Archives for supply and demand



Is Uber Making the Taxi Market More Efficient?

The Economist analyzes the microeconomics of Uber’s controversial “surge” pricing model, in which users are charged significantly higher prices during high-demand times:

There is some evidence Uber’s surge pricing is improving taxi markets. The firm says drivers are sensitive to price, so that the temptation to earn more is getting more Uber drivers onto the roads at antisocial hours. In San Francisco the number of private cars for hire has shot up, Uber says. This suggests surge pricing has encouraged the number of taxis to vary with demand, with the market getting bigger during peak hours.

However, the inflexibility of Uber’s matchmaking fee, a fixed 20% of the fare, means that it may fail to optimize the matching of demand and supply. In quiet times, when fares are low, it may work well. Suppose it links lots of potential passengers willing to pay $20 for a journey with drivers happy to travel for $15. A 20% ($4) fee leaves both sides content. But now imagine a Friday night, with punters willing to pay $100 for a ride, and drivers happy to take $90: there should be scope for a deal, but Uber’s $20 fee means such journeys won’t happen.

Read More »



“Flappy Bird” Demand

“Flappy Bird,” a popular mobile game, was taken down by its creator over the weekend. From CNN.com:

“Flappy Bird” has flown the coop.

The addictive game that soared to the top of iPhone and Android app downloads disappeared from app stores on Sunday, though players who already have it apparently can keep on flying.

…Although new players can no longer download “Flappy Bird,” the game remains playable for those who had already added it to their devices.

A secondary market has emerged yesterday, with entrepreneurs willing to part with their “Flappy Bird” installed mobile devices — for some pretty high prices: Read More »



When Demand Elicits Fake Supply

I visited the Mütter Museum (a great collection of medical and related memorabilia and information in Philadelphia), which had the following sign on one exhibit about shrunken heads: “Westerners traveling to the territory in the late 19th century … were fascinated with the heads and offered the tribe money and guns in exchange. … This led to an increase in warfare … both to get more heads to sell and because of the prevalence of guns.  It also led to the creation of counterfeit heads … made from real human heads but not prepared by the tribe, and others [that] were made from monkey, goat, or other animal skin.”  Nice to see how, even for a bizarre object, a large increase in demand elicits a supply response of both genuine and fake products.

I welcome other equally weird examples of induced supply responses with both genuine and fake products.



Economists Needed in the Music Business!

For the first time, Austin City Limits, one of the two biggest music festivals in town, is running on two weekends instead of just one.  Unfortunately, the price for a pass for the second weekend on Craigslist is now down to half the festival sponsor’s original asking price.  Why?

1. The asking price for the second weekend was the same as for the first—not smart when you’re doubling the number of offerings; and the headliners are identical on the two weekends. The amount supplied is double in quantity, but no different in quality or even in variety; double supply, no change in demand.

2. Demand is almost certainly lower on the second weekend, since that is the weekend of the UT-Oklahoma game in Dallas.

It was probably a bad business decision to price the second weekend the same as the first. 

(HT: KM)



Why Something Won’t Sell, Even at Fire-Sale Prices

Deuteronomy 28:68 states “ye shall sell yourselves unto your enemies for bondmen and for bondwomen, and no man shall buy you.”  Oh dear, even at a price of zero, supply would exceed demand.  (Josephus noted that there were so many slaves on the market when the Romans destroyed Jerusalem in 70 C.E. that many couldn’t be sold even at fire-sale prices.) 

Why not buy a slave at no cost?   The answer, presumably, is that potential buyers already owned so many low-priced slaves that they believed that another slave’s marginal product would fall short of his or her upkeep.  The variable cost of maintaining the slave must have exceeded his/her output.  Is there a contemporary analogy to teaching assistants?



Why Are There Cronut Scalpers?

Between the din of the cicadas appearing up and down the East Coast and the media frenzy over the government’s mass surveillance programs, you might not have heard much about New Yorkers’ real obsession at the moment: the “cronut.” A cross between a croissant and a donut, the cronut is the invention of baker Dominique Ansel, who operates out of a shop in SoHo. Cronuts are so popular that lines form at 6 a.m. — 2 hours before the shop opens — and Ansel runs out within minutes. Thanks to the wonders of the Internet (and Craigslist) there is even a cronut black market, with unauthorized cronut scalpers charging up to $40 apiece for home delivery (a mark up of 700%). And of course there are cronut knockoffs appearing all over the world. Ansel has even trademarked the name “cronut.”

Which brings up two questions:

1. Why did it take so long for someone to invent a croissant-donut mash-up? 
2. And, perhaps more importantly for those who want to eat them, why do we see a cronut shortage? The genius of capitalism is that it matches supply with demand – and if there’s a lot of demand for cronuts, supply should quickly expand. Especially here. Cronuts aren’t especially hard to make, don’t require expensive equipment, and are currently unregulated (although give Mayor Bloomberg time.) Read More »



Benjamin Franklin on the Minimum Wage

Benjamin Franklin apparently understood the notion that input prices affect product prices, which is a problem because product demand curves are not completely inelastic.  Discussing a minimum wage, he noted, “A law might be made to raise their [workers’] wages; but if our manufactures are too dear, they might not vend abroad.” This is one of the best arguments against a minimum wage: in an open economy, which the U.S. increasingly will be at least partly passed on in the form of higher product prices, which will in turn reduce product demand—and eventually employment.   (“On the Labouring Poor,” The Gentleman’s Magazine, April 1768.)



In Case of Rain

In the town where we stay on the New Jersey shore the local movie theater advertises: In case of rain, we will have an extra show at 1PM on weekdays. Pretty clever. If it’s rainy, the demand curve for going to the movies shifts rightward—who wants to go to the beach in the rain. Accordingly, the theater increases the amount of showings supplied to the market. But why don’t they raise the price of tickets on bad-weather days? Presumably because it would create bad will among customers who might feel exploited, but perhaps there are other reasons. (I can’t imagine that it is difficult to alter prices on a daily basis.)