Via Felix Salmon: Why are the headlines screaming $100 oil? Because a single trader bought a single contract at that price, which was above the prevailing market price at the time. It cost him a $600 loss, but I wish I’d thought of it too. Brilliant.

The latest edition of the online journal Journal of Industrial Organization Education has an article about an Excel simulation of the effects of international trade and various trade policies on a domestic monopoly producer (just fill in your details on the site to get instant ‘guest’ access to the article). It’s quite a bit more complicated than my simple demand and supply example but it uses the same basic techniques. It should be a useful example to illustrate how a more complex economic model can be simulated numerically and presented graphically.

I notice that one of the authors of that article, John Gilbert (who also did his PhD at Auckland like me) has created some other interactive Excel models. One of them, “A trade war/simulation in Excel” looks quite sophisticated and simulates reaction functions in a game theoretic model.

Please send me any links to similar models that you find.

One of the questions that has come out of the recent product quality related scares and recalls in China is exactly how much people are willing to pay for quality. After all, there is a tradeoff between quality and price — higher quality is generally more expensive to produce. But how much quality are people willing to sacrifice for lower prices?

In Japan at least it seems that willingness to pay for quality of food is very high. This article describes how sales of imported matsutake mushrooms from China have fallen in Japan by more than 50 percent this year, despite no evidence that their quality is poor, and despite domestically grown mushrooms selling for five to ten times the price of imported ones. Incidents like this suggest that Chinese producers may have underestimated people’s desire for quality, particularly in rich countries. In the end, everything should work out more or less ok, as Chinese producers will rationally respond to the reduction in demand that they are now experiencing by increasing the quality of the goods that they produce.