October 4, 2011

Here's Something That Regular Economics Can't Explain

This is actually the first idea I've had that made me think that current economic Theory is broken.
Also, before I start, I'm sorry that the only numbers to back me up here are from my own memory, but there are no regular statistics on these subjects.
So here goes:
In 1990 I distinctly remember being a youth councilor in Ashkelon. I was trying to train a group of junior councilors, and the Rabbi of the congregation wanted a session with the energetic youths.
He started the session with a meditation on the subject of Shawarma. it went something like this:
"Shawarma. Think of it. Shawarma. Lusciuos tasty Shawarma, with Tahina, and all you can eat salads. But the pita is too small, and the price just went up from 5 shekel to 6 shekel (about 2.50$ to 3$ at the 1990 exchange rates)..."
This is actually the point. Shawarma in 1990 cost 5 or 6 shekels. today it costs 24 to 30 shekels (7$ to 9$ at current exchange rates). This is a serious climb in the price.
So far, it's hardly shocking. But Sushi prices in Israel actually went down at the same time! from 40 shekel in the early 1990s (about 20$!) to about 24 shekels now (about 7$).
How can this be?
Regular economics cannot explain this, but economies of scale can. It's just that more people eat Sushi in israel now, and fewer people eat Shawarma than in 1990. Still, Shawarma is more popular than Sushi, only the difference is smaller. So competition in one area went way up, and in the other area it went way down.
People don't meditate about Shawarma so much now.

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