Environmental Economics

I hate to rain on your parade, but how many things can this article get wrong?

How much does it cost to pack a picnic this Fourth of July? That’ll be $6 per person.

That’s according to the American Farm Bureau Federation, which launched an informal price survey this year looking at the cost of hot dogs, cheeseburgers and other Independence Day fare.

A typical summertime picnic averages $57.20 for 10 people, or $5.72 per person, according to the group. …

Sixty volunteer shoppers in 22 states checked retail prices for summer picnic foods for the survey.

Aside from burgers and hot dogs, the farm group’s picnic menu includes pork spare ribs, potato salad, lemonade, baked beans, watermelon, corn chips, chocolate milk, ketchup and mustard.

That list doesn’t include beer, which some Americans are shelling out a bit more for this year.

“More people are trading up to premium, more expensive beer,” said John Davie, president and CEO of Consolidated Concepts, of Boston, which works with thousands of food and restaurant outlets to help them save money on food and other supplies.

Davie also said the price of chicken breasts has increased since this time last year.

Debra Graham agrees with that.

“It’s almost as cheap to buy steaks as to do chicken or burgers,” she said outside a Little Rock grocery store where she bought catfish for a Fourth of July fish fry.

But Graham, 52, said other prices seemed about as high as they usually are.

“If you want it, you’ve got to pay for it,” she said.

I find a few things that make $5.72 not a accurate cost of the July 4th picnic:

1. They left beer out of the market basket. That's like leaving a television set out of the CPI for the U.S.A.
2. When people choose a higher priced, higher quality product, this does not indicate that there is price inflation. Going from Budweiser to a microbrew costs more, but some people think it is a better product. For an accurate measure of the cost of a picnic, the Farm Bureau should include Bud Light in the July 4th picnic market basket and track its prices over time. Or, use beer rating data and do some hedonic quality adjustments.  
3. "If you want it, you've got to pay for it"? I say madam, have you not heard of substitutes? The lack of substitutability in the fixed market basket is a well know factor that makes the CPI overstate inflation. For example, if chicken is in the market basket (and it is not mentioned above so I'm not sure why it is mentioned later in the article), as its cost and the cost of teh market basket rise, shoppers will substitute more burgers, dogs and ribs for it. The ability to substitute reduces the true cost of the picnic but the picnic price index keeps going up, overstating inflation.