And finally, a message that matches the name of the subject -
A housewife is observed entering a supermarket with $100 in cash. When she leaves, she has $10 in cash and a bag of purchases and she is intercepted by a heavily-armed team of agents from the BATPEU(*) and whisked to an undisclosed location.
You, in your persona as an Austrian Economic Scholar, have been blindfolded and drafted as an expert witness for the prosecution in her secret trial. You are placed alone in a locked room and instructed by a disguised electronic voice to remove your blindfold. On the table in front of you, you find a heavily-redacted register receipt tape of her purchases. You are instructed to examine the tape, and to draw and testify to any conclusions that you may form.
On the tape, you note the following information :
1. a $100 bill was tendered in payment.
2. a $10 bill was returned in change.
3. the following purchases -
- two loaves of Rothbard Wonder bread @ $2.29 each.
- two sixpacks of Cherry Coke @ $2.99 each + $0.30 deposit.
- four packages containing eight each of plastic knives, forks and spoons @ $0.89 each.
- nine other entries that have been blacked out.
What can you conclude from the evidence of the tape?
We know that all values are subjective and are subject to the law of diminishing marginal utility as well. Each purchase represents a voluntary exchange in which the quantity of good exchanged, in this case money, has a lower subjective marginal utility than the last unit of the good received. For each of the entries on the tape, the following conclusions can be drawn -
1. All of the units of goods purchased had a higher subjective marginal utility than the unit price at the time that they were removed from the shelves, and this was still true when the items were brought to the register. Additional units or other products may have been removed from the shelves and then replaced later in the process of shopping as the marginal utility of both goods and cash evolved.
2. An additional unit of all of the goods purchased, and all of the other goods in the store unpurchased, had a subjective marginal utility less than that of their unit cash prices at the time of checkout. The exceptions to this would be for any units of goods with a price of greater than the available $10 or any goods whose purchases have exhausted the shelf stock. Ignoring these exceptions, at the time of checkout, every good in the store, and cash, has approximately the same subjective marginal utility. Otherwise a different mix of purchases and non-purchases would have been selected.
3. For every product, there is an infinite matrix of possible time values that may be involved. For instance, the failure to buy a fifth package of knives, forks and spoons not only means that its subjective use value this afternoon is less than the subjective value of $0.89 in cash, but that its use value anytime in the future has a discounted present subjective value of less than $0.89 as well.
Your final testimony is as follows :
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Regards, Don
* The Bureau of Alcohol, Tobacco and Plastic Eating Utensils |
