Wednesday, September 07, 2005

Moon Cake Economics

Mid-autumn festival is coming soon and businesses across China are busy preparing all kinds of things that consumers will want to buy for celebration. One of the things people will usually buy to celebrate the festival is moon cake, a cake-like confection.

In the name of protecting the interests of consumers, the local government in Shanghai has recently promulgated a law restricting the amount of expenses that moon cake producers can spend on packaging. Starting from now, packaging costs cannot exceed 20% of the retail price of a box of moon cake. (Usually there are four pieces of moon cakes in a box)

But why 20%? If indeed the government thinks packaging is useless to a consumer, then to protect the interests of the consumer, one will certainly think that the smaller the ratio of packaging expenses to the retail price of a box of mooncake the better it is to the consumer. So why stop at 20%, why not limiting that ratio to 15%, 10%, or 5%? Even better, why not the government simply sets down a rule that prohibits packaging. Once we ponder questions like these, one immediately sees the folly of governmental regulation in the name of safeguarding our interests.

A deeper question regarding government protecting our interests is: how does the government know what are our interests? In a market, we reveal our interests through money votes. Without such mechanism, how can the government discover what our interests are.

Furthermore, given each individual's interest is different from one another, how can the government set a one size fits all policy that protects all consumers' interests. In the moon cake example above, what if the very reason I purchase a box of moon cake is simply for the sake of its packaging but nothing else. If so, then how can the government policy that restricts the amount spent of packaging enhances my interests?

Another question I would like readers to think over is this: Let say for some mysterious reason, the government actually knows what each and every individuals' interests are, and all officials do not have hidden agendas of their own other than serving the interests of the public, is there ground for having the government setting policies to safeguard our interests? Comments are open.

1 comment:

Penny Jean said...

Moon cake? This artical was a litte deep for me but I love studying eco. so your story was insightful.