The Price of Everything Read Online Free
Author: Eduardo Porter
cross my path as I commute between home and work every day. There’s the Dunkin’ Donuts across the street from work, which offers a cappuccino for $3.02, and the Illy in-house café on the fourteenth floor, one floor above my office, which proffers cappuccinos for $3.50. The Dean & DeLuca store that opened in the lobby sells a slow yet rich cappuccino for $3.27.
Over the past couple of years I have gravitated somewhat randomly from coffee purveyor to coffee purveyor. While this may appear unremarkable, I find my fickle taste intriguing. My choice of coffee should be a function of the value I get for my money. But the equation is not obvious. Should I even notice the small price differences, trivial amounts when compared with my disposable income? What else, besides the quality of the brew, enters my calculation? My switch from Dunkin’ to Illy probably had less to do with price, or flavor, than with Illy’s sleek brushed steel, a definite step up from Dunkin Donuts’ orange-and-pink, saturated fat aesthetic. Illy also offered meaningful social interactions in the chance encounters with long-lost colleagues from other floors.
Most intriguing of all, there is an undeniable emotional angle to my preferences, which can trump on occasion every other consideration. The best coffee I’ve had in a long time comes from the tiny pie shop on the corner, half a block from my house. It used to sell a superb cappuccino for the unbelievable price of $2.75. I would stop by for a cup as often as I could. Then, a year or two ago, it abruptly raised the price to $3.50. This made me so furious I decided never to drink coffee there again.
I’m not sure what infuriated me so. The friendly barista offered explanations: they were switching to a premium coffee that cost a dollar an ounce; the new cups were bigger; they were using double shots—more than half an ounce of coffee per cup. Maybe I was disappointed at seeing a bargain vanish. Maybe it was a sense of betrayal that the young, laid-back, indie-rock-loving people at the pie shop on the corner could strategize about prices as ruthlessly as Starbucks. I would grumble that rent, wages, and profit make up a bigger share of the price of a cup of coffee than the cost of the coffee that goes into it. Still, my anger made no sense. Their coffee did not cost much more than coffee I bought elsewhere. And it tasted much better. There was something irrational about my boycott. Fortunately, I forgave them. So I’m drinking great coffee again.
BUYING GOODS AND services makes up a large part of modern life. There’s food, clothes, movie tickets, summer vacations, utility bills and mortgage insurance premiums, gas, iTunes downloads, and hair-cuts. The marketplace is where prices acquire their most straightforward definition, determined by a voluntary transaction between a buyer and a seller who expect to benefit from the trade. Yet despite the routine nature of the standard mercantile transaction, consumers’ interactions with prices are fairly complex. This chapter is about this economic interaction, the tango between buyers and sellers as they strive for a deal.
Economists tend to assume people know what they are doing when they open their wallets. They can assess the benefit they will derive from whatever it is they are buying and figure out whether it’s worth their money. It’s hard to overstate the importance of this assumption. It is one of the bedrock principles upon which classical economics was built over the last 250 years. It is often true, and has yielded deep and far-reaching conclusions about human behavior.
But as a general principle, the assumption is misleading in a subtle yet important way. Markets may be the most effective institution known to humanity to determine the value of goods and services to the people who consume them. Still, the price-setting process is by no means a transparent and straightforward interaction between rational, all-knowing calculators of
Over the past couple of years I have gravitated somewhat randomly from coffee purveyor to coffee purveyor. While this may appear unremarkable, I find my fickle taste intriguing. My choice of coffee should be a function of the value I get for my money. But the equation is not obvious. Should I even notice the small price differences, trivial amounts when compared with my disposable income? What else, besides the quality of the brew, enters my calculation? My switch from Dunkin’ to Illy probably had less to do with price, or flavor, than with Illy’s sleek brushed steel, a definite step up from Dunkin Donuts’ orange-and-pink, saturated fat aesthetic. Illy also offered meaningful social interactions in the chance encounters with long-lost colleagues from other floors.
Most intriguing of all, there is an undeniable emotional angle to my preferences, which can trump on occasion every other consideration. The best coffee I’ve had in a long time comes from the tiny pie shop on the corner, half a block from my house. It used to sell a superb cappuccino for the unbelievable price of $2.75. I would stop by for a cup as often as I could. Then, a year or two ago, it abruptly raised the price to $3.50. This made me so furious I decided never to drink coffee there again.
I’m not sure what infuriated me so. The friendly barista offered explanations: they were switching to a premium coffee that cost a dollar an ounce; the new cups were bigger; they were using double shots—more than half an ounce of coffee per cup. Maybe I was disappointed at seeing a bargain vanish. Maybe it was a sense of betrayal that the young, laid-back, indie-rock-loving people at the pie shop on the corner could strategize about prices as ruthlessly as Starbucks. I would grumble that rent, wages, and profit make up a bigger share of the price of a cup of coffee than the cost of the coffee that goes into it. Still, my anger made no sense. Their coffee did not cost much more than coffee I bought elsewhere. And it tasted much better. There was something irrational about my boycott. Fortunately, I forgave them. So I’m drinking great coffee again.
BUYING GOODS AND services makes up a large part of modern life. There’s food, clothes, movie tickets, summer vacations, utility bills and mortgage insurance premiums, gas, iTunes downloads, and hair-cuts. The marketplace is where prices acquire their most straightforward definition, determined by a voluntary transaction between a buyer and a seller who expect to benefit from the trade. Yet despite the routine nature of the standard mercantile transaction, consumers’ interactions with prices are fairly complex. This chapter is about this economic interaction, the tango between buyers and sellers as they strive for a deal.
Economists tend to assume people know what they are doing when they open their wallets. They can assess the benefit they will derive from whatever it is they are buying and figure out whether it’s worth their money. It’s hard to overstate the importance of this assumption. It is one of the bedrock principles upon which classical economics was built over the last 250 years. It is often true, and has yielded deep and far-reaching conclusions about human behavior.
But as a general principle, the assumption is misleading in a subtle yet important way. Markets may be the most effective institution known to humanity to determine the value of goods and services to the people who consume them. Still, the price-setting process is by no means a transparent and straightforward interaction between rational, all-knowing calculators of
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