Julia is a regular commenter and lives in the shadow of the Golden Dome. She sent me a note about this op-ed piece in The New York Times by Dan Ariely, which she first caught thanks to Greg Mankiw.
Ariely wonders why get more agitated about rising gasoline prices as opposed to rising other prices. In the article he talks about the fact that the way we buy gasoline may have something to do with it. We stand there, watching the price dials spin faster and the volume spin more slowly (although the past week or so that trend is reversing, somewhat). This gives us time to reminisce about "the good old days." I try to wash the windows specifically in order to avoid that agitation.
Ariely also mentions that with food prices, we don't watch the prices spin up, and he also submits that we don't purchase multiple units. I suspect this is because of standardized packaging on most food goods. (Safely issues aside, imagine if you could only buy gasoline in 2.5 gallon containers - or whatever.)
Likewise, to borrow Ariely's examples, what if we bought bread by the slice or yogurt by the ounce in variable size packages, as we needed? Furthermore, I submit that many of us may purchase gasoline more frequently than we purchase groceries. And I'm willing to bet that the same definitely goes for the frequency of paying the electricity, natural gas, water or other bills.
If we confront price changes less frequently, and we pay for "single packaging", does the price mechanism become less effective? We can post the "per ounce" or "per unit" costs on the grocery store shelf or break out the cost on a utility bill, but it remains true that you confront the price less frequently and in different form. In turn, this may make it harder/easier to change behavior.
When confronted with an abnormally high electric bill we might call a family conference and encourage everyone try to cut back. The next month, if the previous entreaties have failed, we may institute family "fines" - that usually works until the bill payer gets caught.
Julie suggested that she would use the article in the coming school year to lead into the course and discuss opportunity cost. I think using this article for opportunity cost has some real possibilities. The feedback from the gas pump is immediate, and it's easy to visualize "what is my next best alternative."
I would suggest that this discussion of the price mechanism may also be used to explain aspects of price elasticity. One would think that the more frequently we confront prices; the easier it would be to change behavior, and change the elasticity of the good. But what is the reality? Is it easier or harder to cut back on certain groceries, utilities, entertainment or transportation? Why? Recent
data seems to indicate we're driving less; and that we're trading in some (not all) larger vehicles in favor of more fuel-efficient models. But how long did it take? Why wasn't it immediate?
This can also be related to how we consume - and how non-essentials are soon seen to be essential or even vital. And I think you'll find other interesting ways to use this article.
This will be my last post for a while. I'm taking a short break with the family before school reconvenes. I'll see you in ten days or so.