Matt Lupo
Mrs. Straub
AP Economics
17 November 2014
Are You Getting the Best Deal on Thanksgiving?
Before a holiday, prices of goods associated with that holiday tend to rise. This makes sense, since the impending holiday tends to increase the demand for holiday-related items from the position it occupies the rest of the year because consumer tastes are temporarily altered. The demand for roses spikes just before Valentine’s Day (Larson), as does the demand for candy prior to Halloween and turkey in the week before Thanksgiving. In accordance with this upward shift in demand, firms can charge more for holiday-related goods. Since the demand for turkey rises before Thanksgiving, is a traditional Thanksgiving dinner the most cost-effective meal? Surprisingly, it probably is.
For the sake of argument, we’ll only consider reasonable substitutes to a traditional meal; that is, switching from turkey to ham is in play, but replacing the entrée with fast food isn’t. Within these parameters, then, turkey may be the cheapest choice. This seems counterintuitive because the demand for turkey increases so precipitously around Thanksgiving, but there are a couple of factors that counteract this price change. The graphic below reflects the cheapness of frozen turkey at Thanksgiving, as the price drops, on average, about 9% during the month of November.
First, producers anticipate the increase in demand because it happens annually, and the supply of turkey can be increased to meet the demands of the holidays (Rampell). Unlike the producers of roses, who can also foresee an increased demand at Valentine’s Day, the producers of turkeys can prepare for this demand change months in advance (Rampell). Goods like roses – perishable goods – can only be stored for so long before they expire, but turkeys can be frozen for extensive periods of time. Because of this, turkey producers can stockpile large inventories to prepare for the Thanksgiving rush, which helps to lower prices by significantly increasing supply in November. The graphic below outlines the contributions to the frozen turkey stockpile made each month. A sharp drop in the October-November timeframe represents turkeys flooding the market to meet the Thanksgiving demand, and such a large supply temporarily decreases the price of turkey.
Besides the high supply elasticity of turkeys, the overall declining price of a traditional meal supports the claim that it is the cheapest option. According to the American Farm Bureau Federation (AFBF), the average cost of a Thanksgiving meal, adjusted for inflation, has recently stagnated and dropped to a three-year low (Grondine and Sirekis). The price changes of each component of a traditional dinner is outlined in a video produced by the AFBF. Each price is calculated as the amount necessary to feed this traditional meal to ten people, and in 2013, such a meal cost $49.04 (Grondine and Sirekis). After scouring the internet for cheaper alternative meals, the closest I came was a dinner for eight people that cost $79.47 (Schrambling), or a 62% increase in cost for a 20% decrease in quantity. Though some side dishes could be replaced to further lower costs – like substituting cheaper rice for more expensive mashed potatoes – a traditional meal is about the cheapest Thanksgiving meal you can make.
In theory, while rice may decrease the overall cost of a Thanksgiving dinner, decisions about what to include should be based on the marginal utility per dollar of each food in order to maximize total utility. However, as Ezra Klein, a behavioral economist, points out, we often act irrationally on Thanksgiving (Klein). Instead of stopping our consumption of turkey or mashed potatoes when marginal utility begins to decrease – or even when it hits zero – we continue far into the negatives because gorging ourselves is a holiday custom. By ignoring the feeling of being full, we rob ourselves of some of the utility that could be gained by not eating another bite.
Overall, while a meal consisting of traditional foods may be the best deal financially, we rarely maximize the total utility of a Thanksgiving meal.
Works Cited
Grondine, Tracy and Cyndie Sirekis. Cost of Classic Thanksgiving Dinner Down for 2013. 14 November 2013. 17 November 2014 <http://www.fb.org/index.php?action=newsroom.news&year=2013&file=nr1114.html>.
Klein, Ezra. The behavioral economics of Thanksgiving. 24 November 2011. 17 November 2014 <http://www.washingtonpost.com/blogs/wonkblog/post/the-behavioral-economics-of-thanksgiving/2011/08/25/gIQAR5BMpN_blog.html>.
Larson, Heather. Why roses cost more on Valentine's Day. 4 February 2011. 17 November 2014 <http://www.bankrate.com/finance/personal-finance/why-roses-cost-more-on-valentine-s-day-2.aspx>.
Rampell, Catherine. Turkey Economics, Annotated. 20 November 2013. 17 November 2014 <http://economix.blogs.nytimes.com/2013/11/20/turkey-economics-annotated/>.
Why is Turkey Cheaper when Demand is Higher? 19 November 2013. 17 November 2014 <http://www.nytimes.com/2013/11/24/magazine/why-is-turkey-cheaper-when-demand-is-higher.html>.
Schrambling, Regina. Thanksgiving on a Budget. 2014. 17 November 2014 <http://www.epicurious.com/articlesguides/holidays/thanksgiving/budgetmenu>.
Every year at thanksgiving i try to eat as much food as i possibly can, and its all free because my grandparent buy and make everything. i feel im getting the best deal on thanksgiving because i get tons of food and get to be around m family at no cost.
ReplyDeleteMatt, I like how you picked a topic so relevant and relatable. As tradition goes, I for one could not imagine eating something other than turkey for Thanksgiving. It is really interesting how turkey producers are able to create such large stockpiles in order to keep prices reasonable for consumers. Although, I would have to disagree with your comment about marginal utility--I find just about as much pleasure on the fifth slice of pie as the first, even though I may have exceeded a healthy daily calorie count three slices ago.
ReplyDeleteMatt, I'm glad you have written on a Thanksgiving topic. It always astounds me that turkey remains at such an affordable price each Thanksgiving, and that’s surely something about which to give thanks. Perhaps this occurrence could be explained by the market structure of turkey raising, which I assume is perfectly competitive. After all, it is agriculture. While the demand increases during Thanksgiving for turkeys, the supply also increases, leaving the price low and consumer happiness high. But more importantly than the economics of this situation, it is the positive emotions that radiate from everyone during this beautiful holiday that make turkey purchasing seem like a lovely privilege, not a hassle. Thanks, Thanksgiving. And thanks, turkeys. You’re the best.
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