We’re lucky when the teaching moments come to us.

My wife was explaining how she got a discount on milk yesterday. Apparently, the local Walmart and Publix are in a price war over milk which has dropped the price per gallon more than 90 cents. My six-year-old daughter wanted to know why the Walmart checker dropped the price without even being prompted.

“Let’s say you and Ryan are selling cupcakes,” I said. “You are selling them for five dollars, and Ryan is selling them for three. Who makes more money?”

“I do,” she said.

“Okay, now say I have ten dollars (holding up 10 fingers). I can buy two of your cupcakes (spending the fingers), or I can buy three of his and still have a dollar left over (re-spending the fingers). NOW who makes more money?”

“Ryan does.”

“So what do you need to do?”

“Charge three dollars,” she said.

Why is it that Adam Smith’s invisible hand is so difficult to understand?  Functional adults deny its existence because it clashes with their ideology, yet a six-year-old gets it in 30 seconds.

[tags]Ike Pigott, Occam’s RazR, economics, Adam Smith, Invisible Hand, education[/tags]