Econ 101: The Candy Show

Every job has its perks.  Mine enables me to attend the annual All Candy Expo.  Chicago’s McCormick Place is taken over by wall-to-wall confections… and I get paid to walk the hallowed halls and sample the newest innovations.  Gum, Candy, Snacks… Last year the biggest trend was dark chocolate and printing the percentage of Cocoa on the package.  This year the flavor that EVERYONE is trying to get a piece of is Blueberry Pomegranate, which I find to be a lovely combination. 

As I walked down aisles 1 and 2, each little piece of Fudge, each sample of hard candy was an utter and complete delight.  I filled my bag like a overgrown, under-dressed Trick or Treater.  Aisles 3 and 4 came and I was still excited, but walking faster, taking fewer samples, and my excitement diminished with every aisle until I finally ended up skipping the last couple aisles.  My coworker one time referred to this phenomenon as the Law of Diminishing Returns.  I said, “More like the Law of Diminishing Marginal Utility.”  Like the cool kid that I am.

So, by popular request, I am addressing the difference between these economic laws.  Since I am not a economics expert (other than knowing the Law of Diminishing Marginal Utility when I see it), I went straight to IRF reader, Masters of Economics Candidate, Mikel, who quoted from his MIT Dictionary of Modern Economics:

Diminishing marginal utility is exactly like the candy example, usually though it has to do with purchasing something, but same idea. The more you have of something, the less valuable an additional unit is to you. The law of diminishing returns is more specific to production. So, if you have fixed capital and keep adding labor to it, your marginal and then average returns to labor will diminish after some point. You get less output out of an additional unit of labor, as you add more and more labor. Instead of too much candy, this would be like having too many workers and not enough computers. So, it is usually said “diminishing returns to labor” or “diminishing returns to labor with respect to capital”. They both describe curved functions, and the measure of the slope of a curved line. So, graphically they look similar, even though one is describing an individual’s utility function (convex), and the other is describing a production function (concave). They both measure the changing slope of a curved line. I think that pretty much explains it.

So there you have it.  Your first piece of candy is more highly valued than your 10,000th.  The law didn’t stop me, however, from topping off my bag with Almond Joys and Pomegranate Jelly Bellys (and Lemon Heads for Joey).  The Willy Wonka Soundtrack has that effect on me.

Thanks to Mikel for doing his part to educate our loyal readers on this important subject. And I’m here to answer any questions about gum and candy.

Posted by LeMare