WHILE DINING recently at my favorite restaurant, I focused on my food order. But I also got to thinking about economic concepts—an occupational hazard for a retired academic.
Opportunity cost hit me almost immediately. When the urge to eat strikes, I cannot consume two meals at two different restaurants at the same time. By selecting “A” over “B,” I’m automatically giving up an experience at “B.” Next, once in my selected spot, I face another—often difficult—decision as to which specific meal I want. I’m often conflicted by menu choices. Opportunity cost again: As delicious as they may be, I cannot eat three or four separate meals.
Demand curves affect patrons in terms of both restaurant and menu selections. The occasion—whether it’s a first date, birthday or anniversary—can make a big difference to the acceptable price range. If you’re dealing with a special occasion, the demand curve tends to be relatively inelastic, meaning you aren’t too sensitive to the meal’s price. For other occasions, the demand curve probably ends up in the moderately elastic range.
Personally, certain entrees can have an almost perfectly inelastic demand curve. Recently, I was dining on one of my favorite foods, Royal Red Shrimp with drawn butter. For me, the demand curve for these seasonal shrimp—which have consistency and taste more like lobster—is essentially perfectly inelastic. Regardless of price, I want them. I’m able to splurge on these occasional inelastic temptations with the money I save utilizing other economic principles.
Such as? I economize by buying items where my demand curve is perfectly elastic, meaning I simply won’t buy if the price is too high. I never purchase two-liter soft drinks unless they’re priced at $1 or less per bottle. By the same token, the reduced prices on “happy hour” bar beverages and restaurant “specials” spur purchases I might otherwise not have made.
I also economize by avoiding luxury goods or (perhaps a better term) snob goods. I can easily say “no” to obscenely priced bourbon shots and $500 bottles of wine.
There are also products and services that I consider bad goods. These are things unwanted at any price. Free isn’t nearly good enough. You’d have to pay me to accept items like dark rum, salmon, liver, butter beans, eggs and overcooked steaks.
Bad goods, for me, can extend to classes of restaurants as well. It’s not unusual for me to totally reject free or discounted buffets, as well as any restaurant offering “home cooking.” I’d rather spend more money at an alternate spot of my choosing.
Restaurants frequently remind me of the concept of diminishing returns. For example, the first sips of beer are the best. Additional sips are progressively less and less rewarding. Too much beer, especially at my age, would not only be “rented,” but also would likely be regretted later. Even very good meals can quickly turn bad if one continues to eat and eat, plus throwing up at a meal’s conclusion isn’t a good way to impress one’s dinner partner.
I find that savings in some areas allow me to spend more on items of high personal value. I use coupons and senior discounts frequently. I’m fond of “happy hour” and “early bird” specials. I look for midweek specials, newspaper and magazine offers, two-for-one deals and the like. What do I do with my savings? I splurge on weekends—preferably on Royal Red Shrimp.
Dennis E. Quillen is a retired economic geographer and university professor. In addition to blackjack, he loves long-term investing. His previous articles were Cutting the Bonds, Bouncing Back, Starting Over and Getting Comped.