TJ's Recess Economics

I was linked this video the other day from one of my all time favorite TV shows, and thought I'd discuss where it doesn't grasp economics as well as one might've hoped.

First, watch the video. It's quite amusing.

A brief rundown then:

The school's recess "privatizes" in TJ's absence (in the way one might privatize a dorm). Capital and land that was previously unowned by individuals was distributed as property in an undisclosed fashion. 

Whether their method was just, considering some who previously had claim to these resources were entirely left out of the distribution process-- such as TJ-- isn't exactly knowable given the lack of details, but is also mostly irrelevant. We know that resources were divided between many different groups, as one guy owns the drinking fountain while another owns the basketballs and a third man owns the slides, etc.. in what was hopefully a quasi-equal fashion.

The video goes on to display a sort of divide between those who have capital and those who don't: Randall's a good example of this as the basketball monopolist. He clearly overprices his goods by selling them at a non-market price.

What's ignored is the incentive for competition. Should Randall be making economic profit (i.e. more than is "natural") by selling basketballs, other children would be enticed to start selling basketballs. They sell at a high price- and high price means high supply. Presumably the counter-argument goes something like: Randall buys up the business of every basketball seller to maintain his monopoly. But as common as this answer remains for children's TV shows and world-class sociologists, it is wrong.

Average total cost curves for selling products are u-shaped a la the law of diminishing marginal returns. For any given supplier, there's an optimal size (represented by the lowest point on the curve) at which his business should remain-- any smaller or any larger and you become less profitable. As Randall's business grows beyond a certain size it becomes progressively more clumsy- eventually it hits the breaking point, and yields to the inevitable competition of the marketplace. This is not necessarily a gradual process, nor should we expect it to be.

We should also note that other similar though non-identical businesses will compete at least indirectly with Randall. Playing frisbee is a plausible alternative to playing basketball, at least for some, and so is riding the slide or relaxing in the shade- perhaps to a lesser extent.

Such logic renders the concluding scenario-- with TJ in total control of every industry-- an impossibility. His unrealistic pricing would have had too crippling an effect on demand to produce even a scrap of revenue, making him fully willing, from a profit-motivated perspective, to sell land and capital to others who could find market applications at affordable costs.