A $1 Meal

Gary North - February 23, 2013

An economist is trained to think of marginal pricing: the price or cost of one extra unit. The average person does not think this way. This puts him at a disadvantage.

I buy Subway sandwiches for lunch. The nearest store sells the 6-inch veggie sandwich for $4. The foot-long is $5. I always buy the $5 sandwich. I eat half for lunch. I save the other half for either dinner or breakfast.

Why do I always buy the $5 sandwich? Because the extra meal costs me $1. That's cheap.

From time to time, someone behind me orders a 6-inch sandwich. I always say, "for $1 more, you can get an extra meal." The person then buys the foot-long. Always. It is clear that the person had not thought of it this way. Most people don't. It takes either training or remarkable common sense.

Here is a simple rule: If you can get a 100% increase (two meals, not one) for 25% more ($5, not $4), do it. When you break your available choices into marginal gains and costs, this is clearer to see.