Staying at the Sheraton Boston, the hotel room has an option: “Reward yourself with a $5 voucher at participating food … outlets for each night you decline housekeeping services.” My consumer surplus actually exceeds the $5: I would pay a little bit extra not to have the cleaning people in my room, since I wouldn’t have to worry about packing things up to hide them, nor about the cleaning people mistakenly throwing something away. So I take the deal. One friend here says this isn’t worth it to him—he likes having his room cleaned up each morning. This illustrates how crucial individual tastes are to determining the surplus we gain from transactions—and the choices we make, or don’t.
The Chronicle of Higher Education just published its survey of public university presidents’ compensation, which rose 4.7 percent, with four presidents receiving more than $1 million. During that year, public university faculty salaries rose less than 2 percent, a discrepancy that replicated the previous four years. Why the difference?
Market explanations would be that these wages reflect jobs increasingly well done relative to faculty performance (increasing relative productivity) and/or increasing difficulty in attracting talent. The first explanation is not credible: having taught at public universities for 40 years, I’ve seen the quality of public universities decline compared to private universities. (In 1969, one could argue that 3 of the top 10 economics departments were at public universities. Today, only 1 is.) Nor is there a dearth of high-quality potential university presidents.Read More »
Our local movie house in suburban London charges £11.90 for a regular ticket, and even seniors pay £8.90 (over $13). But there is a special for seniors (ages 60+): Every Tuesday they show a recent movie (e.g., Lincoln is showing on May 21) and charge only £3 ($4.60). Moreover, you get “free tea, coffee and biscuits!” Such a deal—so how can they make money off this, or is it just altruism by the theater owners toward us old folks?
The movie costs no extra rental, and the only variable costs are the wages of the one or two workers who sell the tickets and make the eats. The fixed costs—of the movie rental, the theater and heating/electricity, are irrelevant for the owner’s decision. I should think that, if they can sell even 20 tickets, they will increase their profits.
I write all my papers, letters, and exams using the typeface Times New Roman. As a lunch-table discussion here in England revealed, the University insists on certain typefaces that are dyslexia-friendly, particularly Arial, Trebuchet, and Verdana. It costs me or any other faculty member nothing to use one of these on exams; non-dyslexic students are not harmed by them, and dyslexic students are better off. Henceforth, no more Times New Roman on tests — mine will all be in Arial. A clear Pareto improvement. (HT: MS)
Benjamin Franklin apparently understood the notion that input prices affect product prices, which is a problem because product demand curves are not completely inelastic. Discussing a minimum wage, he noted, “A law might be made to raise their [workers’] wages; but if our manufactures are too dear, they might not vend abroad.” This is one of the best arguments against a minimum wage: in an open economy, which the U.S. increasingly will be at least partly passed on in the form of higher product prices, which will in turn reduce product demand—and eventually employment. (“On the Labouring Poor,” The Gentleman’s Magazine, April 1768.)
At the opera last night we pre-ordered a glass of wine for the first intermission. We paid before the opera and the glass was at the prearranged place after Act 1. We’ve done this many times in Germany and increasingly in the U.S. Why do the opera houses do this?
Competitive pressure is absent—they have a monopoly on drink/food at intermission. Despite this absence, providing this opportunity raises the house’s profits. Without the usual long wait at intermission, more customers will buy food/drink—so revenue increases. This policy puts less pressure on workers—they don’t have to rush during intermission to serve people; in the long run this reduces the wage the opera house has to pay for equal-skilled labor—costs are reduced. Everybody wins—and I’m surprised this policy isn’t more widespread.
A Chinese fortune cookie typically offers homely advice or bland predictions with your dessert. But a recent one offered a good economics lesson: “The cost of something is what you give up to get it.” Nice to see the idea of opportunity cost enshrined between baked bits of dough. I wonder, though, what one does give up at a Chinese restaurant? (HT to TW)