How do you value a strawberry?
Welcome! In this post, I thought I would explore some of the economic concepts around value. This post is merely the first of many as I begin to explore different economic concepts and provide some examples to help bring theoretical economics into the practical everyday world, hopefully in some fun and creative ways.
First, I would like to address the difference between accounting value and economic value. Most of us will be familiar with accounting value as we encounter it every time we purchase something, which is price. Price is a dollar value representing what it cost to market a good plus some profit (hopefully!). Economic value, however, is more complex and considers the more non-tangible costs like economic opportunity costs (what had to be given up to gain something else), personal value, and social value. The difference means that while Economists have great respect for money in/money out, they recognize that value goes deeper than just direct costs and includes elements that price alone cannot capture.
Key point:
2) Economic value: includes other considerations like non-tangible benefits (might include opportunity costs, social value, personal value, environmental value, etc)
This leads us to the next step: the dynamic relationship of prices to market conditions. We all know from experience that prices move up and down. While it can be frustrating when a good becomes too expensive to justify purchasing (and conversely thrilling when they drop), price changes reflect changing conditions in that product's composition. Some of the changes are related to tangible things like changes in components or transport costs and changes that might reflect changes in the value society holds for a product.
According to Adam Smith, Markets function best when we allow prices to move in a dynamic relationship between buyers and sellers as each adjusts to find their equilibrium. This means that the price changes we experience in the marketplace need to adjust so that buyers and sellers can meet their requirements. It means that as prices adjust, we also adapt our behaviour.
Jargon Explainer:
Equilibrium: The point of balance between two opposing forces, i.e. the point where sellers and buyers agree on a price (supply=demand)
An example of price adjustments is happening in my everyday life at the moment. Because of ongoing government restrictions due to COVID-19, strawberry farmers have difficulty selling their usual quantities of strawberries with cafes shuts and farm visits banned. With these two activities severely restricted in society, there has been an enormous surplus of fruit, causing the costs of strawberries to fall below what it costs farmers to produce.
Over the last few weeks, I have watched strawberry punnets dropped from approximately $5 a punnet to about $0.60 in my local supermarket. The ABC reported that a punnet costs about 1.30 to produce, but I have seen some supermarkets sell for much less. For farmers, the cost is too low, and they are losing money on every crop. Sadly, this is driving some farmers to kill crops without taking them to market because when prices are so far below cost, it isn't worth even trying.
Conversely, this has been some good news for me as a consumer, and I have happily purchased more strawberries than I usually would this time of year. My consumption increased from 0 punnets per week to 3 punnets a week. As a buyer, I am stoked at lower prices because I hold all sorts of positive values around strawberries and their related non-tangible benefits and would love to eat more of them. At $0.60 /punnet, my personal value of strawberries dramatically exceeds the price I'm usually willing to pay of about $3 a punnet...by approximately quintuple!
In the long run, the situation for strawberry farmers will change as prices constantly move to reflect changes in demand or supply. Given some time, the surplus of fruit will be cleared from the market, and prices will rise again so that farmers can make ends meet. It is good news for them because if that invisible hand of the market doesn't move, we might end up with no strawberries on supermarket shelves at all as the farmers permanently change growth mixes.
But for now, I'm delighted I get to feast on strawberries knowing that I'm helping everyone out by eating lots of this tasty fruit. My tangible (or accounting) benefit is a 5 for 1 deal, pretty good, but certainly not the whole picture. There's lots of economic value added to my life, including increased emotional enjoyment, health benefits of strawberry consumption, and social conscience benefit as I know I'm helping farmers.
Thanks for reading. I hope this post was insightful, gave you something to think over, and perhaps inspired you to go and eat lots of strawberries.
🍓🥤
Link to the article used for reference:
https://www.abc.net.au/news/rural/2021-09-02/strawberry-fields-price-slump/100425036
Comments
Post a Comment