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My first lesson in economics was taught on the Boardwalk of Atlantic City, using the lowly pretzel stick as my paradigm for such weighty topics as production, distribution and consumption of products. My best friend and I were too young to know anything about the workings of the stock market, but we were not too young to observe that certain forces were at work that determined the price of our favorite snack. We became aware that the penny pretzel rod that we enjoyed all winter and spring was no longer available for a penny after late May. Thus, we learned about seasonal distribution, a concept that caused a rise in prices of merchandise most likely to be desired at particular times of the year. The process of supply and demand was not hard to understand from that perspective.
One September, the month when prices usually fell significantly, we discovered that the pretzel rod was still selling at its summer price of three for a nickel, and someone told us that the cost of ingredients had risen and the old price could not be maintained and be profitable for the maker or seller of the product. That was a simplistic lesson in the idea of profit and loss. To us, it meant that someone's profit was our loss.
The following spring, the cost of manufacture was still increasing, and because consumers would be reluctant to pay much more for an item that had already become a luxury, a new strategy was applied to keep the pretzel affordable: The price would remain stable but the size would shrink. At first we were fooled, but before long we realized that the foot-long rod was no longer a foot long but a mere 10 inches. In subsequent years, the pretzel as we knew it became shorter and more costly and finally disappeared from the barrels that had once held them. They were packaged for sale in units and no longer sold individually.
By then, my friends and I had moved on to other, more sophisticated snacks pizza, for instance.
In recent years, I have been reminded of my old economics lessons as I have followed the rise and fall of gasoline.
Probably the best time to
follow the rise and fall of gasoline prices is summertime, when people are most
likely to be on the road to and from vacation spots. A driver may fill up
before he leaves home and discover on his next fill-up that the price has risen
by 5 to 10 cents a gallon and by the same token, it very well may have
dropped to levels that convince him that his luck is on the upswing.
As the summer progresses, we may watch prices rise and fall so often that a station whose marquee advertises a price at noon could very well have risen or fallen as much as 10 cents by evening. It is a dizzying reminder of all the market forces coming together to create near-chaos.
When summer ends and prices stabilize, many of us forget our vows to cut back on unnecessary trips, and the lower prices at the pump stir up our desire to hit the road again. The awakening comes with the arrival of holidays, which also cause higher numbers on the dials. That is when my thoughts return to the pretzel theory of economics. You want mustard with that? It will cost an extra 10 cents.
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