Economics for the holidays

22/12/2011 Comments Off on Economics for the holidays

As we head into the silly season, we can take comfort in the certainties that economics provides. We can cling to them in the coming onslaught and, when the storm is past, take our bearings from them once more.

These are the ideas that help me through. Perhaps you have your own?

  • Opportunity costs — A story on Facebook told of a waitress who won $40 on an instant lottery ticket. When asked how she would spend it, she said she would tuck herself into bed with margaritas for her two days off. That was her ideal Christmas. So remember, no matter where you are or what you are doing, you are forgoing another opportunity.
  • Prices transmit information — Let’s face it, the first thing we ask when we go to buy a present for someone is, ‘how much should I spend on them?’
  • Economies of scale — At a barbeque, the marginal cost of providing food for one more person is a decreasing function. Arrange for all the aunts and uncles and cousins to gather together and minimise the per-unit cost. Be careful to inform them, however, that heterogeneous technology means that your place exhibits constant returns to scale, and is therefore the least efficient location for said barbeque.
  • Learning by doing — It is important to stay away from the sink and the grill, or anything else used in household production. If the other members of your family learn that you have any skills, you will be doing that task from now on.
  • Supply = demand — Whatever supplies you think you need, double that and add 20%. Demand for your snacks and drinks will be stronger than forecast, and if supply is exhausted then consumers will switch to substitutes. Of course, also bear in mind that intentionally restricting supply produces economic rents for the supplier, even though consumers may exit the market prematurely.

Thus endeth the lesson. I hope it helps.

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