ECONOMICS OF VALENTINE’S DAY Bolanos

The Most Wonderful Day!?!?

It's Valentine's Day, and there's nothing that I love more than free markets. In fact, our ability to appreciate and enjoy Valentine's Day is the direct result of the wealth created by markets.

History Why: Roman pagan celebration called Lupercalia, Who: Valentine refused to comply with Claudius II’s decree that young men should not marry When: Valentines began gaining steam in the US during the Revolutionary War. Hallmark!!!!

The Economics Three economic principles that are illustrated by Valentine's Day: The importance of free markets and wealth creation The logic of gift giving and signaling The seen and the unseen

History again As mentioned above, Valentine's Day is only possible because of free markets. Prior to the rise of capitalism in the 1700s and 1800s, only wealthy individuals were capable of buying gifts or spending leisure time with their significant others. Today, the average citizen can accumulate enough savings to buy a gift or engage in leisure activities on Valentine's Day.

Signaling!!

What signal am I sending?

What gift to give? Economists often argue that cash is the most efficient gift, as it can be used by your significant other to purchase whatever they desire. However, an important economic concept called signaling explains how purchasing gifts for someone else is actually a signal that proves that you've spent time thinking about them.

What did they really want?

The Numbers behind Valentine The average person will shell out $ Holiday spending is expected to reach $15.7 billion Consumers will spend… $3.5 billion on jewelry this Valentine’s Day, up from an estimated $3 billion last year; $1.6 billion on clothing vs. $1.5 billion in 2010; $3.4 billion on dining out vs. $3.3 billion in 2010; $1.7 billion on flowers; $1.5 billion on candy; and $1.1 billion on greeting cards.

Men – fork out the cash! Men will pick up the majority of the consumption slack on Valentine’s Day, with the average man spending $ to the average woman’s $75.79

Seen and Unseen Is Valentine's Day an economic stimulus? Many pundits argue that it is. However, using the concept of opportunity cost, economists argue that all the money spent on Valentine's Day could just as easily have been spent on something else or saved. The right way to think about Valentine's Day is the opportunity to find a gift that matters for the person you care about!!!!.

DEADWEIGHT? Joe Waldfogel of the University of Pennsylvania’s Wharton Business School, who estimated in his 2009 book “Scroogenomics” that Americans spent $66 billion on gifts in 2007, but that recipients only valued them at $54 billion, producing a deadweight loss of $12 billion to the economy Creates inefficiency due to unwanted or underappreciated gifts.