Applying the Oranges Principle to Dieting and Chocolate
By David Henderson
In “Freakonomics Discovers Alchian’s and Allen’s ‘Oranges Principle,’” I laid out what we UCLA Ph.D. students learned from Alchian and Allen’s famous economics textbook, University Economics. By the way, Jerry Jordan announced at the recent Association for Private Enterprise Education (APEE) meetings in Las Vegas earlier this week that the book will be reissued by Liberty Fund. It’s amazingly low priced.
The gist of the principle is this:
Imagine high-quality oranges sell for $2 a pound and low-quality oranges sell for $1 a pound, all in Florida. The transportation cost to Minnesota is $0.50 per pound. The relative price of high-quality to low-quality oranges in Florida: 2/1. High-quality oranges are twice as expensive. The relative price of high-quality to low-quality oranges in Minnesota: 2.5/1.5, or 5/3. High-quality oranges are only 67% more expensive. So the ratio of high-quality oranges to low-quality oranges consumed by Minnesotans will exceed the ratio for Floridians.
See the unusually good comments in the original post for the appropriate qualifiers.
I’m applying this in my dieting. One of my main goals is to cut my intake of carbohydrates and sugar. I also, though, think on the margin. So I want to use less of those things, not zero.
I also love chocolate. So I typically have one little piece of chocolate every evening just after dinner.
But what kind of chocolate? That’s where the oranges principle comes in.
Answer: High-quality chocolate.
Here’s the reasoning. Now that I’m trying to cut on sugar, there’s a “shadow price” on sugar content, simply due to the fact that I’m dieting, that’s the same whether the chocolate is high-quality or low-quality. So add that shadow price in to both the price of high-quality chocolate and the price of low-quality chocolate. Now the ratio of the full price of high-quality chocolate to the full price of low-quality chocolate is smaller than before I was dieting. So I no longer have things like Girl Scouts cookies and what chocolate I do eat is typically Ghirardelli.