The Force of Economics; N. Malek

What's worse, the average person doesn't care about economics and doesn't understand the power of economic reasoning. What usu ally comes to mind when hearing the word "economics" is investing, personal finance, or learning how to start a business. However, economics is everywhere whether it's sports, fashion, music, or, yes, the movies! This is a statement that I have repeated several times to my high school economics class (I'm still not sure if they believe me or if they care). My goal as a teacher is to demonstrate to my stu dents, first, that the study of economics is more than just focusing on financial topics and, second, that they have made economic decisions most of their lives. One decision that most Americans make is to attend a movie or an athletic event. Listen ing to some people complain about how high Ninos Malek teaches economics at Valley Christian High School in San Jose, California, and is an eco nomics lecturer at San Jose State University and DeAnza College.

31 movie prices are or that they can't afford to take their family to a 4gers or Sharks game is a bit irritating. Maybe the price is out of the range for some to afford, but the fact is that prices are not too high-the proof of this is that the theater or stadium is sold out. The aters and professional sports teams would love to charge even more, but they can't because fewer people would attend. And, of course, consumers would love to pay nothing to get entertained, but that won't work either because suppliers would have no incentive to provide the entertainment. Economic theory dictates that supply and demand determine the prices for goods and services. When demand decreases or supply increases for a product or service, the price, other things being equal, will fall. When demand increases or supply decreases for a product or service, the price will go up-as it should. Any intervention to control prices would be, as the French classicalliberal econ omist Frederic Bastiat put it, plunder. The problem is that some people think it is their right to take their family to a movie or a hock ey game. Consequently, when some are priced out of the market, they protest and call for a legal maximum price, or what economists call a price ceiling. Unfortunately, the result of this ceiling will be a shortage of tickets.

Then there are the people who can afford to pay the ticket price and do purchase it, but still complain about the high price. One of Adam Smith's main insights in The Wealth of Nations is that unless both parties in an 32 THE FREEMAN/IDEAS ON LIBERTY • DECEMBER 1999 exchange think they will benefit, the transac tion will not take place. Therefore, when a person buys a movie or hockey ticket, or any thing, it demonstrates that that was the best use of the money compared to all other possi ble alternatives and, consequently, the bene fits of the transaction outweighed the costs. In other words, these people should stop com plaining. A Better Theater Smith's famous statement, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest," under lies a crucial concept. When the movie the ater spends thousands of dollars on bigger screens and sophisticated sound systems, is it because the owner cares about you? Not nec essarily. The theater spends this money because it is competing against other forms of entertainment for your dollar. By provid ing you with a better viewing experience, it benefits as well.

If prices are indeed too high, why do some people still go to the theater rather than wait for movies to hit the video stores? Some might say it's because they do not want to wait. In economics jargon, they have a high time preference. There's probably an addition al reason: the feeling people get when sitting in a packed theater. Some feel a sense of con nection with others when something inspiring or sad causes them to cry together. When someone does something without considering the costs or benefits to others, we call any side effect of that action an externality. Now I am almost certain that the people around me in the theater are not screaming, yelling, or crying because they are thinking about my enjoy ment, or utility. Nevertheless, I still receive a benefit. (Of course, the screaming child or the talker would be an example of a negative externality. ) I recently encountered the power of eco nomics in the movie that could financially surpass Titanic and Gone with the Wind (in both nominal and real terms): George Lucas's Star Wars: Episode One, The Phantom Men ace. It begins by stating that there is turmoil in the Galactic Republic because of the taxa tion of trade routes. The Trade Federation has stopped all trade with the planet Naboo, cre ating the conflict for the story. In the real world too, governments cause conflicts by infringing on individual freedom and impos ing tariffs, quotas, and trade embargoes.

Money also provided a point about eco nomics in The Phantom Menace. Money is anything that is generally accepted in trade of goods and services. In the movie our heroes need to replace a defective part on their space ship when they land on the planet Tatooine. When Qui-Gon Jinn offers a merchant "Republic Credits" for the part, he's told that these credits are worthless. An alternative to money is barter, so Qui-Gon has the ship checked for something tradable. He comes up empty-handed. This leaves no alternative but a risky bet that offers a high payoff. Yet again a simple principle of economics: it takes a high potential return to get someone to take a big risk. Some of my students thought I was going overboard with my passion for economics when I told them that I wanted to write this article. I hope they'll see what an enlightening tool economics can be even in their leisure time. D The apple icon , identifies articles that are appropriate for teaching students sever al major subjects-including economics, history, government, philosophy, and current issues.

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