Marginal Utility - June 2002

I just learned some new economic stuff and tried to apply it to my business. The "law of diminishing marginal utility" caught my eye as something important. It goes like this:

The marginal utility of a product declines as more of it is consumed in a given period of time. The textbook gives the example of a box of popcorn, stating that you will get more satisfaction from the first box than you will from the second. By the time you eat the fifth box, you are in negative territory. You can even calculate the marginal utility by dividing the change in total utility by the change in quantity. That means someone has to assign utility values to each unit marginally consumed. I am not making this up. This is a serious course.

I decided to try to figure out how this "law" would work in the floral business. So as to not be unreasonably prejudiced, I decided to look at cut flowers instead of pot plants.

First, what constitutes a unit? Is a unit one flower? If so, then according to the "law," each additional flower I add will bring incrementally less pleasure than the first. But that does not work. Since i know this is an economic "law," I must have the units wrong: Maybe I should switch to a bouquet as the marginal unit. Now I have one nice bouquet. I add one more, knowing it should not bring as much pleasure as the first. Oops, something is wrong: I enjoy the two bouquets more than twice as much as the one. As I add flowers, the effect is the same-more satisfaction.

Well, I am in this business, so maybe its just me. I better think about how people use flowers in the real world: People get serious about flowers at weddings. Does the bride's mother calculate that they should have fewer flowers because each additional bouquet declines in satisfying or bringing pleasure? How humiliating if the guests started to grumble about the wedding having too many flowers! I personally have never heard that complaint, no matter how opulent the floral arrangements. My experience is just the opposite. People rave when the flowers are fabulous. Now, we are talking about a serious economic "law," so maybe weddings do not count for some reason. I better dig a little deeper.

Funerals are known to have an excess of flowers. Do the grieving just hate them? No, they really seem to like flowers. Okay, forget funerals. What about flowers after a child is born? Mom wants one bouquet (maybe two, at most) and will reject additional flower arrivals on the basis that the next flowers do not mean anything. I have never heard of that either. How about the floral holidays? Surely the mothers of the world would like a reasonable number of flowers. If you send your mother a bunch of really nice flowers, and so does your brother, and your sister, by the time Dad brings home more, Mom wants nothing to do with them. No, that does not seem quite right. On Valentine's Day, we know the way to get on the right side of our significant other is to send a small but meaningful bouquet to the office. Under no circumstances should we have more of the same at home because according to our economic law, the marginal utility is not there.

I attend a lot of orchid shows. They are among the most beautiful type of flower shows on may attend. In all the years of doing this, I have never heard anyone say, "I just wish there were not so many flowers. I would like to see some tires or tractor parts to get me to optimum consumption, allow me to maximize utility." That has never happened.

I must conclude that we have one of the very few consumer products that breaks the law of diminishing utility. If that is as true as it seems, then perhaps we should be selling a lot more flowers. Could it be something, as producers and retailers, we are doing or not doing? No, that statement violates the law that states we will judge others by their actions and ourselves by our good intentions.