Surplus Economics

How do all-you-can-eat restaurants make money?

Traditional economic theory says demand is fundamentally insatiable.  People always want more of everything.  Even with the law of diminishing returns, economists still assume that getting a little more of any good will always make you a little bit happier.  This idea has even been codified into the law of scarcity – the problem of infinite human needs and wants, in a world of finite resources.

And yet, all-you-can-eat restaurants make money.  Why doesn’t the first person through the door eat everything?  Clearly, for some goods, demand is not insatiable.

According to the law of scarcity, it is an iron rule that demand will always be greater than supply, and therefore consumption must be restricted in some way.  Whether through prices or rationing, people cannot be allowed to consume as much as they want because there can never possibly be enough.

But what if scarcity doesn’t apply to some things?  The demand for food isn’t infinite.  And our current technological society is very productive.  It’s rediculous to think that we couldn’t produce enough food to make everyone in America say “No thanks, I’m stuffed.”  We could do that if our society decided to use it’s economic resources in that way.

Economics already has a concept called free goods for things like air where everyone can have as much as they want without anyone having to lift a finger to produce it.  What I’m suggesting is a different catagory.  A surplus good is something that would be scarce if we didn’t produce it, or didn’t produce enough of it, but that we have the ability to produce enough to entirely satiate a finite demand.  Whether something is a free good, a surplus good, or a scarce good may change in different times and places.  And any society will most certainly have instances of all three types.

This could lead to a new paradigm of surplus economics instead of scarcity economics.  There would still be problems to solve of how to gather information to know how much production is required to satiate demand, how to motivate productive behavior, and how to share the costs of production fairly, but gone would be the problem of how to restrict consumption.

This may sound like kind of a weird idea, and you may be wondering where am I going with this.  I didn’t want to throw too much into a single post so I’m going to elaborate on this idea in another post later.  Stay tuned.

1 comment so far ↓

#1 Bob Steinke on 08.26.09 at 12:06 pm

I’m going to pre-respond to a possible argument against my idea that I expect I might get. Someone might say, “Demand for food isn’t finite. If we started letting everyone have any food they wanted for free people would just demand fancier food. They would eat caviar three meals a day. If you say ‘caviar isn’t on the list of foods we provide’, then you are rationing and you are right back to scarcity.”

I would argue that eating expensive food for its status value, or eating some exotic delicacy for its exquisite taste or the adventure of doing something exotic is a completely different good from eating enough nutritious tasty food to satisfy your hunger.

And “food” may be too broad a category. In a particular society it may be that hamburgers and chocolate bars are surplus goods, while caviar is a scarce good.

And I’m not saying that something must be provided in surplus to be a surplus good. I’m just saying that it is possible for a society to produce a surplus. Whether that society decides to do so depends on it’s economic system.

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