Tuesday, September 06, 2011
Popcorn at the Movies
Say you go to the theater an want to buy popcorn. The price of the popcorn is $10 and you think the cost of making the good is only $1. You feel ripped off. You have to buy the popcorn at the theater and can't bring food in. The feeling you have about being ripped off is what I think is market inefficiency. In this case, productive resources are held in a monopolized market above their opportunity cost. Since the resources used in making popcorn have alternate uses, the higher price retains them into making popcorn. When resources are used in a manner were the price paid equals the cost, then economists call this situation resource allocative efficiency. When you say something like, "The price of popcorn should be $1" then you are making a normative statement. If you say the price of popcorn is $10, then you are making a positive economic statement.