Living Economics

Value vs. Weight
The weight per dollar of the growing national output has been decreasing due to the embodiment of more advanced technology in the physical product and the higher-valued service components bundled with it.

If a genie offered you a choice between one pound of gold or one pound of Pentium III 800MHz microprocessor today, what would you choose? The Pentium microprocessor, I hope. Why? The dollar value of one pound of gold is only $4,827, but the price per pound of Pentium III microprocessor is $42,893.

That weight no longer correlates with value has been the dominant trend in the national output. The weight of the gross domestic product in the United States was less in 1997 than it was in 1977, but its dollar value was 70 percent higher. In 1977, each American accounted for $19,404 of output, which weighted about 5,300 pounds. In 1997, each American produced average $26,843 of output, which weighted about 4,100 pounds (Business 2.0 09/01/1999). In other words, the value-per-pound has increased from $3.64 in 1977 to $6.52 in 1997.

ENIAC, the first digital electronic computer, was so large that it filled a 30 by 50-foot room. Today a hand-held Palm Pilot computer can be easily carried around and provide much more computer power at any time and any place. Books, magazines, and newspaper do not need physical presence because they can be stored and accessed on computer. Music and movies can be transformed into electronic files and played on computers without having the physical tapes or CDs. Software can be downloaded and exchanged through the Internet. Online shopping allows people to buy just about anything with credit cards or e-cash without going to a physical store and paying with physical money. Today we are making higher-valued products with less physical materials. No longer is a bigger, heavier, more solid product a sign of quality. Value, instead, lies with the technology embodied in the product and the services it can provide (Business 2.0 09/01/1999).

The increasing dissociation of value from weight has reinforced the point that utility is not directly related to physicality of a product but the service value it embodies. Thus, even two physically identical products may offer very different utility depending on how differently they are bundled with other services and relevant conditions. In addition to miniaturization of physical products, the increasing service component in the national output that carries high value but low physical weight is one important reason that the physical weight per dollar of GDP has been decreasing.

References:
  • Colvin, Geoffrey. "We're Worth Our Weight in Pentium Chips," Fortune 03/20/00.
  • Meyer, Chris. "What's the Matter?" Business 2.0 04/01/99.
Access Tools
• Advanced Search
• Browse Micro
Comparative advantage (14) Competitive strategy (27) Costs and opportunities (53) Entrepreneurship (3) Externality (28) Free Market Solutions (17) Free Ridership (3) Game Theory (22) Incentives (13) Income Distribution (25) Information (19) Labor Market (24) Marginal optimization (33) Market Demand (17) Market Entry (9) Market Exit (2) Market Intervention (12) Market Structure (29) Market supply (4) Material Flow (2) Miscellaneous (3) Price Discrimination (17) Pricing Strategy (46) Profit maximization (48) Property Rights (42) Regulation (16) Rent Seeking (2) Risk Taking (12) Scarcity (10) Tastes & Preferences (27) Taxes (7) Technology (9) Type of goods (31) What Price Means (27)
• Browse Macro
Boom and Bust (9) Budget Balance (12) Comparative advantage (13) Economic Development (1) Economic Indicators (6) Fiscal Policy (12) Incentives (1) Income and output (25) Income Distribution (5) Labor Market (6) Money and Credit (20) Regulation (5) Rent Seeking (1) Saving (6) Taxes (4) Technology (1) Trade and Foreign Exchange (30)
• Glossary
List All
Search

• Microeconomics Lectures • Macroeconomics Lectures
Instructor
• Instructor Log in • Sample TOC • Demo/Register • Video Tour
Student
• Student Log in
Close
Instructor Log in

Class
Close
Student Log in


Open Menu
Term
Definition