Am I Drinking Because of the Price or the Ambiance?
My wife and I drink wine with almost every dinner at home. We prefer Australian wines, because we have found European wines — especially Italian and French — to be high-priced in Texas.
We even drink an occasional good Texas wine (yes, there are some).
The high prices in Texas have meant that we go through one bottle in three dinners; hardly major drinkers! In Germany, we’ve been going through a bottle in only two dinners; a 50 percent increase in the quantity of wine consumed per night.
I like to think this is due to substitution, to a move along the demand curve, as good European wines are incredibly inexpensive in Germany. For example, I bought a 2004 Barolo, one of the fanciest Italian wines I know, for €11 (only $15 these days), and I think it would have been twice as much at home.
But is our increased consumption due to the drop in price; or are we consuming more because our taste for wine has increased due to the European ambiance?
I like to think it’s the former; I don’t believe tastes change much. But my dilemma illustrates a common problem in empirical economics (and life generally): separating changes in amounts demanded from changes in demand.
And sadly, most non-economists will argue that behavior like mine results from taste changes; too few people think prices really affect behavior.