1/31/2005

Dog behavior explains the Margin

Dogs seem to genetically understand the economic principle of the margin. In the article Dogs at the Margin, Don Boudreaux expalins how dogs seem to instictively understand this economic principle. He discribes his findings after his family purchased a second dog. When the old dog tries to eat from the same dish as the new dog, a barking, biting brawl breaks out, but when the old dog drinks from the same water bowl everything is alright. According to Boudreaux, it is related to the anscestor of the dog, the wolf. Wolves knew that there was plenty of water to drink, but that food was much more scarce. As a result, the next meal became much more valuable to the animal than the next drink. This happened despite the fact that an animal can live much longer without food than it can without water. This attribute seems to have been passed down to the modern day dog; they seem to know that food is more scarce than water and therefore more valuable.

This example of the dogs marginal meal applies directly to economics. The principle of the margin is how much value will be placed on the next unit of a product to be consumed. If a good is scarce, it becomes much more valuable than a good which is plentiful. This happens because the scarcity creates more value in the eyes of consumers. Consumers are willing to pay more simply because the good is rare. As goods become more scarce, their marginal value will increase. As in the Diamond verses Water paradox, the water is less valuable because it is so plentiful, eventhough it is more essential to survival.

2 comments:

scott said...

This reminds me of when I was in Brazil with three buddies eating lunch at as a guest in someones home. There was plenty of food, but we were all eyeing the 2-liter bottle of soda on the table. Its interesting to note that now, when I go to an all-you-can-eat buffet, I don't drink anything so I can eat as much as possible. Its a good thing there are economists to explain the stupid things we do.

Dr. Tufte said...

-1 for spelling mistakes in June's post (waived)

Believe it or not, there is a surprising amount of evidence that animals display behavior at the axiomatic level that when combined yield demand and supply. I remember reading something about 15 years ago about them being able to differentiate substitution from income effects in birds.

I'd go even further than Don Boudreaux - most dogs understand property rights. Ask yourself - does your dog understand what is theirs and what isn't? Can you get your dog to trade a toy in their possession for the one in your possession?