toward aluminum cans. Both are pretty bad for the environment, but aluminum cans can at least be more easily recycled. A second factoring increasing demand for aluminum cans has been the growth of the craft beer industry, which has increased their use of cans for packaging. In 2012, cans made up only about 5% of craft beer packaging, but by 2016 that share peaked to almost 20% of all craft beer.

The main reason for the can shortage now though is coming from the supply chain shock caused by pandemic-induced lockdowns. Aluminum can producers were already adjusting for cultural shifts away from plastic bottles and the increased demand from new craft breweries. The sudden demand for cans, right before the summer no less, left producers scrambling to import cans from their overseas facilities. The world’s largest manufacturer (Ball Corp.) told investors last Fall that the US market alone was short 10 billion cans. They are in the process of building additional production lines, but that won’t be complete until the end of the year.

And that leaves me with a sentiment I often share with my students once we start getting to the end of the course. The way a lot of the models and theories of market systems are taught assumes things happen without delay. I don’t think we talk enough about frictions in actual markets. It’s relatively easy for beverage produces to change the product they put in cans, but it’s much harder (and more expensive) to switch from canning to bottling. On the input side, it takes time to add new production lines or to ship products from overseas. Those frictions are an important part of why we’re still seeing signs in grocery stores warning about a shortage almost a year after we first realized there may be an issue.

  • Since joining Penn State in 2014, I have taught 3,890 students in my principles of microeconomics course [Me]

  • In 2018, Americans recycled only about 50% of all beer and soft drink aluminum cans [Environmental Protection Agency]

  • US beer sales by volume decreased 2.9% from 2019 to 2020 [Brewers Association]

  • The three largest soda producers (PepsiCo Inc, Coca-Cola Co., and Keurig Dr Pepper) make up 55.1% of the US market [IBISWorld]

  • Sparkling water sales grew 12.9% in 2020 while bottled water grew only 3.6% during the same time period [Beverage Industry]

We have finished Week 18 of 2021 and I’ve checked in 25 books so far. One of the books I read was more of a pamphlet, but I was curious if it would make a good addition to my Labor Economics course. Alex Nowrasteh from Cato Institute created a short book on immigration, and you can read the PDF for free or buy the printed version for $5.

The second book I read was Nomadland because the film adaptation had won the Oscar for best picture along with a handful of other wins and nominations. I had written about the Academy Awards a couple of weeks ago but hadn’t really heard of any of them at the time. The book was incredibly captivating and well worth the read.

I want to thank you for taking the time to read today’s post. If you have any comments/feedback, please feel free to leave a comment below. If you are enjoying what you’ve read, please share Monday Morning Economist with others. —Jadrian

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