Professor Mark J. Perry's Blog for Economics and Finance
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
33 Comments:
Hey, one of my favorite webcomics! Randall is funny and super smart (though one time I did correct one of his geek culture references).
The working for minimum wage isn't exactly accurate if it's true that people value non-working time at 1/3 the rate of their wages.
I think the same thing when my wife makes me return all bottles for the deposit. While I get the environmental benefits, the cleaning, sorting, driving to the redeeming, waiting in line just isn't worth the time for a few nickels.
"I think the same thing when my wife makes me return all bottles for the deposit."
I have often wondered at how much $$ is wasted on this type of program. If you subtract from the "environmental benefits" , the aggregated costs from collecting and returning the fees, maintenance of the machine, staffing to process, plus the time that consumers waste with the process of returning. I have to imagine this is a giant loser.
Thats perfect illustration of Opportunity cost...One of my favorite...
To avoid the risks, I follow http://www.forecastfortomorrow.com/ they give an accurate predictions about the market and other happenings
Also valid for explaining why extreme cheapness is not worth it.
The working for minimum wage isn't exactly accurate if it's true that people value non-working time at 1/3 the rate of their wages.
In driving around solely to find a better price for gas, you working and the amount you're working for is less than minimum wage.
Even if one values one's time less when on isn't working at one's regular job (and I submit that driving around looking for cheaper gas is still working. It's hardly leisure.), your opportunity cost would have to be pretty low.
And if improved public transit cuts my commute time (in my car) by 30 minutes a day?
After moving from Guam to Michigan, I appreciate the $0.10 deposit on bottles and cans. It keeps public areas much cleaner (I wish they would apply it to water bottles now). If you don't want to turn in your bottles, kids or homeless people can pick them up to make a couple bucks.
Benjamin, in practice the costs per commuter per mile of public transit are on par with or higher than driving, especially when you consider the opportunity cost of having to plan around the transit schedule.
PPI out today dead as a doornail.
Kevin-
My question is more this:
If I pay 50 cents a gallon more in gas tax to subsidize mass transit, and they cut fares on mass transit, and ridership goes up enough to cut my commute by 15 minutes (30 min total) every day, do I come out ahead?
Kevin says: "I appreciate the $0.10 deposit on bottles and cans. It keeps public areas much cleaner...If you don't want to turn in your bottles, kids or homeless people can pick them up to make a couple bucks."
With so many more poor Americans than ever before, the streets must be cleaner.
While this cartoon does illustrate opportunity cost, it does not represent the real world.
Most commuters have many options for refueling during their daily commute and during weekend leisure driving. It is unlikely that one need drive five minutes out of his way in order to take advantage of lower gas prices. All that's needed is a little planning.
What is the utility received by the purchaser of the less expensive gas? The pleasure of "putting it to the Man."
Priceless.
.
"And if improved public transit cuts my commute time (in my car) by 30 minutes a day?"
It would if it had even the slightest chance of working.
They did a 'study' in Austin, TX (I know that sounds like an odd place, but the mass transit there is quite large due to the enormous off-campus student shuttling and the desire of Austin to be seen as green). The Austin American Statesman found that it took the average Joe 4 to 5 times longer to get anywhere using public transportation. Considering the extra walking and waiting in the elements, the inefficient travel times and schedule burden....you're going to have to subsidize the rider, not the system. I think there are very few people who would give up their car to save a dollar on a bus fare....certainly not enough to save you any time on the road.
Austin had (probably still has) free busses downtown...I rode once. Faster to walk so I never did it again.
"While I get the environmental benefits, the cleaning, sorting, driving to the redeeming, waiting in line just isn't worth the time for a few nickels"...
Hmmm, Free2Choose asks an interesting question...
I have to wonder though that whatever alledged environmental benefit of returning bottles was suppose to be, isn't it shot down by the washing of the bottles on such a small scale to say nothing of the energy wasted in driving those bottles to a reclamation site?
"I have to wonder though that whatever alledged environmental benefit of returning bottles was suppose to be, isn't it shot down by the washing of the bottles on such a small scale to say nothing of the energy wasted in driving those bottles to a reclamation site?"
Um, who actually washes bottles (or cans) before returning them? In my case, I can return them at Safeway where I shop. No additional driving.
It's similar to finding cheap gas. Why drive around each time looking? Know where the cheaper gas is in advance. Chances are I am usually fairly close to such a station on any given day, without having to drive much out of the way. Especially if I don't wait to the last drop to buy gas. Cheaper stations generally seem to remain cheaper.
It is unlikely that one need drive five minutes out of his way in order to take advantage of lower gas prices.
You would not believe how many people I know who do this.
Also, planning takes time. For big discounts, it might be worth it (like half off a the price of a car), but for smalls stuff like petrol....not so much.
ridership goes up enough to cut my commute by 15 minutes (30 min total) every day, do I come out ahead?
Since that has never happened in the history of public transit, I am confident in saying the only people who win in your scenario are the overpaid government workers your proposed tax pays for.
When I lived in Canada, I used to drive 45 minutes one-way to buy the cheap gas in the US. The cost difference was more than enough to pay for the gas I used to get there and back, and for my dinner. (Plus it was mostly highway driving, so the driving itself was a benefit, not a cost.)
I put my bottles out in the lane for the binners. It's my small donation to someone who needs it and does a bit of 'green' work (no gas for shopping cart) and it saves me the aggravation.
"I think the same thing when my wife makes me return all bottles for the deposit. While I get the environmental benefits, the cleaning, sorting, driving to the redeeming, waiting in line just isn't worth the time for a few nickels."
I know what you mean. My trash service picks up recyclables in a separate container, or I would be sending them to the landfill.
Perhaps there are kids in your neighborhood who would consider it worthwhile.
"I think the same thing when my wife makes me return all bottles for the deposit.""
By the way, if your wife makes you do it, why do you call yourself "Free2Choose?
:-)
"With so many more poor Americans than ever before, the streets must be cleaner."
It's terrible! They're spotless. I had to hunt for 30min yesterday to find a decent cigarette but to smoke.
"In driving around solely to find a better price for gas, you working and the amount you're working for is less than minimum wage. "
And, using your own car to boot. All in all, a bad deal.
Not counting my time, which I sometimes value at an extremely low rate, in order to save money on gas for my truck, which gets 10mpg, the difference in price between a station 2 miles from my house (high price) and one 12 miles from my house, (lowest price in town) would have to be 40c/gal. I can never justify a trip to the cheaper station just to get gas.
"Most commuters have many options for refueling during their daily commute and during weekend leisure driving. It is unlikely that one need drive five minutes out of his way in order to take advantage of lower gas prices. All that's needed is a little planning."
There you go making good sense again, darn it :)
"I have to wonder though that whatever alledged environmental benefit of returning bottles was suppose to be, isn't it shot down by the washing of the bottles on such a small scale to say nothing of the energy wasted in driving those bottles to a reclamation site?"
Yes, absolutely. Not to mention that there's no environmental hazard from glass bottles, if they are the subject, and for the most part, considering all the collection and processing involved, it's cheaper to make new glass bottles than to recycle them. Sand is a really cheap commodity.
So, just send them to the landfill. thats what your trash service does with glass.
"When I lived in Canada, I used to drive 45 minutes one-way to buy the cheap gas in the US. The cost difference was more than enough to pay for the gas I used to get there and back, and for my dinner. (Plus it was mostly highway driving, so the driving itself was a benefit, not a cost.)"
I hope you won't get upset if I say I find this claim really hard to believe.
What was the difference in price?
If you had a large gas tank, you probably didn't get good mileage. If you got great mileage, you probably didn't have a large tank, so the percentage of a tank of gas you used for such a trip would be highin either case.
And, enough difference to buy dinner!
I'm not sure why you don't value 1.5 hrs of your time more highly, and I don't understand why you consider highway driving a benefit.
If your girlfriend worked at the station, then none of the rest of this matters, but if not, I'm calling BS.
Ron H, you've obviously never lived in Canada. Gas prices at the time were around C$1.30 per liter. With the Canadian and US dollar more or less at par, that was US$4.90 per gallon. Gas in the boondocks of northwest Washington at the time was about $2.70. With a 24-gallon tank, I saved more than $50 every time I filled up.
It was about a 100-mile roundtrip, and I got about 20 mpg, so I paid less than $15 to save $50. As for my time value, I was in university at the time. If you've ever been a student, I'm sure you know how far a student is willing to go to save $50.
I think returning bottles is great for the environment and at least you can get something back for the return. I am from Philadelphia and there they don't get anything for returned bottles. Has anyone ever seen the seinfeld episode when they where coming to michigan to return bottles speaks volumes. Most cities have containers to put your plastic bottles in with no return.
I think that this cartoon is good at depicting opportunity cost. We all have to look at the value that we get when we trade one activity for another. But I think that the larger message is the thinking that Rich and "non-rich" individuals engage in when they make decisions. When a "non-rich" person finds out that gas is 10 cents cheaper 5 miles away, they don't take into account the time that they lose when they drive out of their way and the true cost incurred when you go round-trip for an activity that burned gas there and back. A rich person will say, my tank is on “e” (empty), there's a gas station right here but I know that gas is 10 cents cheaper going toward my house. But if I go that way I'm going out of my way and it takes me off track for the scheduled activities of today. Therefore, I'll pay the extra $1.60 for the 16 gallons and be on my way to finish today's planned activities. “Non-rich” look at that 10 cents like gold but we should really examine if the path that we're taking is bringing us closer to our goals.
@Free2Choose Think about the costs that you save your children and grand-children by recycling now so they won't grow up on or near landfills in the future. You choose
I think that this cartoon is good at depicting opportunity cost. We all have to look at the value that we get when we trade one activity for another. But I think that the larger message is the thinking that Rich and "non-rich" individuals engage in when they make decisions. When a "non-rich" person finds out that gas is 10 cents cheaper 5 miles away, they don't take into account the time that they lose when they drive out of their way and the true cost incurred when you go round-trip for an activity that burned gas there and back. A rich person will say, my tank is on “e” (empty), there's a gas station right here but I know that gas is 10 cents cheaper going toward my house. But if I go that way I'm going out of my way and it takes me off track for the scheduled activities of today. Therefore, I'll pay the extra $1.60 for the 16 gallons and be on my way to finish today's planned activities. “Non-rich” look at that 10 cents like gold but we should really examine if the path that we're taking is bringing us closer to our goals.
@Free2Choose Think about the costs that you save your children and grand-children by recycling now so they won't grow up on or near landfills in the future. You choose
Ezmoney: "When a "non-rich" person finds out that gas is 10 cents cheaper 5 miles away, they don't take into account the time that they lose when they drive out of their way and the true cost incurred when you go round-trip for an activity that burned gas there and back."
And that type of thinking is why they will always be a poor person.
"Think about the costs that you save your children and grand-children by recycling now so they won't grow up on or near landfills in the future. You choose"
If you knew how much of the stuff you recycle ends up in the landfill anyway, you wouldn't be so smug.
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