My Son's Battle with Economics
There was a problem with the furnace.
It’s late in the afternoon, and I’m sitting at home thinking about what to do. Last year, our furnace started struggling. Sometimes it would be fine. But other times, we would turn up the heat, and the furnace would try to light, but then it would give up. We made it through the winter, but last winter we didn’t have a baby.
My 10-month old son motivated me to fix the furnace. I didn’t realize that it was going to cause problems for my 7-year old son.
I’m sitting at home on this afternoon, and I call a repair service to schedule an appointment for later in the week. The operator says, “I can have someone there in 30 minutes.” And sure enough, 30 minutes later a technician appears in front of my house.
Can we pause to marvel at how amazing this is? I can’t even get UberEats to deliver food to my house that quickly, and that’s a business that dies if delivery takes too long. Somehow a technician can get to my house on a moment’s notice? From our discussion, it sounds like smartphones have transformed their service business. The operator could track where technicians were, then found one who had just finished a job. She called him and sent him to my house. Think about how much this helps their business. This technician had finished his last job of the day at 3:30. In ye olden days, my job would have been pushed to another day, but since he was available and I was home, we were instantly matched and he got an extra job when he would have been idle. Economics!
So I take the technician to the furnace. And of course, this is a spectacle for the kids. They all want to hover and see what he’s doing. He confirms there’s a problem, and about 10 minutes later he finds the source. There’s a blockage in the exhaust pipe—the one that carries the poisonous carbon monoxide out of our house, and the furnace has a failsafe that switches it off if there’s a block (thank goodness for modern engineering saving our life). After a couple minutes of assessing the best solutions, we decided to hook up a vacuum to the pipe and see if that worked.
It did!
At the end of our adventure, I was settling the account with the technician while my 7-year old stood nearby. “The good news,” the technician said, “Is that since we didn’t need to replace any parts, you only have to pay for one hour of labor.” And it was good news! But my son immediately objected. “You have not been here for an hour! You shouldn’t be charging us for a full hour.” The tech chuckled and explained there’s a minimum charge for house calls. My son wouldn’t relent. “You got here around 4:00, and my sister just left for piano, so it’s 4:30 right now. So you were only here for 30 minutes. You shouldn’t charge us the full hour.”
He was adamant. He thought this guy was trying to rip us off.
But in so many ways, my son was wrong.
Let’s review the basic economics. I appreciate my son’s natural intuition that this guy should be charging us the marginal cost. But his 7-year old view of the world thought marginal costs and variable costs were the same. He left out fixed costs. The company has overhead to cover the costs of a building, an operator to take my call, and apps that track technicians. Yes, the fixed costs average out over all of the visits they make, but the marginal cost of the visit still includes fixed costs for our particular visit. This guy had to get out to our house, which includes travel time, gas, etc. If he had fixed our problem in one minute, he would have lost money on the visit. I’m proud of my son’s intuition, but apparently I need to address some of his economic thinking.
Now let’s address the other side of the equation. This morning we had a snow squall. I could not see out my windows because the snow was whipping around outside. And it’s only the first week of November. This furnace is essential to keeping our house comfortable in the winter. And, especially with a baby, it literally works to save lives. When I called the service center, I was expecting a drawn out battle to try and get someone here to diagnose and fix the problem. Instead, everything was done an hour later.
Do you know how much consumer surplus I got out of that hour? And the guy is only charging me for one hour of work?
Sorry to break it to you son, but I feel like I’m ripping him off!
But that’s the nature of competitive markets. There are other service centers and technicians we could have called. This one attracts business by making sure calls are answered quicker than you can get a pizza. Through competition, the price is driven down to marginal cost, and we get a ton of consumer surplus.
Thanks markets.