In the past few years my hometown of Tucson, AZ has seen a recent rise in the number of food trucks. This is a trend that I think is common across the nation. What is causing this trend? How are these mobile food vendors able to compete with stationary restaurants?

There are economic advantages to both food trucks and restaurants. First, you can compare the costs required to operate each. Both have the variable costs of food and labor, although restaurants will have a higher labor cost because they employ waiters and usually more cooks. Restaurants also have sunk costs such as rent and utilities for the building they are in and the furniture used. Food trucks have a sunk cost of the truck itself and an additional variable cost that is gas. Comparing the fixed and variable costs of each, one could assume the total cost of operating the restaurant is higher, which would require it to charge higher prices. Being able to charge lower prices would attract customers which would allow more food trucks to enter the market.

Another thing to consider when comparing restaurants with food trucks is the supply and demand curves for each. If you were to compare the supply curves of restaurants and food trucks the supply curve of food trucks would be shifted backwards and to the left from that of restaurants. This is due to the fact that a truck simply cannot hold as much food as a building so the truck cannot supply as much food in a given period of time. This would suggest that the equilibrium price for a food truck would be higher and the equilibrium quantity would be lower. When you look at the demand side of things, one reason food trucks have been popping up all over town is that they are the most recent fad. Consumer preferences push the demand curve outwards and to the right. Food trucks are also complements of alcohol sold at bars. There is a bar in Tucson that doesn’t sell food and will frequently have food trucks parked outside. This complementary relationship also shifts the demand curve outwards. The shift in demand caused by preferences and complements will also cause the equilibrium price to rise.

When comparing the costs with supply and demand, it becomes ambiguous whether food trucks will sell food at a higher or lower price than the average sit-down restaurant. When you look at real life examples you see that in general restaurants charge higher prices over-all. This would suggest that the lower average variable and fixed costs have more of an effect on pricing than the shifts in supply and demand. Being able to charge lower prices is one way in which food trucks have a competitive edge.

There is yet another economic factor to consider when considering the recent success of the food truck industry in Tucson. While the main competitors for food trucks are restaurants, they are not perfect substitutes for one another. What is it that makes these products different enough that food trucks have an edge over traditional restaurants? Most importantly, food trucks are mobile while restaurants are not. The ability to easily move around town allows trucks to choose the most convenient locations for customers depending on the time of day or day of the week. On week days a truck can station itself near office buildings for workers to grab lunch, or near parks on weekends for families to stop by and grab a bite to eat. In terms of convenience, food trucks have an advantage over their building-bound competitors.

The Metropolitan Museum of Art is planning renovations to improve its modern and contemporary art wing in order to be able to better compete with other museums in New York City. The article from The New York Times about the renovations can be found here. The Metropolitan Museum is one of the best art museums in the world, but in New York City there are many competitors for modern art galleries.  The Museum of Modern Art and the Whitney Museum are two examples of competitors in this market. In other areas, the Met has almost no competition, with a near monopoly on pre- modern art displays. Competition between museums is interesting because it is not perfect competition, since only one museum can own a specific piece of art and works by famous artists are a very scarce resource, making it harder to compete in the market. The Met recently received a donation of 79 cubist paintings, so in order to take advantage of this the museum is looking to create a new space that will allow these pieces to be well displayed. These pieces will help draw consumers (art audiences) to the Met from other modern museums throughout the city.

Another important thing about this renovation is that it will be a sunk cost, but after it is completed variable costs will be fairly low. Once the space has been completed it will hopefully encourage more art collectors to donate pieces, which would have no cost for the museum. The space itself though, especially if it is completely from the ground up, could cost hundreds of millions of dollars and close down parts of the museum for long periods of time. This would be an implicit cost since closed down wings will deter some visitors, taking away the admission donations they would have paid. Once the wing is open though, there would be small variable costs once the art is hanging and on display. Overall it seems like this renovation is a good idea since it will attract more audiences to the Met, which in the long run will outweigh the cost of the renovation. And art is a wonderful part of our world that deserves to be shared and viewed and admired.

I applied to work reunion this summer about a month ago, and ever since then every conversation with my mom the question of when I’m coming home has arisen. This is due, not only to the fact that my mom wants me home as soon as possible, but also because my mom is anxious to buy my plane ticket home and needs to know whether I’ll be staying an extra two weeks. There are many economic concepts that factor into this decision.

Firstly, this problem can be approached from the point of view of the airlines. My mom is anxious to purchase the ticket as soon as possible because tickets are cheaper the further in advanced they are bought. This is because far in advanced the demand for a plane ticket is fairly low, but as the date gets closer the demand increases as people decide what days they want to travel on, causing the equilibrium price to rise. Therefore the earlier you can buy a plane ticket the cheaper it will be.

Besides the changing explicit cost of the plane ticket, my mother and I also had to weigh the opportunity cost of buying a plane ticket sooner versus later. If I bought a plane ticket earlier, before hearing back about the job offer for reunion, I would be giving up the income I would have made during that week. The amount I will make during reunion is substantial enough that it was worth waiting a few extra weeks, even though the price of plane tickets probably rose in this time period (I did get the job).

Another consideration was whether or not I could have flown standby. If I had more flexibility in my schedule flying standby could have been a cheaper option. This is because for each trip airlines have a fairly high fixed cost and relatively low variable cost. The plane itself is a sunk cost, and regular maintenance to keep the plane safe is required regardless of the number of passengers. The cost of jet fuel depends more on the distance of the flight than total weight added by a few extra passengers and their luggage, and the same number of crew are on a flight whether it’s 80% or 100% full. Because of this it is beneficial for planes to fill as many seats as possible. Therefore on the day of the flight airlines will drop the price of a ticket because selling a cheaper ticket is better than having empty seats. The trade off for costumers is that even though tickets are cheaper, there is less certainty of the availability of tickets at this point.