Am I Drinking Because of the Price or the Ambiance?

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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.

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  1. JG says:

    I think price has a factor, but less so in the narrative you described. I think it’s more because in most situations, it’s difficult to assess the value of the deal you are getting. In this case you now have a clear reference point and less doubt that the market transaction is favorable (really not much about the transaction has changed other than its favorability versus a reference point).

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  2. mkagan says:

    If you are drinking more German wine per night than Australian wine, perhaps it is because the alcohol % is much lower (say 12% for a typical German Riesling vs 15%+ for a typical Australian)…

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  3. dthys says:

    If you can get something that tastes better at a price that is equal to or lower than the inferior good that you normally consume…it makes sense that you would be liable to consume more.

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  4. Joe D says:

    Not only has the price dropped, but the perceived price (now that you’re thinking in euros)–even when you consciously convert to dollars–is even lower.

    I know my household’s wine consumption has gone up (not per dinner, but the number of dinners at which we have wine) as the quality of these sub-$10 US and Australian wines has improved.

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  5. Kory says:

    Maybe its both. Maybe you’re now drinking your “normal” amount but the cost was prohibiting it before — kind of like a genetic trait starts to express itself due to environmental conditions.

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  6. Michael F. Martin says:

    Where are the best books or papers that show how aggregate supply and demand are built up from underlying individual consumption and production?

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  7. Pat says:

    I’m not an economist, but my two penneth:-

    Your net income appears to have increased at least by the difference in wine prices. Presumably you didn’t move to Germany in order to receive lower remuneration, so at a guess its the price combined with exra income.

    Unless you usually dine in company, in which case you’re just following the herd.

    Or maybe you’re on the road to Alcoholism and will move on to spirits soon.

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  8. Frans says:

    Have you tried South African wines? With the ZAR/dollar exchange rate as is, it should be an excellent buy.

    Plus of course my opinion is that it is far better than European wines, of course!

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