My goal for this post is to expand on the relationship between increased spending and benefit. Last week I mentioned that there is not always a one-to-one correspondence between increased spending and increased benefit.
But when is there such a benefit as shown in the graph immediately below?
One example would be contributions to a well-run charity that helps a worthy cause. That is, the more you give to the charity, the more progress that gets made towards a worthy goal.
One possible exception to this is if you give a large gift, one that significantly changes the amount that the charity normally handles. For example, if the charity suddenly has 3 times the amount of donations that they had the previous year, they may not be in a position to do 3 times the amount of good that they did the previous year. I don’t think that this is going to be a problem for most of us. On the other hand, if you are going to be a large donor relative to the size of the charity, it’s something to think about.
The next case, is the reverse of the above. Specifically, it’s where the more that you spend, the less benefit there is. Such a graph would look like this:
For this example, I consider the health benefit as a result of spending on (and consequent consumption of) certain junk foods. Most junk foods have some nutritional value, so eating a little gives you some benefit. However, for some of them, the more you eat the worse you are in terms of your health. In short, more spending in this category gives you less benefit.
Finally, let’s look at another straight line, but this time the line is perfectly flat, neither rising nor falling. In other words, you are gaining a thing for increased spending. The graph would look like this:
Admittedly, I had to reach a bit for this example, but here goes. Let’s say that you live in a rural area with some high quality spring water. The spring flows year round, and it costs you absolutely nothing to fill up your water bottles from it.
In other words, you get safe, great tasting water for zero cost. Alternatively, you could buy the store brand of bottled water from your local grocery store. More expensive, but no added benefit. Or you could buy even more expensive imported bottled water. Again, you spend even more but, but there is no benefit over drinking your free spring water, at least in the quality of the water.
The important thing in the above ideas is not the specific examples. What is key is that some increased spending will improve your life, some will make your life worse, and some won’t make any difference.