Question 5
The economics of obesity. Some economists have been analyzing the question of why people have been gaining weight in the last few decades. According to these economists, like anything else, eating involves two types of costs. First, the explicit cost is the price we pay at the grocery store to buy the stuff. Second, the implicit cost is all the time and effort we expend to prepare the food.
Before 1960s, food was mostly prepared by household members at home. It could take a few hours to put the dinner on the table. After 1960s several things happened that reduced both the explicit and implicit cost of food. Advances in technology in agriculture and elsewhere reduced the explicit cost (the market price) of food. Second, automobile became the dominant mode of transportation making it fast and easy to go out for fast food. This reduced the implicit cost of food. Moreover, the participation of women in labor force doubled (from around 30% of women to around 60%). This meant that women did not have as much time to prepare food at home as before. The food industry responded by producing frozen and microwavable meals. This further reduced the implicit cost of eating!
Consider the above graph and assume that currently the market price (explicit cost) of a particular kind of food, such as pizza is $20 per unit. So that the consumer is buying “?” units, say per year, and spending “?” dollars on it. Suppose that advances in technology reduces the market price to $10 per unit. At the same time, due to the reduction in implicit cost, the consumer increases his/her demand for this good by 20 units. Now, the consumer is buying “?” units and spending “?” dollars on this good.
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