Archives for price elasticity



The Demand Curve for Religion

“Render unto Caesar what is Caesar’s”? In many European countries, religion comes at a price: If you want the services of a religious community — for marriages, burial, and other activities — you pay a tax.  (In Germany, for example, there is an 8 percent surcharge on your income-tax bill.) A very nice Finnish study by Teemu Lyytikäinen and Torsten Santavirta, “The Effect of Church Tax on Church Membership” (Journal of Population Economics, forthcoming), uses this institution to examine the demand curve for religion. The price elasticity of demand is fairly small—not more than 0.05—but that is partly because until 2003, Finland made it difficult to opt out of a religious community (and opt out of paying the tax).  Not surprisingly, once the transactions costs of tax avoidance were reduced, the elasticity of demand appears to have risen.



The Economics of the Vegetarian Option

Went to a one-star Michelin restaurant in Bonn last night.  One of the best meals I’ve ever eaten. Three of the four of us ordered the five-course prix fixe all-vegetarian menu.  As we left, I thanked the chef-owner — who responded “Despite it being vegetarian!”

He seemed slightly upset about serving this menu. Was it because his revenue from it was only €63 compared to €91 for a five-course regular menu (which had one meat and one fish course)?  Maybe. But I don’t believe the vegetarian menu used less labor, nor was there a €28 difference in materials cost.  Read More »



How Will Peanut Price Hike Impact Related Items?

General equilibrium ain’t just peanuts. With the tremendous shortfall in the peanut harvest (a decline of 17%) due to the unusually dry weather in peanut-growing states, people are expecting a rise in the price of this main input of peanut butter to cause supply to shift leftward. Jif peanut butter expects to raise its price by 30% starting in November.

I doubt that its sales will go down much—I think the demand for peanut butter is fairly inelastic. But what about related markets? If everyone likes peanut butter and mayonnaise sandwiches as much as I do—if peanut butter and mayonnaise are complements—then we’ll see a leftward shift in demand for mayonnaise, and its price will decline. Have I held too much of the ceteris paribus, or not enough? Where should one stop?



The Price Elasticity of Heroin

A new study has some interesting things to say about the demand curve of heroin users. Drawing data from volunteers who use the drug daily, researchers Juliette Roddy, Caren Steinmiller, and Mark Greenwald tested three parameters: an income shock; removing the financial support of family and friends; and multiplying the the risk of getting caught. They found that income reduction had some effect: as income decreases, those who purchase a lot of heroin scaled back more than those who bought a little. When government subsidies were removed, participants also attested that they would buy less. They also found that participants with cocaine in their urine were more efficient drug buyers – this subgroup lowered transaction costs by shaving both distance (making sure they lived close to a drug dealer) and time in their purchases. They found that the more frequent the user, the most cost-effective they are about their heroin purchases, with those who also use cocaine being the most effective shoppers.



A Biblical Post

Photo: David Campbell 2 Kings VII discusses an incident in which the people of Israel are besieged and food prices are skyrocketing. A military officer scoffs when “a man of God” predicts that barley will soon sell for ½ shekel and fine flour for 1 shekel (very low prices). The officer is shortly trampled to […] Read More »