“Inflation” is the Word of the Day today (though some would have you believe it’s “January 6”). And it’s no wonder. The new numbers are out and they’re terrible, horrible, no-good, and very bad.
But when it comes to actually understanding what’s happening economically, a lot of people may be struggling to make sense of the nitty-gritty. Particularly if they’re turning to Twitter for explanations.
That’s where Iowahawk comes in. As karma’s janitor, he’s used to having to wade through a lot of crap. So who better to cut through all the crap that’s out there today and get down to business?
Economics for those who find Fisher Price toys too complicated. And he's entirely correct. https://t.co/9fV12AS7s2
— Physics Geek (@physicsgeek) June 10, 2022
“He’s entirely correct” is pretty much evergreen when it comes to Iowahawk. And yes, this is no exception.
Please to enjoy (and share, because it’s just that good):
It has come to my attention that trying to understand economics by reading Twitter is like trying to understand astrophysics by attending Flat Earther Con
— David Burge (@iowahawkblog) June 10, 2022
Dave’s Taco Stand dishes up the best perspective.
At Dave's Taco Stand, we assume a downward sloping demand curve; the more we charge for a taco, the fewer tacos we will sell. If you want a simple math representation,
tacos sold = A + B * (taco price), where B < 0, or
T = A + B*P
— David Burge (@iowahawkblog) June 10, 2022
Also, the amount of revenue we will generate is the number of tacos we sell multiplied by the taco price:
R = T*P, or R = P(A + BP) = AP + BP^2
— David Burge (@iowahawkblog) June 10, 2022
With him so far?
but as filthy capitalists, we at Dave's Taco Stand are all about those sweet, sweet taco profits. It costs us something to make each taco, let's call it C. So our total profit is the # of tacos times the difference between taco price and taco cost:
— David Burge (@iowahawkblog) June 10, 2022
or
Profit = T*(P-C) = (P-C)*(A + BP) = AP – AC + BP^2 – BCP
or Profit = -AC + (A-BC)P + BP^2
whaddaya know, a quadratic equation, and since B<0, a parabola with a single peak.
— David Burge (@iowahawkblog) June 10, 2022
Now being a filthy profit hoarding Taco baron, I wish to maximize those profits by (1) taking the 1st derivative, setting to 0, and solving for the price that will maximize profits.
1st derivative of profit = (A-BC) + 2*BP = 0
profit max price = P* = (BC-A) / 2B
— David Burge (@iowahawkblog) June 10, 2022
*to be continued, I have a taco stand issue to attend to rn
— David Burge (@iowahawkblog) June 10, 2022
A filthy profit hoarding taco baron’s work is never done!
OK, I'm back, finally got the grease fire out.
So let's say
A = 100 (my total taco making capacity, if I was giving them away for free)
B = -10 (I will sell 0 tacos if I price them above $10)
C = $2 (it takes me 2 dollars to make a taco).
— David Burge (@iowahawkblog) June 10, 2022
from the equations my profit maximizing taco price is $6, at which price I will sell 40 tacos, and make $4 dollars on each taco for a profit of $160.
*Don't bitch about my $6 tacos, I include free beans, rice, salsa, and chips with every dinner
— David Burge (@iowahawkblog) June 10, 2022
That’s a great deal.
Screw that, though! I want my customers to suffer both gastronomically AND economically, so Imma jack that taco price up to $7!
At which price I will sell 30 tacos, make $5 per taco, for a total profit of… $150. WTF?
Blimey this taco price gouging is complicated
— David Burge (@iowahawkblog) June 10, 2022
Go ahead, plug whatever price you want in there, I'll never make more filthy profit than I do with my $6 taco value meal.
— David Burge (@iowahawkblog) June 10, 2022
OK, now let's say in light of these crazy $6 tacos, Congress passes the vital American Taco Recovery Act (ATRA), with vouchers to help offset the cost of the tacos.
Hot damn! Now everybody will be demanding more tacos at *any* price, and my new A is 120.
— David Burge (@iowahawkblog) June 10, 2022
Now my new profit maximizing price is $7, at which price I will sell 50 tacos, make ($7-$2)=$5 on each taco, for a total windfall profit of $250.
Woo hoo! Call the Yacht Store!
Oh wait WTF the cost of making my tacos (C) also went up for some reason, to $2.50 per taco.
— David Burge (@iowahawkblog) June 10, 2022
Oh well, I guess I'll just max my profits again with a new price of $7.25, at which price I will sell 48 1/2 tacos, for a total per-taco profit of $4.75, and total profit of $230.38.
Oh well, less that $250, but a shit ton more than the dark days before American Taco Act.
— David Burge (@iowahawkblog) June 10, 2022
But being a humanitarian, I am concerned about taco affordability. Be right back, off to distribute campaign donations to Congress so they will pass the new American Taco Recovery Act II.
— David Burge (@iowahawkblog) June 10, 2022
Heh.
*Also please note my money grubbing equations do not include fixed costs (taco stand rent, etc). Because fixed costs are fixed, only impact total (rather than per taco) profit, and have no bearing on optimal taco price.
— David Burge (@iowahawkblog) June 10, 2022
He really has thought of everything. Like, everything:
**Also I just changed the name of Dave's Taco Stand to Dave's Taco Fiesta, because we are always DTF
— David Burge (@iowahawkblog) June 10, 2022
Hell yeah.
Sometimes I think you might actually be smarter than you claim
— Greg Brubaker (@twobru) June 10, 2022
P’shaw. Twitter standards may be subterranean, but that doesn’t change the fact that David Burge is a genius.
A lot of people could do worse than to drop by Dave's Taco Stand for a good corn tortilla street taco and Econ 101 lessons. https://t.co/E31iXNfdWM
— Jeff B. is *BOX OFFICE POISON* (@EsotericCD) June 10, 2022
True story.