Price increases - I feel loved....

[James Duffey]

Bruce - You wrote:

> Elecraft and other American companies have been taking a real hit  
> lately with the weak dollar. A lot of their business comes from  
> overseas, and they get less for their fine products when the dollar  
> drops vs other currencies.
We must have had different economics courses. As I understand it, the  
weaker dollar makes American goods more attractive to overseas buyers,  
not less attractive.  Elecraft and other companies that price their  
rigs in dollars receive the same income in dollars when they sell a  
rig overseas as when they sell it here. But as the rig is effectively  
cheaper overseas, they sell more and their income in dollars goes up.

Consider the following:

A G land ham wants to buy a K3. To do so, he must purchase dollars  
with pounds. For the sake of argument, say the K3 he wants to buy  
costs $2000. If the exchange rate is say $1.75 per pound, then he must  
use 1,143 pounds or so to purchase the $2000 he needs to buy the K3.  
If the exchange rate is a weaker $1.90 per pound, then he must use  
1,053 pounds to purchase the K3. The rig is clearly more attractive  
with the weaker exchange rate and it is likely that Elecraft will sell  
more rigs with the weaker dollar than they will with a stronger dollar.

Conversely, the foreign rigs, say the infamous Yaecomwood, will  
increase in price in dollars in this country as the dollar becomes  
weaker. In order to keep their income the same in Yen, they must  
increase the price in dollars. Again, Elecraft rigs become more  
attractive to American buyers in comparison to foreign rigs when the  
dollar is weaker. Again, Elecraft and other American companies benefit  
from this situation as their sales increase.

Now some of this is offset if components of the rig are purchased  
overseas, as are many electronic components in the Elecraft, but I  
suspect that a large portion of the rig's cost originates in this  
country; labor, sheet metal, and mechanical components immediately  
come to mind.

I suspect that the success of the K3 among overseas buyers is due in  
some part to the weaker dollar. Elecraft benefits from this.

In some sense it is a self regulating system. A weaker dollar  
generates more overseas sales, which in turn generates a stronger  
trade balance, which in turn generates a stronger dollar. But make no  
mistake about it, as far as overseas sales go, American industries  
directly benefit from a weaker dollar.

At least that is the way I learned it from Dr. Glover at SDSU some 40  
years ago. Granted it was part of an ill fated experiment using TV to  
teach large basic classes and involved a 0730 class, but I did retain  
a bit. In that case, I learned much more from the book, Samuelson,  
than I did in class.

There are other perhaps more serious problems with a weak dollar, but  
they don't directly relate to Elecraft or this list. Dr. Megacycle  
KK6MC/5
--
KK6MC
James Duffey
Cedar Crest NM





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[Augie "Gus" Hansen]

> We must have had different economics courses. As I understand it, the
> weaker dollar makes American goods more attractive to overseas buyers,
> not less attractive.  Elecraft and other companies that price their
> rigs in dollars receive the same income in dollars when they sell a
> rig overseas as when they sell it here. But as the rig is effectively
> cheaper overseas, they sell more and their income in dollars goes up.

Your analysis of the consumption side of the story is on target, but the
whole economic picture involves a production side, too.

It is costing Elecraft more to buy parts, many of which come from
off-shore sources. And the cost of transportation is up as well. Those
cost escalations affect the margin adversely for a given price. To
obtain and maintain a reasonable profit, prices need to be raised.

Gus Hansen
KB0YH

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[w7aqk]

----- Original Message -----
From: "James Duffey" <[hidden email]>
To: <[hidden email]>
Cc: "James Duffey" <[hidden email]>;
<[hidden email]>
Sent: Thursday, March 06, 2008 8:36 AM
Subject: [Elecraft] Price increases - I feel loved....


> We must have had different economics courses. As I
> understand it, the  weaker dollar makes American goods
> more attractive to overseas buyers,  not less attractive.
> Elecraft and other companies that price their  rigs in
> dollars receive the same income in dollars when they sell
> a  rig overseas as when they sell it here. But as the rig
> is effectively  cheaper overseas, they sell more and their
> income in dollars goes up.


Hi All,

Duffey has it exactly right.  Elecraft isn't losing
anything, and the foreign buyers are gaining!  As one recent
post by one of our brit friends said, the K3 is a bargain at
current conversion rates.  Elecraft could be losing a bit if
much of their components were foreign made (meaning they
might have to keep paying more in dollars to keep up with
the conversion rate overseas), but I don't think that is the
case.  Hypothetically Elecraft is losing, but only because
they didn't set their price to foreign purchasers in foreign
currency.  If they had done that, they would be enjoying the
gain in conversion that has occurred.  They would be
enjoying the fruits of "arbitrage'".  But they didn't do
that.  So, the only thing they are really losing is buying
power with respect to anything they might do with their
money regarding overseas goods.  But we are all losing that
here.  It's becoming more and more expensive for Americans
to buy overseas products or travel overseas.  But we should
be enjoying benefits of our products becoming more
attractive to overseas buyers.  I'm confident that has had
some positive effect on Elecraft's sales.

By the way, I think just about every college in the U.S. was
using Paul Samuelson's text for economics--or at least it
sure seemed like it.  He was a professor at Indiana
University, I think, when I was in college.  And we used his
text too.  I wouldn't be surprised if it is still in use in
some form, but he's probably "SK" by now.  I just wish I'd
had him for my professor instead of that nerd who kept
staring at the ceiling every day for the whole hour while
spewing out all those economic principals!

Dave W7AQK





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