6 Responses to “Why We Need Price Theorists”

1. 1 1 Roger Schlafly
   August 4, 2024 at 11:41 am

   I am wondering about the argument that buying a $1 apple requires $1 of resources, but buying a $1 pear from a monopolist only requires maybe $0.80 to produce the pear.

   Okay, that seems clear enough, but where does the other 20 cents go? The argument says that buying the pear conserves societal resources. By 20 cents, I guess. Why? That 20 cents probably gets wasted, or spent on luxury goods for the pear business owner, or invested in some other inefficient business that loses money, or maybe even donated to a political campaign with which I disagree. How is that conserving societal resources?

2. 2 2 Steve Landsburg
   August 4, 2024 at 6:34 pm

   Roger (#1): Here are multiple responses:

   1) Theory predicts, and a massive empirical literature confirms, that following a windfall, most people most of the time spend only a fraction of the windfall amount (probably somewhere between 25% and 40%). The remainder will get spent eventually, but in the meantime it counts as saving, which is another word for conserving resources.

   Of course you could argue that it will all get spent eventually, but that’s true of *all* saving, so if you want to adopt that way of thinking, then by definition no resources are ever conserved.

   2) This is not directly related to the question **as stated**, but is certainly relevant to the question **in spirit**: If the pear grower instantly spends the entire windfall, then it’s true that he consumes a dollar’s worth of resources (80 cents on growing the pear and 20 cents on partying), just as the apple grower would. But unlike the apple grower, he gets to have a party! So if the question had asked which fruit you should buy if you care about other people’s well-being, then you should certainly buy the pear, because the pear-grower will earn a profit which he can choose to split between saving and partying any way he likes, and that’s presumably a good thing.

3. 3 3 Jonathan Kariv
   August 6, 2024 at 11:23 am

   On the pear/apple question. I could be missing something obvious but to me it seems that the 80c of resources on the pear and $1 of resources on the apple have already been “used up” regardless of which one I buy. I read the question as asking about what happens to the future resources expenditure on pears and apples (which may be affected by my consumption today). Does that behave the same? Why?

4. 4 4 Frank
   August 8, 2024 at 5:29 pm

   There’s a lot of hubbub about this article on the WSJ site and on Tyler Cowen’s site.

   Most of the comments on both sites illustrate well my central conclusion after teaching economics for half a lifetime: It is not so much lack of understanding that prevents good answers being given to straightforward questions, but rather, active resistance to economic thinking. [For Ben Golub, it’s a rejection of partial equilibrium, and price theory. We can’t do anything without knowing everybody’s utility function and all production functions. But as some wit once said: All aggregation theorems are impossibility theorems.]

   This is totally rational. Economics is as much about constraints as about choice. And we don’t want constraints, for they constrain!

   This is a reason that macro is way more popular than micro in the popular press and in the popular mind: Macro seems to offer free lunches whereas micro says your belt constrains.

5. 5 5 Leo
   August 21, 2024 at 9:58 am

   I’m not sure I understand how the question has an answer with the information given, what if there’s a really strong apple pickers union but the market for people to pick pears is competitive?

6. 6 6 Steve Landsburg
   August 21, 2024 at 10:03 am

   Leo (#5): If you’d given that answer on an exam, you’d have gotten full credit and delighted me.

   There is never only one good answer, though there are often many bad ones.