Saturday, May 20, 2006

Why are shopping carts bigger?

The greeter at Wal-Mart pushed a huge shopping cart my way as I entered the store. The cart was the Hummer of shopping carts. I was glad I lift weights so I could push it around. I checked the tire pressure and wheel alignment and started shopping. I always grab a cart whether I’m at the grocery store or department store because I like to keep my hands free. A cart avoids the awkward juggling at the checkout counter while waiting in line. I pride myself on reading Cosmo, Good Housekeeping, and People magazines in the five minutes I wait to check out. So I grab a cart even if I only have one item.
While reading the Armchair Economist, by Steven Landsburg, the author posed the question, why are shopping carts bigger now and challenged his readers to use economic tools to answer the question. Mr. Landsburg offers the following answers, which I find impoverished. 1) people are busier now. A bigger shopping cart is needed so there’s fewer trips to the store. 2) stores now offer a full array of shopping under one roof. Now when people shop it’s one stop so the cart needs to be bigger to accommodate the stereo, the carton of milk, and the dress bought for graduation. 3.) A bigger shopping cart is a psychological trick to make you feel inadequate. If Smith is checking out with a gallon of milk and Jones is checking out with a cart overflowing with products, Smith might feel like he’s not keeping up. A bigger cart allows Smith and Jones to race through conspicuous consumption.
Sometimes when faced with a complex question, I think like a beginner. This is one of those cases. I think the Armchair Economist has confused a change in demand with a change in quantity demanded.
Technology and globalization have put downward pressure on prices, especially in electronics and food. So prices have decreased. The law of demand states that as the price of good decreases, consumers buy more. So the supply of food and electronics have increased lowering the price. People buy more and need a bigger cart.

Sunday, May 14, 2006

Flossing, Crime, and Discounting the Future

I think the word "dentist" is funny. This was the point I was trying to make to Ann, my dental hygienist. "Don’t you think the word, ‘dentist’ is funny?" Ann was wrapping dental floss around her fingers. The way Ann skillfully stretched the dental floss and wrapped it around her fingers reminded me of a hired assassin preparing to strangle a Mafia don.
"Don’t you think the word, ‘dentist’ is funny," I said. Ann wasn’t smiling.
"Okay. A man walks into a dentist’s office and says, ‘I think I’m a moth.’" The dentist says, "You’re nuts. You need a psychiatrist. I’m a dentist. Why did you come into a dentist office?" The man replies, "Because I saw the light on."
Ann began to work on my teeth with the piano wire. She sawed it back and forth especially on the lower part of my jaw. "Do you ever floss?" she asked. The tone in her suggested that Ann thought I had committed a crime.
Gary Becker, University of Chicago and 1992 Nobel Laureate suggests that people will commit a crime when they discount the future heavily and the future costs are uncertain. In other words, people commit a crime when the present is more important and they might get away or go unpunished. In the case of flossing, I choose not to floss because I’m in a hurry and by the time plaque and tarter catch up to me, someone might have invented something to cure me. I like to say the costs and benefits of flossing arrive at different times so I compare the present benefits with future costs. Since the future costs are uncertain, I brush my teeth and bounce off to work. Consumers make the same decisions when using their credit cards, criminals make the same decision making process when committing a crime.
According to Steven Levitt, author of Freakonomics, if the chance of getting convicted for a crime is low, crime with increase. In this best selling book, Levitt points to the dramatic increase in crime during the 1960’s a time when the likelihood of convicting someone for a violent crime fell. I conclude that when the benefits of crime arrive today and the costs arrive with uncertainty some time in the future, people will engage in risky criminal behavior because the benefits outweigh the costs.
Ann picked up some dental tools and began to scrape at my teeth. My negligence in flossing was making her job harder. In her view, I was receiving all of the benefits of not flossing, but incurring none of the costs. My behavior was a negative externality. I tried to lighten her up. "Ann, don’t you think the word ‘dentist’ is funny?"
Ann glared. I remembered another dentist joke from Playboy.
"A man meets a woman at a bar and they decide to go back to his place. The man makes a drink then washes his hands. The woman says, "You must be a dentist." Surprised, the man says, "Yes!" They go to the bedroom and later the woman says, "You must be a good dentist." Surprised, the man says, "Yes! How did you know?" "Because I didn’t feel a thing."
Ann, I was sure, thought I was trivializing her profession and went back to scrapping microscopic particles of plague from my teeth. She was particularly fond on working on a tooth near the back.
Tim Harford, author of The Undercover Economist, has computed the costs of flossing. According to an article in Slate Magazine, there’s a slim chance that I’ll lose five of my teeth by the time I 75 years of age due to not flossing. Since that’s 26 years away, I’ll take that chance. Dentists and dental hygienists believe that in the case of flossing, an ounce of prevention is worth a pound of cure. I am not sure that economically, that’s rational. But like I said, the word dentist is funny.

Saturday, May 06, 2006

The Economics of a Buttonhole

While shopping at Wal-Mart last night, I bumped into a parent. I had their daughter in class 10 years ago. The mother wanted to fill me in on every movement her daughter made since graduating from high school. She started with her daughter’s graduation party and began a chronological biographical sketch that included every college class, the kind of car her daughter drove, and every detail she thought was relevant. She talked while my ice cream melted, and I checked my hamburger for salmonella. I nodded and smiled like a fool at all of the appropriate times. At one point, I thought the manager would include us in his inventory. I moved while shoppers frequently said, "Excuse me" and moved around us. In the idiom of my colleague, Dan Rohde, I was buttonholed. It was as if she had her finger in my top buttonhole and I was her captive. In the language of my discipline, the marginal cost of the parent was lower. Let’s say that I value my time at $8 per minute. Then I would like to spend about 2.5 minutes talking. If the parent values her time at $2 per minute, then she would like to spend about 9 minutes talking. The parent values her time differently than me so she wants to talk longer. As the great motivational speaker, Zig Ziglar said, "Why is it that people with nothing to do want to do it with you?" If I want to escape from this loving parent, I either have to lower my cost by having a beautiful fiancĂ© shop for me so I can talk or increase the cost for the parent. I can tell her that her ice cream is melting, point out the rude looks people are giving her, or charge her for my time. Let’s hope I never think I am really that valuable.