General equilibrium ain’t just peanuts. With the tremendous shortfall in the peanut harvest (a decline of 17%) due to the unusually dry weather in peanut-growing states, people are expecting a rise in the price of this main input of peanut butter to cause supply to shift leftward. Jif peanut butter expects to raise its price by 30% starting in November.
I doubt that its sales will go down much—I think the demand for peanut butter is fairly inelastic. But what about related markets? If everyone likes peanut butter and mayonnaise sandwiches as much as I do—if peanut butter and mayonnaise are complements—then we’ll see a leftward shift in demand for mayonnaise, and its price will decline. Have I held too much of the ceteris paribus, or not enough? Where should one stop?
Last week, I was out in Chicago for a couple of days working with Levitt. We had lunch at the Booth School cafeteria (with its great soda design) — or at least we tried to have lunch. There was a nice-looking case of sandwiches, and I asked the guy behind the counter for one of the turkey-cranberry sandwiches.
“No,” he said. “I can’t sell it to you.”
“Why not?” I asked.
“We’re closing. I can’t sell it to you.”
It was about 2:32 p.m. on a weekday afternoon. The sandwich I was eyeing was one of maybe 15 or 20 in the case. And then the guy behind the counter drags over a big trash can and throws my sandwich into it, and then all the other sandwiches too. It might have been my imagination — or maybe just hunger — but he seemed to take delight in throwing away the food for which I was ready to pay full price. Read More »