Wednesday, April 7, 2010

It’s an Economic Principle!

“I can eat pizza EVERYDAY!” How many times have you heard someone say that? I, myself have eagerly proclaimed that I know I could eat Mexican food everyday for the rest of my life. But, can we really eat the same thing every single day? According to economists, NO, we can’t!

Admittedly, there are people who have limited options for what they eat on a daily basis. However, if given a choice they would probably welcome an opportunity to change up their diet. Why is this proclamation of eating your favorite food everyday not plausible? Because as each additional item is consumed, the satisfaction we receive from it lessens over time. This is an economic principle called the law of diminishing marginal utility. Here’s how it works:

As you know, I enjoy eating authentic Mexican cuisine. I am a connoisseur of guacamole and would like to think I could devour a bowl of it every day! The chart below shows what happened when I tried to do this . . .
My experiment did not yield the results I had hoped for! On Day 1, I consumed one bowl of guacamole and was 100% satisfied.  By Day 3 I could only eat half of a bowl of guacamole and by Day 5 I didn’t want any more at all!  In fact, I couldn't even stand the smell of it!  I've seen others eat popcorn at the movies or candy at the amusement park until they were sick.

“Do not confuse diminishing marginal utility with dislike,” mentions the Essentials of Economics textbook. Just because by Day 5 I could not eat anymore guacamole doesn’t mean that it was not desirable. Oh, I wanted to eat it; but, physically, my taste buds and stomach could not take it in for the fifth day in a row. It was just too much of a good thing!  It’s been a couple of weeks since I tried this little experiment and so as I type I am thinking how nice it would be to have some chips and guacamole! Sorry, I’ve got to go now.  Trust me, I will stop at the first bowl ensuring that my satisfaction level is at 100%.

Please note that the law of diminishing marginal utility and other principles of the sort are discussed and learned in our Hospitality & Restaurant Management Program.  Join us to learn how to apply these principles to the decison making process in operating an effective business.

Jokima Hiller, MBA, Hospitality & Restaurant
Management Program Coordinator

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