Monday, November 9, 2009

Marshmallow Utility

Before my current job, I was a high school economics teacher.  I like to think that I was a fun one, too.  We did in-class exercises to help illustrate basic economics principles, and my students seemed to enjoy those days just as much as they days we watched educational videos (the days when I had to have one-on-one progress talks with each student). 

My favorite exercise was teaching the students about marginal utility -- a lesson I called "Marshmallow Utility."  To their credit, the students remembered the name, and whenever marginal utility came up on a test they could identify it. 


The big kind of marshmallows works best, as it has an effect faster.  Bring several bags.

I lined up several volunteers at the front of the class, and had them plot their happiness (after consuming zero marshmallows) on the blackboard. 

Fed each one a large marshmallow, and then had them plot their happiness again.  Everyone's went up.

Fed each one another large marshmallow, and had them plot their happiness (general sense of well-being, etc.) on the board.

Repeated several times.

For all except one girl (who absconded with the rest of the bags after class!), each student reached a point at which one more marshmallow made them feel a bit worse, whether from over-saturation or from dietary concerns. 

That, I explained, is marginal - or marshmallow - utility.  How much happier will one more marshmallow make you?  For all except the marshmallow-lover, the first additional marshmallow caused a big jump in happiness, the next few increasingly smaller jumps in happiness, and eventually an additional marshmallow causes a loss in happiness.  Similarly, if you're a supermarket, the first cash register makes things much better, an additional cash register makes things quite a bit better, the seventeenth cash register makes things very slightly better ... and eventually you reach a point where adding another cash register doesn't solve check-out problems but instead makes it so crowded it's hard to get your carts out the door.  If you've got a restaurant, one more helper in the kitchen is great, two is even better, fifteen means you're always tripping over each other.  Something massive, though, could be the equivalent of my marshmallow-lover -- if you're trying to pick up all the trash on the entire Pacific coast, for example, you have to go a very long way before the marginal utility of one more worker becomes negative. 

Lesson?  Keep eating marshmallows until it would be detrimental to chow down on another one.  Keep adding workers until the marginal utility of one more worker is less than the marginal cost of that worker.  (If I'd charged the students a nickel a marshmallow, they should keep buying marshmallows as long as they got at least five cents worth of pleasure out of each marshmallow.)

Economics is fun :) and tasty!

1 comment:

  1. Very interesting! And it actually made sense to me, who was an economics flunky in college. :)