Tuesday, May 25, 2004

Ideas: Goods and Bads


Can You Get Too Much of a Good Thing?
In economics, there are goods and bads. A good is something that gives someone utility or satisfaction. Food, clothes, entertainment, books, and cars are goods. A bad, on the other hand, is something that gives someone disutility or dissatisfaction. Pollution is a bad, as is flu, measles, and being in the company of someone you truly dislike.

You have probably heard the saying, “You can never get too much of a good thing.” (Do you think it is true that you can never get too much of a good? If you do, then you disagree with economists. To understand why economists disagree with this saying, let’s consider good health, which most people believe is a good. People often say you can never get too much good health. Do their actions reflect what they say?

The person who eats a lot of fatty foods, doesn’t exercise, and smokes ten cigarettes a day may say she is healthy. But could her health be better? Undoubtedly, her health would improve if she reduced her consumption of fatty foods, exercised moderately, and quit smoking. Suppose she does just that. But given this new status quo, can she improve her health even further? Why not cut out all fatty foods? Instead of exercising only moderately, why not exercise more and become even healthier? Surely, most people can take some action to improve their health, even if only by a tiny amount.

Actually, almost no one tries to achieve a perfect state of good health because this perfect state is not easy to achieve. You have to sacrifice and work to achieve it. Specifically, you have to give up too many other good things (goods) to achieve it. You have to give up the benefits you derive from eating a juicy, tasty (but fatty) hamburger, for example. You might choose a little less good health and a tasty hamburger rather than a little more good health and no hamburger. If so, then your actions have told us that there really can be too much of a good thing—or, at least, too much of one good thing. And that is what the economist said.

The Price of a Good
You probably prefer a grade of B in a course to a grade of C, and you probably prefer an A to a B. For all students, high grades are a good. But high grades are not given away. You have to work long and hard to get an A. When you consider the work you have to do to get an A, you might prefer to do less work and get a B.

For example, Bob might be capable of earning an A in his biology class if he applies himself and works hard. But he might choose not to do so. He might view the time and effort he has to expend to get the A “too high a price” to pay. Does it follow that if Bob does not spend the time and effort to get an A that he is behaving unreasonably? Not at all. The reason he might not want to spend the time and effort to get an A is that although A’s are goods, the world is full of other goods too. And spending time and effort to get one good (such as an A in biology) means one has less time and effort available to get another good (such as socializing with friends).

Life Is Full of Tradeoffs
If there were only one good in the world—only one good from which utility or satisfaction could be derived—then there could never be enough of this one good. You would naturally want more and more of it. But, of course, there isn’t only one good in the world. There are many goods. And getting more of one good often means you have to get less of some other good. Getting more good health means getting less of something else that is a good—juicy hamburgers. Getting more A’s in your courses means getting less of something else that is a good—socializing with your friends.

The economist captures the essence of this concept by noting that “life is full of tradeoffs.” This simply means that more of one good often means less of some other good.

Can There Ever Be Too Little of a Bad Thing?
Think of the opposite of a good--a bad. As stated earlier, a bad is something that gives people disutility or dissatisfaction. What is the right amount of a bad? (run in, no paragraph)Is zero the right amount of a bad?

For example, pollution is something that most people consider a bad. Would it follow that less pollution is preferable to more pollution? In other words, is 100 particles of pollution better than 1,000, and is 10 better than 100, and is zero pollution (no pollution) better than 10 particles of pollution? Certainly that would seem to make sense. But the economist is here to tell us that bads are sometimes connected to goods. The economist might point out that most people consider driving their cars to get from one location to another location to be a good. But driving a car is not a pollution-free activity. Pollution is emitted into the air when a car is driven. We can try to reduce the amount of pollution, but some will still exist. Do you think most people would be willing to give up driving cars in order to have zero pollution? Most people would say that some pollution and driving our cars is a better option than no pollution and not driving our cars. In short, some pollution might be better than no pollution.

Actions Speak Louder Than Words
Regardless of what people say, their actions express their true views. You might say you believe that you can never get too much of a good thing, that it is better to have no pollution than some pollution, and that high grades are of the utmost importance to you. But these are only words. People’s behavior almost never validates the general content of these thoughts.

For example, people might say that there can never be too much of a good thing, but they always act as if there can be. The person who says that you can never be healthy enough eats junk food once in awhile and doesn’t always get as much rest as is necessary for good health. The person who says that you can never be safe enough in your house is the same person who installs a bolt on his front door but doesn’t buy an alarm system. The person who says that you can never have enough money is the same person who decides not to work overtime or to take on a second job to earn more income.
Through our everyday actions, we clearly state that we know there are tradeoffs in life and there can be too much of a good thing. It’s only in our everyday speech that we sometimes forget what we show by our actions that we know to be true.

What the Economist Thinks
• There is such a thing as too much of a good thing. The reason the economist thinks this is because he knows that there is more than just one good in life and that getting more of one good often comes at the cost of getting less of another good.
• There are tradeoffs in life. As long as there is more than just one good in life, there will be tradeoffs between goods.


Questions to Answer
1. “People will pay to obtain goods and to remove bads.” Do you agree or disagree with this statement? Give an example of a person paying to get a good. Give an example of a person paying to remove a bad.
Agree. A person will pay (money) to obtain a good because goods give people utility or satisfaction. This doesn’t mean that people will pay for all goods, though. A person will pay for a good as long as she expects more utility from the good than she loses from the money she spends for the good. A person buying a car is an example of a person paying to get a good.
A person will pay to remove a bad because bads give people disutility or dissatisfaction. This doesn’t mean that people will pay to remove all bads, though. A person will pay to remove a bad as long as he expects the utility he gets from removing the bad to be greater than the loss of utility he spends to remove the bad. A person paying to have his weekly garbage taken away is an example of a person paying to remove a bad.

2. “If there were only one good in the world, you could you never get enough of this one good.” Do you agree or disagree with this statement? Explain your answer.
If there were only one good in the world—say, X—you could never get enough of this one good as long as you want to maximize your utility. Look at it this way: (a) A good is something that gives you utility or satisfaction. (b) If you want to maximize your utility—get as much utility as possible—then you need as many goods as possible. (c) There is only one good, so you need as much of this one good as possible.

3. We argued that a student might not want to give up the time and energy required to get an A in a course. He might prefer a B and more time to socialize than an A and less time to socialize. The nature of this argument is that the student chooses which option is better for him. What other reason(s) might explain why a student earns a lower grade than a higher grade?
Two possibilities are how hard and long a student works and his or her innate ability at learning various subjects.

4. Why do you think a person who says there can never be too much of a good thing often acts differently? In other words, why do people show a difference between their words and their actions?
One possibility is that the cost of saying X is (often) much less than the cost of doing X. Another possibility is that some people may just repeat things they have heard without really examining whether or not the things they have heard are literally true.

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