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Economic Thought in Inaction Around Campus

This university makes some amazing decisions. Some of these, such as having the primary post-championship activity be violent confrontations with riot police, are pretty clearly stupid. But some require the deft touch of economic analysis to become clear. That's not to say they all make sense after you do this analysis!

Today we will look at three examples of recent university decision-making. Call them the good (for them), the bad (for everyone), and the ugly (for your local roaches).

First, we are going to examine the recent increase in the cost of a regular meal plan, from $2804 to $2925, because Josh Korr asked me to in a recent column ("Asking the right questions (II)," Mar. 14), and as the ombudsman he has the power to publicly excoriate—I mean, because Korr is a nice guy. The rationale given for the price increase was food cost inflation; Korr wonders whether food prices increase every year, and if so, why the cost of a meal plan will increase while the prices those who pay cash fork over for nourishing Dining Services products will remain the same, as they apparently will.

The Bureau of Labor Statistics happens to keep statistics relating to Korr's first question out the wazoo; it sends shoppers from city to city to buy a dizzying variety of products, tracks the movement in their prices, and summarizes all the information thus gathered in a statistic called the Consumer Price Index. By consulting it, we can see that the part of the CPI that tracks food prices has, in fact, increased every year for at least the past ten years. Interestingly, the annual increase in food prices from 2000 to 2001 was 3%, while my calculator tells me that the $121 increase is 4.3%. But, of course, people who pay cash aren't paying more, so it's all on the meal plan buyers to cover the inflation.

This leads into the answer to Korr's second question. Dining Services is serving two populations: people with meal plans, and people who pay cash. It needs to absorb a cost increase somewhere, and it can choose which prices to raise.

Of course, any time a firm raises prices, its sales will fall; this is the Iron Law of Demand that we all learn in Economics 200: Principles of Microeconomics. But Dining Services doesnt have to raise prices uniformly for meal-plan buyers and cash diners.

After all, people who pay cash have the option of paying a little more and going a little further out of their way for more palatable food, so if you jack up their prices, theyll take their business elsewhere. In economics terms, their demand is relatively elastic; price changes have a large effect on it.

Meal plan demand, on the other hand, is relatively inelastic; a $121 increase on a $2804 base might make a few people defect to real food, but by and large it will just inspire grumbling in the ombudsman column. Dining Services made the right decision, from its perspective, anyway.

Speaking of three-digit campus price increases that have inspired grumbling in these pages, there remains yet one more thing to be said about the recent gigantic hikes in parking fees (Regents near approval of parking hike, Mar. 15). Permit holders, understandably, are not real happy about these hikes. The Department of Campus Parking's rationale for them, as expressed on the OUCH! website detailing construction plans, is that "[p]arking spaces have been lost to new construction," like the Comcast Center, so they need to build new, amazingly expensive garages just to maintain their current number of spaces. The parking fee increases pay for the bonds DCP needs to issue to build the garages.

Well, hmm. In the private sector, if Jane Entrepreneur is getting revenue from a surface parking lot and Joe Developer wants to buy it to build the world's largest drive-thru liquor store, Joe has to pay Jane some money, which she can use to build more parking elsewhere if she wants. At our university, when some school or department wants a new building, they get to bulldoze parking lots used by everyone so that denizens of that school or department may benefit.

DCP, meanwhile, gets hit with a double whammy: they lose spaces, and thus the revenues from those spaces, and they are forced to build more expensive structures to make up for the lost spaces, which forces them to raise even more revenue. Then DCP passes the costs along to campus parkers, who are in effect subsidizing new construction that may not even be benefitting them.

Why can't DCP be compensated when the university builds over parking lots? Since the departments are the ones benefitting from the new buildings, have them pay for the use of the lots, and DCP might not have to raise permit prices by quite so much.

Of course, the university will pursue every revenue source it can, regardless of whether it makes any sense or not. That's why you can buy garbage bags with Testudo on them from a website called Celebrate your love of our university by disposing of your used-up tubes of toothpaste, toenail clippings, and month-old steaks in plastic bags emblazoned with our logo! Your local trash man may not even bang your cans when he sees Testudo grinning aggressively at him.

I'm amazed we were able to win the national championship (YEAAAAHHHH!) this year with our logo on a trash bag. How can you get worse luck than that? And what's worse, it's an unattractive product, a repeated tiny black drawing on a bag that doesn't even have the good taste to be red. There are, in fact, things you can get money for doing that are better left undone, and licensing our logo to, in my humble opinion, is one of those. Of course, the money is probably going toward creating more championship teams, but that just puts us right back where we started.


All this tasty writing ©2002-11 by Andrew Lindemann Malone. All rights reserved.