Polls / March 8, 2011

In response to high food prices, would you rather packaged food prices rose or packaging sizes shrank?

eZonomics poll respondents are split over their preferred response to rising food prices. A quarter – or 25% – prefers packaged foods’ prices to rise in line with market conditions and 30% prefer the price to stay the same and the packaging size to shrink.

The case of the shrinking chocolate bar
Food prices are at record highs – with the United Nations Food and Agriculture Organisation Food Price Index last month at its highest level since the index began in 1990. Prices are high partly because of weather conditions cutting supply of main food staples, such as wheat and corn. Some food manufacturers are responding to these rising commodity prices by shrinking the size of products – rather than raising prices. The BBC writes how Cadbury’s Dairy Milk is among the chocolate bars being “downsized” to keep the retail price constant as ingredient costs rise.

Don’t be fooled by size illusion
Manipulating packaging sizes can produce a result similar to the behavioural economics notion of “money illusion”. The eZonomics article What is … money illusion? details the tendency for people to think of the face value of money rather than its real buying power. Likewise, people have a tendency to think of a packet of processed food (be it chocolate, pasta or something else) rather than focussing on the detail of how large or small the packet is.

Work higher food prices into a budget
High food prices present challenges for households and the wider economy. At the most basic level, it might pay to keep close watch on the cost of the food component of a household budget over time. Perhaps adjust spending in other areas to compensate if the price of food is increasing and cannot be cut.

BudgetFoodMoney illusion

eZonomics team
.(JavaScript must be enabled to view this email address)

Have your say

Would you tell your partner about any money worries?