How much for a hot dog?

Written by Jacob on January 28th, 2009

Jacob Peterson

Daily in downtown Manhattan you can hear the same question yelled over and over, “How much for a hot dog?”  My buddies and I once tried to equilibrate the prices by asking as many venders as possible, and of course we would do so in our authentic Brooklyn accent.  The prices tended to equilibrate around $2 and we considered that our marginal benefit certainly outweighed the cost and a scrumptious hot dog was well worth the price.  Boy we were wrong.

According to Adam Smith, the first price you pay is your labor.  In other words, every time I perform a productive action, my time is priced and should be accounted for.  At the time, I was in high school.  I was on the basketball team, getting paid $0/ hour,  I studied about 20 hours a week, getting paid $0/ hour, and I was a pretty good kid around the house, barely getting reimbursed for my responsible economic decisions and expenditures.  I was putting a ton of labor into the market and hardly pulling out a dime.  So how much did that hot dog really cost me?  More than ALL of my combined hours, being that I was not getting paid at all.  My labor was the first the first price, after which came the actual price of the hot dog, $2.

Obviously I am a rational person and only consider the marginal costs and benefits, sunk costs do not matter.  I agree with Smith in the fact that labor is the first cost, but when it comes to economic decisions, it should not have an influential power.  We work where we will get paid the most, we buy what costs the least, and we sell for as much as we possibly can.  All of these costs equilibrate through the magic of the invisible hand.  This is the power of a market theory of economics.  

 

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