Monday, September 15, 2008

Who Pays? An Economics Lesson at Home

This past weekend saw the first installment of what may prove to be an interesting and valuable resource for teachers of personal economics, as well as more traditional economics classes. The column, titled "Yoder and Son", was in the Sunday edition of The Wall Street Journal. Some of you may not have known there was a "Sunday edition." It's actually something that local newspapers can subscribe to and place in their Sunday Business sections. I find mine in the Richmond Times-Dispatch.

The article is co-authored by a Journal editor and his teenage son. And this approach provides a good platform for a balanced discussion. This first installment dealt with an interesting and, for some of us, familiar issue, "Who pays for things our teenagers need?" The specific situation was who would pay for a new set of guitar strings.

Both authors provided their arguments, and neither one of them really dealt with economics. But they offered the opportunity to infuse some economics. Suffice it to say, I sided with the dad, but not for the reasons he listed. My response was formed within about 10 seconds. But my reasoning took a bit longer.

When we talk about costs in economics and personal finance, we may begin to discuss fixed costs and those that are marginal. In this case, I saw dad's responsibility as covering the fixed costs - lessons, purchase of the original equipment, etc. The costs that were marginal, arising from the use of the good, I saw as his son's responsibility. My analogous example is a car. It's larger to be sure, but similar in my view. The parents may (students should notice here, I didn't say SHOULD)purchase a car for their students. They may even CHOOSE to cover insurance. These may be viewed as fixed costs related to owning the item. But I don't see it as out of line for students to be expected to cover gas, oil, and even routine maintenance. And if student action causes insurance costs to rise, I see that as a logical extension. These are marginal costs arising from the student's use. (Indeed, you may even convince me that any insurance is a marginal cost.) The guitar strings are similar. They are marginal costs arising from use, and unless dad's been sneaking the axe and doing "Stairway to Heaven," I don't see where it's his responsibility to keep the music flowing. The argument about restringing the piano is faulty if, indeed, it is a family instrument. I get the impression the guitar is strictly the son's instrument.

What are your thoughts?

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