My thoughts turned to economics when I was in the shower yesterday morning. Yes, I know economics is a pretty odd thing to think of (in the shower or elsewhere), especially for someone who has thrived most of his adult life to not be an economist, but I can't help the way by brain works when it is waking up. Not my fault that I realised that the shower presents an example of economic theory.
I can see you all scratching your heads and wondering "what has a shower got to do with economic theory" so I better explain.
Economics is all about the allocation of resources. The more apples you use to make apple pie, the fewer you have to make apple crumble; that sort of thing. One of the holy grails of economists is a thing called a Pareto Efficiency, where no one can be made better off without making someone else worse off.
You're still scratching your head and wondering what's this got to do with a shower but hold on - all will become clear very soon.
My shower is one of these electric heat-as-you-use types. It has a variable temperature control which actually adjusts the water flow. The faster it flows, the cooler it is, as it doesn't stay in contact with the heater element for as long.
My shower yesterday morning was adequate, but could have been improved with a bit more water, and a slightly higher temperature. But I couldn't do this. I could have more water but lower temperature, or higher temperature but less water. I had already reached Pareto efficiency.
The solution, of course, is to wait for the ambient temperature to increase enough to raise the temperature of the incoming water by a few degrees. And that's called an externality.
Another externality would be to increase the amount of electricity pumped in by setting the power level to "high". But this, even with maximum water flow, makes the shower too hot to stand under]