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Hello from Switzerland 🇨🇭
Over the past few days, I’ve led a study abroad trip in Switzerland for our department. The trip was originally planned for March 2020, but then the pandemic got out of hand. The university canceled the trip just days before we were set to depart. Last year the trip wasn’t planned at all. In the summer of 2021, we decided to plan for a trip during March 2022. I have been a bit anxious over the past few months because I thought it would be canceled again, but we finally made it! Here’s us on the bus in Switzerland:
If you’d like to follow along, the students will be posting multiple times each day on our class Instagram page. They have been excitedly sharing their experiences and have found our tours interesting so far. During our first two days, we visited the Swiss transportation museum, toured a cheese factory in Gruyère, and visited the Maison Cailler to learn about chocolate production.
Today included visits in a regional office Credit Suisse and Ernst & Young. The rest of the trip includes visits to Brauerei Thun, Rugenbräu Brewery and Distillery, a walking tour of Bern, Château de Chillon, International Labor Organization, and a guided tour of Geneva. The highlight of our trip will be to Jungfraujoch, which is affectionately known as the “Top of Europe”.
Since we’ve been so busy leading up to this trip, I figured I’d give you a small sampling of the ways I reference Switzerland in my other courses.
Big Mac Index & Purchasing Power
I teach a microeconomics principles course, but I love to talk about the Big Mac Index. I cover it in my price discrimination section when I introduce the law of one price. Theoretically, commodities should be priced the same in a region. Small differences may be reflective of differences in transportation costs or taxes, but generally, identical products should sell for the same price.
A neat exception to that rule in McDonald’s Big Mac. Except for India, the Big Mac is generally the same product around the world with the same production process. The burger is not priced the same around the country, even after adjusting the local price to US dollars. The Economist uses this data to discuss whether a particular currency is over/undervalued based on purchasing power parity. I introduce it in my principles course to discuss why a company may charge different prices for the same product in different regions. Switzerland routinely ranks as one the most expensive Big Macs after converting the Swiss franc to the US dollar.
The Swiss Cheese Cartel
The textbook example of collusion among oligopolistic firms is the impact of OPEC on the oil markets. There are relatively few producers of oil in the world, and many of these oil-rich countries have nationalized their oil industries. These countries then work together to restrict supply to the global market in order to raise prices (and thus profits).
A similar (and tastier) example occurred in Switzerland shortly after World War I. The Swiss were major exporters of cheese, but the war dried up international demand for cheese as borders started closing. The Swiss responded by setting up a cheese cartel, which initially set milk prices and eventually cheese prices. The Swiss cheese union also limited the number of cheese varieties that could be produced and started a branding campaign to get foreigners to eat more cheese when they visited. Say hello to fondue.
Place of Origin Branding
Lastly, a fun topic to discuss in my monopolistic competition is the power of branding. It starts to introduce behavioral economics a little bit, but it also lets me show how economics can be important to public relations and marketing majors. I’m a firm believer that if economic educators tell their students that “economics is everywhere” then they need to be proactive in showing how economics applies to other disciplines.
An interesting application of this is country of origin branding. For example, if you want to sell champagne, the grapes must come from the Champagne region of France. The purpose is to ensure that the quality associated with that region is diminished by competitors producing inferior products. It helps the regional produce retain the value they earned from their regional comparative advantage. Recently, a group of cheese producers from Gruyère, Switzerland lost a US lawsuit that was aimed at protecting their ability to produce Gruyère cheese. You may not think it’s a big deal, but Swiss Gruyère cheese just won the world cheese championship again. Being able to block cheese-producing competitors from other countries ensures that the dairy farmers of Gruyère retain their monopoly power on a popular product.
There are a lot of little ways that I infuse cultural aspects into my principles course, even if they don’t seem all that cultural. Something like the Big Mac Index is relatable to many students, but even just hearing that India’s Big Mac is different from the US sparks their curiosity. It’s a small example, but it’s enough to get students to want to learn more. I feel the same impact can be had when it comes to thinking about other “foreign” concepts like Swiss cheese or Champagne.
Switzerland has approximately 8.7 million residents as of 2020, approximately the same as Virginia [Swiss Federal Statistical Office]
The financial sector, directly and indirectly, accounts for about 8.2% of all jobs in Switzerland [BAK Economics AG]
A Big Mac costs around $5.81 in the United States, but $6.98 in Switzerland after converting the Swiss price into dollars [The Economist]
In 2019, Switzerland produced around 195,000 tons of cheese [Swiss Federal Department of Foreign Affairs]
At the end of 2020, the municipality of Gruyères had a registered population of 2,198 inhabitants [Municipality of Gruyères]