Demand Shifters for Bagels

Dr. Tufte recommends the post at Brad DeLong's Semi-Daily Journal entitled "Selling Bagels Without a Cash Register".

The extended quote discusses the factors that affect the amount of revenue a guy makes from a business that involves leaving trays of bagels and doughnuts at offices, along with an unattended box to collect payments/donations. Most of these factors could be labeled as demand shifters (discussed in Chapters 4 and 5), or you could use them to talk about cross-elasticities (discussed in Chapter 6).


D said...

It was so funny to read this article! A couple of years ago I went to visit a friend at work and while I was there he asked if I wanted something from the "honesty box". I was perplexed, what on earth is that? He walked over to a back table and there was a box of various items that you might find in a snack vending machine with a slot for cash or coin stating that all items were, I think, $.60. The office that my friend worked at was a small one, everyone knew each other.

Some time later I went back to visit my friend and the "honesty box" was missing. When I asked where it had gone, my friend told me that unfortunately he and his co-workers weren't so honest and the people placing the boxes were losing money on the one placed in that office.

missydipadova said...

I know that we loosely related this article to economics in class last week, but it didn't make sense to me, and I still don't understand exactly what it has to do with economics. Anyone want to try and explain?

Dr. Tufte said...

That's what I'm here for. :)

The people in the office are setting their own price for bagels. If you think about it, the supplier is setting out a bunch of bagels, and the supplier will accept whatever people contribute - so there is a vertical supply curve. Demand is just the conventional downward sloping curve.

Certain things shift demand. A nice boss makes demand shift up and to the right, increasing the price paid for bagels (that is, the cash left in the box). Bad weather makes demand shift down and to the left, resulting in a lower price (or less cash left in the box).

As to the elasticities I mentioned, you could measure how cash in the box is related to temperature. The article indicates that there is a positive relationship, so the cross-elasticity of honor-system-bagels with respect to temperature is positive.