To begin this presentation, My topic is fast food and it can be understood by comprehending this question. What is the cost of junk food? Why people decide to eat this type of food over other healthier options.2
Individual decision making involves taking into account that the cost of any action is measured in terms of forgone opportunities, that rational people make decision by comparing marginal costs and marginal benefits.
There is information about all the bad effects of this type of food, but why still people chose them above healthy food? When talking about decisions, it is important to take into account benefits and costs of those. In this situation, from my personal point of view many chose junk food because it is cheaper, it has more taste and it is not time consuming. Although healthy food in some ways may be also accessible (making weekly purchases in a supermarket), they are more time consuming, they require of cooking abilities, kitchen equipment, and waste of time later on, when we have to clean the dishes or order. Relating to the principles of economics, marginal cost means the value of the next best alternative you have, and when we decide to go for something quick, we are preferring the benefit of having more time, than the use of time if it were spent cooking.
Fast Food. MB: tasty fast cheap food MC: health- feeling bad after eating
Healthy food MB: Good feeling, fueled for longer, health MC: Time that you could use for activities
In this two examples, people will pick for fast food more often doe to the MB that they feel instantly that are higher than the MC.
To begin with, Chapter 4 talks about the principles of the Law of Demand and the Law of Supply, and how the interrelate to products or services that we consume each day. The objective of the chapter was to explain how the market works for a product and how the demand and supply might be affected (moving along the demand and supply curve, changing the quantity and price). There can be shifts in the the demand curve, whenever there are changes in the income of the consumer, the price of related goods, and the number of buyers. On the other hand, there are shifts in the supply curve whenever there are changes in the input prices, innovation in technology and the number of sellers.
The concepts briefly explained above help explain the current situation around the world regarding obesity. Although obesity is considered as a problem of public health, it is more an economic phenomenon. First of all, because of the improvements and advances in technology in the agriculture production field made it more efficient. This means that those companies are able to supply more raw products for less cost than before, lowering the price of those products. The shift in the supply curve to the left makes products like corn or wheat cheaper. Junk food uses these products in its own process, making the final product more affordable to more people. On the other hand, there is some global acknowledgment that it is not healthy to consume daily this type of food. However, the incomes that are available currently to the majority of the people affect the products we decide to get. If we compare goods, healthy food (normal good) and junk food (inferior good), as explained earlier the second one is more than affordable than the first. Countries where increasing inflation or increasing costs of life, without the corresponding change in income, affect the Demand curve, moving it to the left with junk food, and to the right with healthy food. Because people would have less income to fulfill their needs. However, Demand may still be high even if income rises because of advertisement, the convenience (busy lifestyle, less time to cook; The marginal benefits of fast food rises in the eyes of consumers) and the additives that make those customers involved in those products.
We start chapter 5 by understanding the definition of elasticity: A measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants. My topic was the cost of junk food and the consequences in health, also about its relative good, healthy food. To make my point clear later, the elasticity of demand in any market depends on how we draw the boundaries of the market. Narrowly defined markets such as brands like McDonalds or Burguer King, tend to have more elastic demand than broadly defined markets because it is easier to find close substitutes for narrowly defined goods, like pizza E=1.2. (Chapter 5, page 90-91). Since junk food has many varieties (burguers, Chinese food, pizza, Mexican food, indian food, snacks,etc) and it’s a broad category, it has fairly inelastic demand because there are no good substitutions for junk food. Consumers are going to switch in between those products, if there are changes in price in one product. Because they are all mainly cheap unhealthy food that can be served fast to a customer. Even though with time there will be small increases in food in general. Junk food will remain inelastic, because due to technology advances, it will always be cheaper, tastier and more accessible, than healthy or more elaborated meals. Such big companioes cut prices to raise Total Revenue for elastic demand, cutting prices means cutting cost, for example using inexpensive ingredients and additives E=0.7 (inputs). They also invest a lot in advertising.
Efficiency and Externalities in fast food. To begin with, if an allocation of resources maximizes total surplus, we say that the allocation exhibits efficiency. Total surplus in a market, is the total value of buyers of the goods, as measured by their willingness to pay, minus the total cost to sellers of providing those goods (consumer surplus – producer surplus). Consumer surplus is the benefit that buyers receive from participating in a market, and producer surplus is benefit that sellers receive. The other chapter is about externalities, the uncompensated impact of one person’s actions on the well-being of a bystander. Externalities affect the society as a whole for a positive or negative effect. This is why in order to reach the optimum quantity (optimal amount of aluminum from the standpoint of society as a whole). Government action can sometimes improve upon market outcomes. This is why it involves in Internalizing the externality, it gives buyers and sellers in the market an incentive to take into account the external effects of their actions, such as taxes or subsidies for example. Kiki Michelle talks about this in her article, “Negative Externalities of Eating Unhealthy Food”.While eating unhealthy food has many negative effects on the body, consuming junk food has a large impact on society and the environment. For example, according to the Center for Disease Control, unhealthy eating leads to a number of serious health conditions and many individuals are forced to seek medical care and treatment. Other consequence of eating unhealthy found in the Medical News Today argues that the illnesses resulting from obesity due to poor dieting often force people to take days off from work, stop working, or go on disability. Decreased productivity negatively affects the economy and the standard of living.
People respond to incentives. So if the government decided to tax fast food it would rice its price reducing the quantity demanded. As the things are right now, there are many subsidies on the main ingredients of fast food, which reflects on its low price. Melissa Healy on “How government subsidies, taxes and restaurants affect our weight” she says that Federal subsidies of corn, soybean, wheat, rice and sorghum have given Americans the makings for high-calorie juices and soft drinks, highly processed baked goods and processed foods, and high-fat meat and dairy products. More than half the calories consumed by American adults come from crops heavily subsidized by the federal government. For the young, the poor, the less educated and less food-secure, reliance on these foods is far higher. In her article, she shows the effect of a tax in fast food. In early 2014, Mexico passed an 8% tax on junk foods — including salty snacks, chips, cakes and frozen desserts — and a roughly 10% tax on sugar-sweetened soda. Within one year, the effect was readily detectable: People purchased about 5% less of these items, by volume, than they would have otherwise, said a study published in the journal PLOS Medicine. The lower one’s income, the greater the effect of the tax, the study found. Among low-income Mexicans, the new taxes drove down purchases of high-fat and high-calorie food and beverages by more than 10%. – Melissa Healy. “How government subsidies, taxes and restaurants affect our weight.” (http://www.latimes.com/science/sciencenow/la-sci-sn-diet-fat-obesity-20160705-snap-story.html)