Freeday 22 June 2001

Pic of the day: Laban Seigmenn, the elastic jelly figures from Norway. You can now also get them as female ... slightly different taste, and small humps on the chest. For more info on Laban Seigmenn, read background (external link).

Jelly price elasticity

It was before work, I had stopped by a low-price grocery store to buy some breakfast: Youghurt, a banana, a piece of pastry. As I lined up to pay for the goods, I was surrounded by chocolate, candy and sweets. These are traditionally placed where people must pass. I was about to grab a small bag of elastic jelly figures, when I came to think of price elasticity.

***

When I was young and studied trade and economy, I had only a theoretical understanding of price elasticity. My theoretical understanding was wrong. By no real fault of my own, I might add ... the books were wrong. Or rather, they were imperfect. According to the books, there are some goods that people will buy in the same quantity regardless of price, as long as they have money. Bread comes to mind. On the other extreme, there are convenience goods which sell more the cheaper they get. Consumer electronics are typical: As the price of TVs and PCs falls, family members buy one each, and replace them frequently.

What the books failed to mention was that people don't act quite rationally in all their trade. For instance, they may be very careful to shop where the milk and bread is cheapest. But then, on their way to the exit, they suddenly want a bag of jellies, and there you go. No thinking involved.

I think I first became aware of this a few years ago when I heard a radio program about carbonated soft drinks (some places called "soda", or even "cola"). The researcher explained that there were two distinct markets. Some people bought with them cola home. These bought several bottles of one and a half liter. (One liter is approximately one quart, or 1/4 gallon, according to my trusty GURPS handbook. Don't stay at home without it.) Anyway, the at-home cola drinkers showed little brand loyalty but high price consciousness. On the other hand, there were the "now" cola drinkers. They bought small bottles, half a liter or less, and cold. They wanted the particular brand that they had fallen in love with. And they did not ask about price. So the same shop could sell a 1.5 liter bottle for less than a 0.5 bottle, and no one would notice. The two did not have the same customers.

I remembered this, and I remembered that the handful of sugar jellies cost the same as my whole breakfast, if not more. And I stayed my hand, choosing instead to think it over.

***

Candy and fizzy drinks are not the only goods where the pleasure principle kicks in. I'll skip tobacco and other pleasure drugs for this time, as I don't think I need to elaborate on those. But for instance will young parents drive for half an hour to buy diapers at 10% off; but later in the evening, they will have a romantic dinner at a restaurant, and spend the fruits of hours and hours of hard work. And they will do so with little or no regret. Because there are times when money doesn't matter. Well, as long as you have it. As a friend used to say: $10 is a lot of money when you don't have them.

ERROR: HUMAN NOT LOGICAL. RETRY, IGNORE, PANIC?

I spent some of the day thinking about this whole thing. And I concluded that it does not really matter as long as we know what we do. Why should we deny ourselves that which brightens our life? But we must be aware of the cost. If I spend $2 on jellies each day, I'll not have $700 after a year. That's the price of a decent enough computer. If you smoke frequently for a few decades, you may have burned up the equivalent of a nice little home. In short, to feed your pleasures you have to cut somewhere else. Or work more, which means less time for yourself and your loved ones (if any).

Still, in my humble opinion, most alternatives beat saving up lots of money and then dying. Now that must suck royally, unless you really love your heirs. (In which case you would probably have given away the gold long ago.) Next time, I think I'll take the jellies. But at least I'll know that I do.