Economics and Pop Culture: The Music Man, #5

Today's entry focuses on one of the lesser known songs in the play: The Wells Fargo Wagon. This song addresses how companies add value to a good or service, thereby creating utility. It also addresses the idea of consumer surplus.

Wells Fargo was, as I'm sure many of you know and others can ascertain, a transportation company. In many parts of the West, Wells Fargo represented the main transportation link between small towns and railroad stations in larger towns. If you purchased something from a catalog, or if someone in another town sent you something, Wells Fargo often represented the last segment in transit from giver or seller. In addition to freight, Wells Fargo also shipped people, at least originally. Just think of the overland stagecoaches that play a prominent role in most Western movies and vintage television shows.

Now here's the economics lesson. Producers of goods and services (and Wells Fargo produced a service in this case,) have to add value to the product in order to justify charging a fee. If the value does not equal what the consumer is willing to pay, the consumer won't purchase. And when we speak of value, we go back to the concept of utility and its three types: form, place, and time. A firm like Wells Fargo, by delivering the products to the small towns, added place utility. That means it made a good available in a place that it was of value to the consumer.

Now, anything in a catalog really was of no use if it first couldn't be delivered to the customer. The item had its own utility or value. Maybe it was of a style that appealed to the customer (form utility), maybe it was a labor-saving tool that would make a job easier, safer, or quicker (form and time utility). Regardless, it had to be present to have place utility.

One could hitch up a wagon and go and pick the product up, but that meant using productive time of one's own. That was usually too high an opportunity cost to someone in a small town. If one could have the product delivered, it represented a value to the customer, a value they were willing to pay for. The fact that it had additional value, and that consumers still were willing to pay an additional fee to receive the product (essentially raising the price,) is a measure of the consumer's value or the idea of consumer surplus.

The fall play starts tomorrow. I'll probably be doing one more post. Please share your thoughts with me and the other readers of this blog.