High Cost of Pizza

Every Friday night my son, Kathy, and I watch Monk on USA and order a pizza from Pizza Ranch. Sometimes we order from Salvatores. We've noticed the price of pizza increasing. A salute goes to Tim Schilling for pointing out this video on why.

According to MSNBC, many farmers have quit planting wheat to plant corn. Corn is the essential ingredient in ethanol. Wheat has become relatively scarce. In fact, block cheese and tomato paste are transported and the costs of gasoline has increased. The video and article conclude that higher costs have increased the cost of pizza. I think there's more to the story.

According to econ 101 theory, a higher price induces more production of a good. Are more pizzas being sold? Since wheat is a commodity, producers form future expectations of price. If Salvatores sees Dominoes raising their prices, Salvatores must rise theirs or lose profit to a competitor. Macro theory suggests that wages and prices are sticky. Menu costs just don't change as quickly as the video suggests. If the price of wheat is so high, farmers will now find it more profitable to grow wheat again. I think the real reason pizza is so expensive is that many variables are changing including demand. To isolate one factor as the catalyst is to affirm the consequent.