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Ice Cream Economics

The New York Times has a really interesting article about gourmet ice cream and whether the premium prices that people pay for it are justified.

(from Flickr user hopemoore)

Let's begin with this question:
But is there any good reason for ice cream — basically milk, sugar and eggs — to cost more per ounce than wild Atlantic smoked salmon or prime rib-eye?
This seems to be a common assumption that people make when it comes to thinking about price: that things ought to be priced equal to the cost of the inputs, even if that ignores any overhead costs that may exist. Yes, when it comes to ice cream, milk, sugar and eggs may be inexpensive, but hand-made ice cream requires a huge labor input to make the stuff, not to mention the labor required to staff the stores and scoop the cones. Plus, most gourmet ice-cream stores tend to be in highly desirable neighborhoods and locations, and the rent on those storefronts does not come cheap.

It would be one thing if nobody was buying this ice cream, but they are; which leads to another key points: demand exists for premium gourmet ice cream, even at high prices.

People often say things like "I could make this stuff at home for a fraction of the cost" and in many cases it's true. But making ice cream as good as the stuff you buy at a gourmet scoop shop is not easy, and even if there are people can pull it off, many of them simply won't be willing to go through the process of doing it all the time.

Lastly, there's something to be said from the libertarian paternalist's perspective. Why is cheap ice cream so great for society? At the end of the day, the fact that people are paying more money for smaller portion of something as unhealthy as ice cream might not be the worst thing in the world.

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