A Free Market in Candy at Austin High School

Austin-American Statesman: Kid candy sellers have the right idea

I'd like to applaud the young marketing geniuses at Austin High School who students claim sold candy bars in the halls to their sugar-deprived fellow students for $1.50 apiece.

As would I.

A Democrat looks at this sort of activity and thinks, "That's deplorable. Don't these youngsters realize Snickers are bad for your teeth?" A Republican looks at a kid selling banned candy to fellow students and thinks, "Way to go. Now that's the corporate spirit that made this country great."

I look at it as a case of supply and demand. The kids saw a demand, and they went out and bought the supplies.

As long as all transactions are voluntary, go for it.

The marketing opportunity for some enterprising young business types at Austin High presented itself after school administrators removed candy from vending machines. The purpose was to cut down on fat kids.

Next thing you knew, some smart kids were roaming the halls selling candy out of their gym bags at a healthy profit. I can buy a candy bar out of a machine at work for 70 cents. At $1.50 a shot in the hall at Austin High, that's a pretty hefty markup.

But why shouldn't it be? Somebody's got to pay for the risk these kids are taking. If they get caught, they've got to go talk to the principal.

Straight ecomincs, man. If you ban something (artificially restrict the supply) that has a sufficiently inelastic demand curve in a location where that something is desired, it is not hard to predict how the market will react. Sellers will appear in a "black market" to satisfy at least part of the demand. Prices go up to reflect one, that demand hasn't dropped to compensate for the supply and two, the increased risk the seller incurs in supplying the good. Given a long enough timeframe and enough interest, auxiliary markets will spring up to further the growth of the first, such as marketing and distribution.

"I've got to salute the undaunted entrepreneurship of Austin High students," said Texas Comptroller Carole Keeton Strayhorn, who graduated from Austin High in 1957. "My blood runs maroon and white."

Strayhorn said the youngsters selling candy wouldn't have to pay sales tax on the candy if they already paid the tax by buying the candy from another vendor, such as a convenience store. She added that the sales tax on the price markup would be "negligible."

Copyright 2001-2005 Cox Texas Newspapers, L.P. All rights reserved.

Mrs. Strayhorn is attempting to be all neighborly and nice here, but make no mistake about the reality. She, her organization, and the state of Texas have no fundamental objection to or opposition against taxing such sales. Since it's all cutesy kids stuff that luckily falls out of the realm of retail and since it doesn't constitute a significant source of revenue, they aren't after it. The benevolence of the government is all that stands in the way of such taxes. Do you trust in the benevolence of the state?

Alex Tabarrok also got ahold of the story last week in its original form.

Posted by Drizzten at February 22, 2005 01:19 PM