Neida makes and sells diamond earrings.  Cost and market price largely determined by the price of diamonds.   Artificial diamonds have really improved especially in China.  Sometimes, detection can be challenging.

Neida is concerned that these earrings will undercut her sales.   But then she says "As long as I don't sell any of the diamonds that I purchased at the old, higher price, I won't make a loss."





In this figure, Neida's old diamonds are part of the beginning inventory.  So, she already took a loss on the diamonds.  


Is this statement true?


Answer:  No, Neida incurred a loss on the diamonds in the inventory when the market price for diamonds dropped.  The current value of old and new diamonds is same and it does not matter which one she sells.

So last night, my date introduced me to the wonderful world of cupcakes.  Red Velvet cupcakes to be exact (Penn Quarter near Chinatown).  And before last night, I was not a believer.

So what is behind the rise in the popularity behind the elusive world of cupcakes?  Though my Red Velvet was super sweet and delightfully delicious, it wasn't something to write home about or nutritious enough to substitute for lunch or dinner.

So clearly, the cupcakes are considered a luxury item.  And with prices that surpass $3 per cake, sampling a few can easily set you back $15-20.  (For this price, I could buy a burrito and a six pack of domestics)

The production of cupcakes is relatively inexpensive.  There are only a few flavors, the raw material is cheap and so is the labor to produce and sell. In addition, product inventory is low and since all their stores are tiny matchboxes, with lines that stretch outside a block long, the amount of rent they pay is minimized (they should pay the city for renting out the sidewalk).

Since there were only a handful of favors (Red Velvet and Chocolate), Process Costing  (used in companies that make many units of similar products) equals Total Manufacturing cost/Total Unit Produced.

Cupcakes seem to sell well without much marketing. All you need to do is head for the long lines.  Thus, they are able to bring in a lot of customers without having to spend much on overhead (marketing).  The women are crazy over it, and the men are lining up because their girlfriends asked them to do it.

With a low manufacturing overhead cost, their Predetermined Overhead Rate is also relatively low.

So with high revenues, do things look all rosy for the cupcake industry?  For the time being, yes, but in the long run -- a different picture.

First, I'm willing to stick my neck out and say that the cupcake industry is benefitting from its recent wave of popularity (Thanks to Sex in the City) as well as the downturn in the economy (Most people consider cupcakes as an affordable luxury -- a way to feel good about rewarding yourself with a trendy cupcake without breaking the bank).

Since it's relatively easy to make cupcakes (I'm sure even I could learn how to if I had the patience), and the start-up investment costs is much smaller than opening a cafe or restaurant, there currently is new competition sprouting up all over town.  I bet it won't be long before they open up cupcake kiosks in Giant and Safeway.

Huge returns naturally attracts competition.  Extra competition attracts capacity.  Now with more supply, the cupcake stores' incentive is to lower prices so that they can retain some of that business. 

Meanwhile demand remains constant and may decline over time, as people lose their adoration for them and the men get tired of waiting those long lines or realize this is wrecking havoc on their diets.

So, despite my great experience with Red Velvet (thanks to my friend), I'm not yet hooked (like I am for stand-up paddling) and fortunately for us, with new competition and lower prices, things don't look all rosy for the cupcake industry.

Yes, my friend, there will be a $1 cupcake in the not too distant future.

Last week, Chairman Gray soundly beat incumbent DC Mayor, Adrian Fenty.

Gray won mostly from votes in the predominantly African American neighborhoods east of the Anacostia River (83% in Ward 8)

One of Gray's top campaign promises is to bring jobs and economic development to the high unemployment communities (Unemployment tops 28%)

It's foreseeable that Gray can get this done.  He has lived in this community for many years and major developments are already happening today.

The Department of Homeland Security is currently building their headquartes in St Elizabeths (billed as the largest construction project in the history of the U.S. General Services Administration)
This project is expected to bring more than 30,000 jobs (both direct and indirect employment) during its duration with a payroll earnings of approximately $1.2 billion.

Gray will ensure that these projects hire local Washingtonians first and that Ward 8 will be the first to benefit.  More local jobs mean more social services and less drugs.  Everyone knows that illicit drugs is a major source of crime (both violent and petty).

So, provided that the economy in Ward 8 improves drastically over the next four years, meaning more jobs for the residents and higher Gross Domestic Product, the crime rate will surely decrease.

Here is a Supply and Demand model where the X-axis is GDP and the Y-axis is money.

Over time, as the economy improves and so does the GDP, the amount of wealth within the community increases.

With more jobs, greater wealth, the rate of crime (drug related, robbery, assault, rape) will also decrease.

So things are no longer looking Gray for Southeast.

So you want to buy a car?  New or used?  It does make a difference, and the Cash for Clunkers program that seemed like a great idea at first may not be so hot after all.


Well, for starters, Cash for Clunkers seemed like a great idea at first.  But it has to do with supply and demand. 


A lot of people, 700,000 really, traded in their old cars for a nice government rebate.   So a lot of cars were being sold and inventories came down, bringing up prices.




But that was the last time auto dealers had a boon in sales.  People were just buying their vehicles earlier, moving up their purchases from the fall and even spring and summer of 2010. 

The government’s “cash for clunkers” program boosted auto sales by 360,000 during the two months it was in place, according to a new study. But in the seven months that followed, sales were down by 360,000 compared to what they would have been without the program, the study found.

The one good thing this program did was that it saved thousands of dealerships unprepared for the economic downtown from going under.  They were able to clear their huge backlog of cars sitting on their lots.


A year later, the price of used cars have gone up about 10% because now the inventory of used cars have gone down.  The government destroyed the clunkers, many of them (680,000) could have been recycled as used cars.


Also, with consumer confidence low, Americans are forgoing buying new cars, so the demand for used cars have gone up.

"Greece brought us Sophocles and his tragedies.  Now another huge "modern" travesty is unfolding right in front of eyes."