My local farm stand attracts hundreds of people during fall weekends with hayrides, apple picking, and a pumpkin slingshot.
Their pricing though was what I found most fascinating.
Pricing a Pumpkin Slingshot
For $16 you get a hayride, access to the apple orchard, a doughnut and two pumpkins from the pumpkin patch. You also could try to navigate the corn maze and take your children to the corn pit and hay bale maze.
But here is where it gets (economically) interesting.
The pumpkin slingshot is not included in the $16 package. (Neither are the apples that you pick.) If you visit the pumpkin slingshot, it costs $2 for three tries. If your pumpkin hits a bell or lands in a barrel, you get a free pumpkin. Hoping to win, people keep returning and paying an extra $2.
But they do not keep returning to the hayride or the maze. So the farm gave those activities a package rate.
A typical pumpkin slingshot resembles this device:
Our Bottom Line: Economist Alfred Marshall
A parking garage and my local farm perfectly describe why we remember Alfred Marshall’s (1842-1924) marginal analysis.
Assume for a moment you need access to a parking space near where you work. You can purchase a monthly pass that lets you occupy a space as many times as you want for 30 days. Or, you can pay for a spot every time you go to work.
The deal you select determines your incentives. With the monthly, it is likely you will go to work more frequently. However, with the daily, you do not because you pay for each visit.
Alfred Marshall was the first economist to look at the significance of the margin. Defined as where you start to use extra, the margin determines your incentives. With the monthly package you pay nothing extra (nothing at the margin) until the month ends. But when you purchase parking each time, you have less incentive to drive to work.
Marginal analysis was Alfred Marshall’s gift to economics. He let us see that the cost of something extra is the key to understanding demand- and supply-side behavior…
And why you only get three tries with the pumpkin slingshot for $2.
My sources and more: My walks are always more pleasant when I listen To Timothy Taylor’s Legacies of Great Economists. His discussion of Alfred Marshall was especially memorable. Somewhat similarly, you might also enjoy the Alfred Marshall chapter in New Ideas From Dead Economists. My last choice, a distant third, is to read about marginalism here.