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When Are Potato Chips Good For Us?

Aug 26, 2011 • Businesses, Demand, Supply, and Markets, Households, Innovation, Labor, Macroeconomic Measurement, Thinking Economically • 163 Views    No Comments

Potato chip manufacture is a technological marvel.

During one year, in one typical factory, the chips in 80 million bags of Lay’s Potato Chips started as potatoes that were picked and plunked into railroad cars, funneled out for washing and processing at the factory, peeled, sliced, baked and sprinkled with salt as they moved at 15 to 65 mph along an assembly line. After the burnt and malformed chips were identified by a quality control camera and eliminated by a puff of air, the others were bagged, boxed and sent to us.

According to this wonderful Econtalk podcast, potato chip makers care very much about productivity. They innovate to expedite the assembly line, they trouble shoot for bottlenecks, they care about consistency and quality control. The results are a perfect example of huge economies of scale.

Lay’s potato chips are good for us because they are good for the GDP

Here, you can see some of the manufacturing process and here you can read about the division of labor.

Finally, here, in this very funny I Love Lucy video clip, you can see another kind of assembly line.

The Economic Lesson

The private rate of return–the net amount a business gets from an investment–tends to vary considerably and can ultimately be nonexistent because of competition. Moving beyond its origin, as the impact of the innovation ripples through society positively and negatively, it creates a social return. Both are tough to calculate. Edwin Mansfield, a University of Pennsylvania economist (1930-1967) who studied the impact of innovation concluded that smaller innovations such as new industrial thread had a much greater social rate of return than products and processes that sound more dramatic.

Potato chip technology might have more of an impact than we suspect.

An Economic Question: Made of potatoes, salt and oil, a potato chip has a supply chain that enables it to reach us at the supermarket. What might that supply chain include?

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