Hi everyone, wonderful to be co-learning with you!
This week as we learn more about what prices mean (what they can tell us but also what it hides), please respond to this prompt -
"Think of a good or service that you enjoy, in what way are you or are you not paying the true price of this good/service, and what are possible consequences of doing so?"
Nina Wakefield commented on an update Week 4 Update/Reflection .
Cat Ho created the update Week 5 - A Linear Economy in a Resource Scarce World.
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Cat Ho created the update Week 4 - Gross Domestic Product.
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Wendy Mockler
As an expat living in China, and having been taught mainly to cook French cuisine, I tend to purchase imported goods such as Dijon mustard, French red wine vinegar etc that I will need when I cook. I know that I may be paying a premium for a foreign good but was in not reflected in the price is the carbon footprint of my purchase.
I'll continue with the example of the jar of mustard. The mustard seeds are primarily grown in Ukraine (at least they were before the war), as such the grains are transported to France, where they are processed and packaged into a jar that will then travel thousands of miles to end up in my neighbourhood April Gourmet store.
The good news is that there is a way for me to avoid making purchases with potentially such high externalities and that is is to learn how to cook Chinese dishes and purchase goods produced locally!
@Robin Ford Coron,
What a globalized product - and this is just one jar of mustard!
I think that is one way forward is that we source for things closer to home, this does reduce carbon footprinting and external costs. But this again, the solution would probably also need some supply side enforcement. In Europe, do people buy a lot more local than imports?
I think almost any product I consume either does not bear the full cost or the cost paid does not really go to cover the externalities. In the first case , as a consumer I am frequently looking for the deals, the cheaper the better. Therefore instead of willingly accepting the full cost, on the contrary I am avoiding this 'financial penalty' and readily provide the incentive to the business to keep on producing the similar way, aka low price - low quality. On the other hand, even when I pay the higher price for a product does it really lead to covering the externalities? Most of the time the truth is that higher price results in the businesses earning higher profit margins, thus, therefore, increasing their private benefits. If the demand is the trigger , even being a responsible consumer, how do I know the data provided by businesses on sustainability of their operations processes is accurate and full, do consumers really have access to it and is it possible for the final users to check this information of all the producers of these thousands goods we are consuming daily? I think it actually poses another question does the consumer really have a power to change these things and make businesses absorb the externalities? Or to make the process more fast-paced would not it be more effective to have a government intervening at early stages or creating the framework where the producers are forced to take the externalities on themselves rather than passing them on to the society.
@Kristina Pilgueva,
Your inquiry delves into the pivotal debate between consumer influence and governmental regulation in mitigating negative externalities produced by businesses. Consumers, indeed, wield a degree of power through their purchasing choices, which can pressure companies to adopt more responsible practices. However, the efficacy of consumer-driven change is often limited by factors such as lack of information, limited choices and what you alluded to in the immediate allure of lower prices.
You propose that government intervention may offer a more fast-paced process but cynically, some argue that such government interventions could decelerate economic processes and curtail business growth. This viewpoint holds that regulatory measures might increase operational costs for businesses, potentially stifling innovation and increasing bureaucratic inefficiencies.
How many times have we heard from businesses and from proponents of the free market that the market, if left relatively unregulated, is better suited to find efficient solutions through competitive pressures and technological advancements.
I agree that more pressure should be put on businesses to adhere to practices that that align long-term economic growth with societal well-being.
@Kristina Pilgueva,
so true, there certainly is a lot that can be done - both on demand side with responsible consumption, and on supply with responsible production - also know as SDG 12!
Change is not easy but often it does start with knowledge. As more and more people understand externalities and how choosing to pay the lowest price is not the best way forward, this could be a good starting point.
I agree with you that greater information and transparency needs to be in place - currently a term that is floating around is greenwashing. In your subject are, do you know if there standards being created to keep producers and their marketing honest? There are quite a few different labels but honestly i am not sure which ones are really reliable either.
The result may be that the external cost paid by neither producer or consumer as well as the social cost paid by us all may hurt more in the long run. Leading to not just an increase in cost of services and goods but an exponential increase that has never been seen before even compared to what we are currently experiencing.
Even though the cigarette taxes are very successful the increase supply costs to increase price to consumers. Bringing in room for corruption and other consequences as production goes underground. Taxes bring in revenue for government so we are still seeing a high in corruption on a political level which filters down to society…”If they can do it then I can too”.
More education creating awareness as well as increase of emotional education of the dangers of consumerism. Playing on the immediate emotional situation of people may help as we tend to want instant gratification and are impatient when it comes to results.
I like the point made about the cigarette taxes being partially ineffective. Moreover I think they may create inequalities, since those with higher incomes will still be able to afford it and those with lower do they quit smoking? or do they sacrifice more essential goods / services for the pack of cigarettes due the addictive nature of the product?
@Nina Wakefield,@Tammy Cheng,
Hi Nina, you brought up a salient point - do the tax burden just get passed on to consumers and hurt them more in the long run? This is good economic thinking - always looking out for as many stakeholders and thinking not just the immediate time frame but in the long run.
I think this is possible, which is also why another assumption of the price mechanism is that there are multiple sellers. When there are multiple sellers, such passing on the cost behaviour can be curtailed since consumers now can choose the producers that are selling goods and services at lower prices by absorbing the costs of the taxes. However, if there are few and collusive producers, than what you described can certainly and has certainly happened.
With regards to corruption - that is so true - which is why economics cannot work without strong governance where there are checks and balances. In this sense, the price mechanism fails too when corruption exists as the market is not reflecing the true dynamic of demand and supply. So for example if a cigarette company pays off some one to not have to pay in full their tax, then theoretically, the quantity that is supplied will not go down as much as when a full tax is paid by the producers. So the market failure persists and the externalities are not internalized.
Yes, in the end, a composite approach where consumer education, policing of producer behavior (such as anti-monopolistic behavior) are all needed to ensure that markets function in ways that are more equitable and representative of what society values, even over and above what an individual may value (now i know this statement may make some people quite uncomfortable!)
@Tammy, so true that understanding these externalities are key to good policy making....love how you see clearly the importance of the group and what we are seeking to achieve!
I get your point that you are worried about the loopholes in taxes and how it can encourage corruptions and black markets? I guess most examples will illustrate how individual consumption choices and policy decisions can have externalities that impact other individuals, industries, and countries. Understanding these externalities is crucial for policymakers and consumers alike to make informed decisions that take into account the broader social and economic impacts. Which is why we have this group to think about how we can educate the next generation, especially to those who are trying to live worldwise!
I think nobody wants to refuse to take a shower. Now, what I'm thinking about more is the externalities that I haven't paid for, including the costs of water treatment, the construction of wastewater treatment facilities, the wages of factory workers, the costs of managing polluted water, the pollution by the shower water, and the potential impacts on the ecological environment…
A few years ago, Cape Town experienced a water crisis as a result of poor planning and drought due to the previous period of around 3 years. We were then faced with our water usage per person dropping by more than half per day and anyone who used more was “fined”. It was found that taps in townships were not being properly utilized and this led to heated discussions as to why tax payers were paying for that on top of the water levy. Many registered rates payers (paying for water and sewage) were disgruntled even though we were all working towards the common goal of everyone being able to access clean water. There were many social media posts concerning an untapped potential underground source of water that we could not even use. It was envisioned that everyone including the wealthy would have to queue for their water like so many poor people in certain areas do regularly. This in turn sparked fear and a mindset of lack. In the eyes of the people around me it was just another disaster that the government and whoever else was to blame for. Now we can see the impact that that crisis had, particularly in people adopting new behaviors and installing new infrastructures at their own cost in the effort to use and store water in a more responsible manner as consumers who pay for the water. Most still do not know or understand the externalities that have been mentioned above and did not care as long as we got clean water by whatever means necessary as we were paying customers. Hopefully by looking at these we can bring education forward so that we can look at these externalities.
@Lu Chen,
Lu Chen, you show a lot of sensitivity to seeing the Economics in our daily lives - right down to even a shower.You had told me that you were shocked while on your trip to Dun Huang, in a desert area, the hotel actually had bathtubs. You shared with me too how you saw with your own eyes how far the water table had fallen in this area even as they promote tourism. Indeed, the decisions are not easy and often needs/wants can be in conflict. However, hopefully the first step is still greater understanding of the reality we are facing, and with that, increased ability to make more informed decisions that are good for self, others and our planet.
I believe the example I shared in Week 1 regarding the low labor costs in the cleaning service industry in China is illustrative. Consequently, I have decided to engage AiYi on a fortnightly basis for domestic household chores, allowing me to take on some of these responsibilities myself. This approach insulates me to some extent from the impact of rising labor costs. Simultaneously, it ensures that I can maintain a functional household routine even after my departure from China.
As another personal example, my family and I have a long-standing habit of dining out frequently in Malaysia, in addition to ordering takeout. Consequently, when I studied in the UK, I found myself paying significantly higher prices for takeout and restaurant meals, simply because I was accustomed to this lifestyle. This realization motivated me to start cooking and planning my meals, thereby fostering my independence, and providing a buffer against inflation.
Now to get to my main point, this preference for low-cost hawker and restaurant dining has resulted in many Malaysians being unaware of the true cost of food, including both the price and the labor involved, in other countries. Furthermore, the working conditions of some workers have not seen improvement, and I would almost argue that this is resembling a domestic servant culture that was prevalent in developed countries centuries ago. While the hawker food culture in Thailand is gradually shifting towards more centralized locations like shopping malls, a trend that may not necessarily be negative, Singapore is actively promoting hawker foods as a cultural and traditional dining experience.
Moving forward, I think it is essential to strike a balance between preserving Southeast Asian food culture and ensuring fair labor prices and working conditions for hawker owners. My question is: How fair is the “Fair price”?
Hi @Nina Wakefield,so Cat pointed out in session one that one of the many downsides of supply-demand price mechanism is, some social will be disadvantaged because they cannot participate. A good question for all of us(government and NGO) to think about: What are considered as basic needs and How to make those needs accessible for everyone? Time to pull out the list of basic human rights from UNESCO @Cat Ho, ? To me, it is all about inclusivity from bottom to the top!
I also wonder about the question posed on those who can as well as cannot afford prices... We all want a deal... a service or product where we expect good quality but due to living costs we cannot afford to pay it...at least the majority. This may be an assumption depending on where, who, etc. For example I believe that massage should be part of health care but due to my living costs and price I cannot afford it in my country of origin.
@Tammy Cheng,
Tammy, yes, so many people have impeccably clean kitchens because they never use them! With our urban lifestyle where there are long hours of work and convenience of eateries, it has led to proliferation of eating out or ordering take out.
So even in this one situation, there are many aspects of economics involved including externalities and equity of wages. You asked, how fair is fair for labor? Ah, that is such an important question in our world of growing inequity, and something we will explore more this coming week!
I have been thinking a long time about this and it has really not been easy to pick an item. It is easy to think about the personal cost in the purchase of a good or service, but the external cost (or benefit) does not come quite as naturally.
The most pertinent one for me is food delivery with the amount of disposable packaging. Even though the MeiTuan app does seem to factor in this external cost by charging me for dabaofei, yet in reality, I know the packaging is going to cost our society, our environment, and that dabaofei may more be a profit making gimmick than being an honest effort to internalize this external cost.
Next week as we run Earth Day: Planet versus Plastic, it is staggering for me to learn of the enormity of the situation - more than 500 billion plastic bags—one million bags per minute—were produced worldwide last year (earthday.org).
One consequence include so much more people ordering take out and increasing the amount of disposable packaging. Would more people stop ordering out if the dabaofei was about 25% of the order? But again, is that money being used to truly ensure the environment is not harmed? And how much of this should be a supply side rather than just a demand side intervention?
Furthermore, I wonder how one social cost of food delivery is cutting down people’s social interaction. It is definitely convenient and particularly for some people who may have mobility challenges, food delivery is a godsend. Yet, for the vast majority, if they understood externality, or if the market priced this more accurately, would we see a much healthier level of plastic waste generated? I believe so, and just like how cigarette market has seen such drastic impacts from a composite approach, I hope that a similar approach will arise for plastics.
References
Planet vs. plastics. (2023b, July 28). Earth Day. https://www.earthday.org/planet-vs-plastics/
I think this is a great point you made about the delivery and the plastic package with the reference to the data. I wonder if we can influence the delivery companies in their packing procedures? If we for example place a personal request on reducing the package can it be ever effective? Can a personal intitiative be a part of a bigger solution?
@Tammy Cheng, Thanks so much for forwarding that video link. It looks like a great documentary to show to students on how lives are impacted. Yes, i agree with you, so proud of Malaysia turning the waste back to its country of origin. Overall, with a lack of understanding of environmental and social costs (externalities created), many people have a out of sight, out of mind mentality with regards to their economic decisions to buy or sell something.
How can we help more people grasp the severity of their decisions?
Hi @Cat Ho, I wanted to share this documentary with you. After the broadcast of the documentary, and it led to the local government immediately banning the import of foreign plastic waste. However, the plastic waste was then shifted to Southeast Asian countries, especially Malaysia. This personally upset me regarding the actions of the rich countries. I'm proud to say that we shipped the waste back to those countries. Truly proud of Malaysia! Here's the link to the documentary: https://www.youtube.com/watch?v=jnNNnHTLjmg
Your point in the Week 2 session about the burden of price not just falling on the consumer but also on the supplier is quite valid. When the burden falls on the supplier, the problem is often shifted to developing countries that may not have the capacity or capabilities to process this waste. Therefore, I believe that waste must be reduced, and the government should redesign and inspect how suppliers deal with plastic or any other externalities generated.