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Lecture 12

ECN 340 Lecture Notes - Lecture 12: Real Income, Demand Curve, Pecan

Course Code
ECN 340
Thomas Barbiero

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Chapter 12 Fat Economics Why People Have Been Getting Fat
Why do so many overweight people eat high calorie items, such as pecan rolls (720
Over the last half century there has been a world wife weight-gain problem, including
Excess weight has been associated with at least 35 diseases, particularly diabetes and
heart disease
The overweight problem has led for a demand for larger cars, thus more gasoline and jet
fuel (due tom heavier passengers)
We will see that the main issue is that the full price of fast-food is lower than the price at
which on could make the same food at home
Many lay the blame for obesity on people’s loss of control or businesses’ greed to take
profit, but these explanations do not stand up to security
While obesity and weight problems is particularly acute in the U.S., it also a major
problem in Canada
The Relative Price of Food
Since the 1950’s people’s income has risen faster than prices. Real income (inflation
adjusted) is higher than it was 60 years ago
Food prices have risen, but not as much as other prices, thus a relative bargain
What do we know about the demand curve? The law of demand
Food prices have move in tandem with other prices (Consumer Price Index CPI), but
relative to other prices of food prices have fallen, particularly between 1960-2000
The wide-spread weight gain can be at least partially attributed to the drop in the relative
price in food
Note: Relative food prices rose after 2000 and the obesity rate slowed
Some researchers found that lower relative food prices accounted for 55% in the rise of
the average Adult Body mass Index (BMI)
Drop in the relative price of food takes time to translate into a high BMI
Study of 4600 university students from 2006-09 showed the rise in the rate of obesity
slower. Why?
Food prices generally rose, particularly corn which used to produce ethanol, used to mix
in gasoline, leading to a rise in the price of corn. Corn and its by-products used in many
food products
The increase in global demand for food products (particularly in China and India due
to rising incomes) has contributed to the relative food price increase after the year 2000
Note: In the U.S. states have higher taxes on food have lower rates obesity rates
So far, the rises of healthy foods prices (carrots and broccoli) compared to unhealthy
foods (hamburgers and pastries) appears to have contributed little to weight gain
according to research as one would expect
But perhaps it will in the longer run
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Still we should not look at just price tags but full prices
The price of preparing unhealthy probably fallen more than the time required to prepare
unhealthy foods
As a consequence in the U.S., individuals on average are consuming about 18% more
calories than they were a few decades ago
People are living longer, thus more time to pack on more weight. People gain more
weight as they age
The Great Recession (2007-2009) brought about healthier lifestyle in some, but generally
increase waistlines as the unemployed consumed fewer fruits and vegetables and more
junk food
During the Great Recession people ate at home more often and thus spent less on junk
food. Also:
o People driving less and walking more and riding a bike
o More people growing their own food
o Generally less alcohol consumption; alcohol can pack on calories
The Real Price of Gasoline
The price of gasoline in real terms has fallen over the long-run
Cheaper gasoline prices add to weight gain because:
o Jobs become less strenuous
o People go out to dinner more often because lower gasoline prices mean more $ for
restaurant meals
Generally people consume more calories when dining out
Falling real gasoline prices, along with heavier individuals contributed to the increase in
demand of SUVs
Generally, as incomes (helped by lower gasoline prices) has risen so has the obesity rate
Example of rising income and weight gain: In China, the obesity rate has doubled over 11
years as its citizens consume food
o As transportation costs have fallen (due to lower real gasoline prices), people
drive more and walk less
Growth in Out-of-Home Meals
Huge growth of fast food restaurants in the last 40 years
More fast food restaurants in low income neighbourhoods
More fast food restaurant choices Thai, Chinese, Indian, etc.
Increasingly you can have the food delivered at home
Are people rationally accepting the costs of weight gain that goes along with the
pleasures of eating?
In the U.S., the density of restaurants in linked wit increase Bio-Mass Index
Number of meals per day? 4.4 Plus snack (in the U.S.)
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