Tag Archives: benefit

04.15.2012 | Standing In Line

Walking along 56th Street in NYC, maybe a half block before 5th Avenue, I always see people on line. (New Yorkers say on line. Almost everyone else says in line.) They are waiting to enter Abercrombie & Fitch.

Usually we associate an economic cost with a line. Time wasted. Irritation. Inadequate customer service. For Abercrombie, though, it might be a benefit.

Researchers from the University of Chicago Business School concluded that total queue length conveys the value of a product. The longer the line, the better it must be. In addition, they found that the number of people behind you is crucial. If we are ahead of many others, feeling a sense of accomplishment, we attribute more value to our goal. In one example, the researchers actually found that when there are many people behind us, we also tend to spend more.

Amazing. A long line snaking for blocks at an Apple store. And most of us think about the value of the product rather than the long wait.

Our Bottom Line: Queues are all about cost and benefit. If the vendor enables us to perceive a benefit, then a line like the one at Abercrombie can become a competitive strategy.

If you just want to enjoy hearing about lines, this 99% invisible podcast is a pleasure. For a more serious read, here is the U. of Chicago paper.

And a final thought… wasn’t it the lines that brought down communism? But that is a different story.

Posted by: adminEcon
Tags: apple, benefit, cost, iPad, lines, queues, Richard Larson
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01.30.2012 | Everest Economics

Having no inclination to climb Mount Everest, I have always been fascinated by its economic connection. Now, hearing that Prince Harry was considering the ascent as a part of his “Walking for the Wounded,” it reminded me that Everest is all about cost, benefit and decisions at the margin.

The money: Sherpas are your biggest expense. Costing as much as $100,000, they guide, carry and cook. With $500 a typical tip, one Time journalist added 2 yaks. In addition, gear could run close to $10,000 ($1,000 for a down suit and $300 for gloves are just the beginning). Add the permits ($10,000 minimum and more, depending on how many people), cell phone expense, airfare to Nepal ($1500 coach).

The Time: A daily workout regime is long and demanding. From squats to stairs to extreme procedures, getting in shape for Everest will cost many hours. For the climb itself, the acclimation process is gradual. Instead of a steady upward trek to the peak at 29,029 feet, climbers go up and down and up through a series of base camps that gradually accustom their lungs to the sparser air. I have read that it takes 6 weeks for the acclimation process and then 5 days to the summit.

Our bottom line? Defined as sacrifice, cost refers to more than money.

Into Thin Air by Jon Krakauer is a fascinating account of a disastrous expedition.

The Economic Lesson

Whenever climbers make health and weather decisions, they are weighing cost and benefit at the margin. Beset by lightheadedness, raging headaches, nausea, frostbite, and other maladies, they have to decide whether to proceed with the next stage. With questionable weather, to abort or not becomes the key issue.

Each decision either expands or contracts climbers’ margin of safety. Too large a margin and they don’t reach the peak. Too small and the danger is life-threatening.

An Economic Question: Defining cost as sacrifice, describe the “expense” of a recent decision.

Posted by: adminEcon
Tags: benefit, cost, margin, Mount Everest
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07.10.2011 | Calorie Matters

Learning that a Big Mac has 540 calories and a large fries, 500, will people select a salad? According to the Washington Post, “No.” We do not have the will power to avoid long term cost when faced with short term benefit.

This takes us to the calorie-labeling mandate for national food chains in new health care legislation. One Carnegie Mellon study suggests people make healthier decisions when they are more convenient. During their study, they just changed the position of healthy food on a Subway menu and people actually selected it more frequently. By contrast, when they labeled calories, there was no impact.

The Economic Lesson

Behavioral economists believe that cost, defined as sacrifice, shapes our behavior. With calorie labeling, we are comparing short term benefit (the pleasure of a Big Mac) to long term cost (obesity and heart disease). When cost changes–even through convenience–we behave differently.

An Economic Question: As a Congressional advisor who knew about academic research on calorie labeling and the impact of cost, how would you revise the FDA mandate?

Posted by: adminEcon
Tags: Affordable Health Care Act, benefit, calorie labeling, cost, obesity
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06.19.2011 | Preschool Education Matters

Did you have to care for a hamster in your preschool class? Line-up? Clean up? Share?

According to this NPR Planet Money podcast preschool probably provides irreplaceable job training. Taking place during a developmental window that does not reappear, the “soft learning” we get as 3 and 4-year olds shapes our success as adults. This academic study provides the specifics.

And yet, here and here, you can see the budget cuts for government funded pre-school programs.

The Economic Lesson

It is all about cost. The cost of any decision is the alternative you rejected. Choosing is refusing.

An Economic Question: Why might cutting a preschool program have a lower cost for a politician than for society?

Posted by: adminEcon
Tags: benefit, cost, Head Start, job training, opportunity cost, pre-school education
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02.03.2011 | Getting the Most From Our Money

In 2020, according to the World Health Organization, traffic fatalities will be the second leading cause of deaths in the world. Moreover, in the U.S. alone, approximately 57 million birds are killed by cars annually. (from Cool It, p. 154)

So, asks Bjorn Lomborg, would you be willing to use existing technology to solve the problem? Probably not since the solution is a 5 MPH speed limit.

Lomborg’s example relates to his support of a micronutrient program for the developing world. Saying that all too often, getting swept up by emotions, we tend to ignore the cost of a solution. As a result, we “feel good” rather than “doing good.” Here, he tells us that adding crucial nutrients, Vitamin A and zinc, to a child’s diet in Kolkata, India would cost $2.20 a year. He estimates that $10 spent on Vitamin A would reap a $170 benefit in “health and long-term prosperity.” By contrast, he believes that $10 spent on carbon offsets would result in a $3.00 benefit.

The Economic Lesson

We might not agree with Dr. Lomborg’s numbers. But, as economists, we should agree with his approach. Thinking at the margin, he compares the extra benefit ($170) to the extra cost ($10.00) in order to make a decision.

His approach also reminds us of scarcity. Because resources are limited, we have to make choices. Doing more of one thing means less of something else.

Correction: More recent WHO data indicates that by 2030, traffic fatalities will rank five among the causes of death in the world.

Posted by: adminEcon
Tags: benefit, cost, micronutrients, opportunity cost, scarcity
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