January 4, 2008

Money can buy happiness (Highlight Ch.1-5)

Tim Harford's first five chapters contained many interesting ideas. My personal favorite idea came in chapter two with with the Starbucks menu board on P.32. The Starbucks contains 5 different drinks priced from $2.20 up to $3.40. Each item on this menu costs nearly the same to produce, down to a few cents. As mentioned by Harford, Starbucks is not trying to offer a variety of drinks to its customers, Starbucks is smoking out those customers who are less price sensitive.
By offering a wide range of products, a company can sell its "cheap" product to the price sensitive customer and its "premium" product to the luxurious consumers when in reality, they are both buying almost the same thing; at least something that cost the same to produce.
My favorite ploy by the coffee sellers was the "Free-Trade" coffee. Coffee that comes from farmers who are paid and treated "well". The coffee company can double or even triple a Guatemalan farmers salary while only increasing the cost to its coffee (per cup) by a penny or two. The coffee company uses "free-trade" coffee in the same way it uses its' premium drinks. Customers are willing to pay a dollar or so more for their coffee because it makes them feel better/special about themselves. "If I spend an extra dollar on my coffee, I'm making a difference in the world." Well, not really, But thinking you did sure makes you feel good inside.
So, in a sense, money can buy happiness.


Larry Eubanks said...

Who can name the economic concept from microprinciples or maybe intermediate micro that Harford is using in the discussion Russ points to?

jgraul65 said...

marginal decisions?

Douglas Loeper said...

First of all Russ, loved the title of the essay, I chuckled the entire way through reading your bit. To play devil's advocate as it were I'd go so far as to say that spending that extra dollar does make a difference in the world. Just not the way the consumer thinks it does. It's the topic that I'm going to post about in my highlight. And I know that saying this takes away from the satire of your comment and so I apologize for that.

I do beleive that money can buy happiness, and if it doesn't then you're just not spending it right (i.e. spending on the margin)!!