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Posts Tagged ‘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.


“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:


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.)


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.)


Banned Products, Available in Poor Countries

In a recent Harry Hole mystery novel, The Leopard, Jo Nesbø (an economist as well as novelist) has Harry ask someone, “Where would you go to get it [a particular anesthetic] now?” and is answered, “Ex-Soviet states. Or Africa….The producer sells it at bargain-basement prices since the European ban, so it ends up in poor countries.” When rich countries ban something, they increase its supply to poor countries that refuse to ban it.  Prices are lowered to consumers there.  Rich countries’ safety is enhanced, poor countries’ worsened, with the only consolation that consumers in poor countries become able to obtain the harmful substance at lower prices.  Are people in each country better off, worse off, or what?


Organ Donation Supply and Demand

My wife is helping with a local drive to get people to register to donate organs. We thought that, as a cancer survivor, she herself would not be allowed to register. Wrong. Anyone under age 85 can register, so long as their cancer is not active and they do not have a systemic infection of any kind.

The doctor who informed us says this increases the potential supply of transplantable organs. If the demand is high enough, and the patients sick enough, the doctors will choose to use a donated organ even if the transplantation risk from the particular organ is substantial. Thus, while fortunately the price system is not used explicitly in the transplantable organ market, the choice to allow more people to register and to compare the demand to the increased supply suggests economics is currently present in this market.


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?


Sperm Bank Rejecting Redheads

A recent story in the NY Daily News reported that Cryos International, one of the world’s largest sperm banks, is refusing to accept donations from redheaded men.
Apparently, this is a result of a sharp increase in supply that the company needs to reduce before more donations are accepted. Like most temporary surpluses, this one will be removed, in this case probably not by the price system (although one can imagine that potential recipients, hearing of the surplus and being indifferent about their donor’s hair color, might offer Cryos a below-market price).
More likely, Cryos’ refusal to accept any more supply will cause the surplus to disappear, so that redheads’ donations will soon be accepted again.


Paris Under Siege: Why Were Cats Four Times the Price of Dogs?

In his discussion of the Siege of Paris 1870-71, David McCullough in The Greater Journey discusses the path of meat prices. One observer “considered cats ‘downright good eating,’ as apparently did many people. The price of a cat on the market was four times that of a dog.” Whether the price difference was really based on demand—differences in tastes for the two kinds of meat—or supply—is not mentioned in the book, but perhaps Parisians protected Fido less well than they protected Fluffy.
This illustrates a ubiquitous problem in discussing price differences: It’s easy to adduce a cause on one side of the market, but just as easy to bring up another cause on the other side of the market. I would bet on demand in this case, though, since it’s easier to protect Fido than a loose-running cat.


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 death after the populace goes . . .


An E.R. Doc Learns the Economics of Street Drugs

An E.R. doctor in the Pacific Northwest who writes a blog called “Movin’ Meat” might seem an unlikely candidate to know the economics of street drugs. But since he treats overdoses, he’s learned a bit.


What's in a Name?

The determinants of one’s demand for a product are covered in every introductory economics course. Independent of prices, my income and my general preferences, I also consider the cuteness of the product’s name.


Gold's Magic Price

We’ve had some old unwanted gold jewelry lying around for a long time. With gold at $1,237 per ounce, we figured it was time to sell it. We are a living movement up the supply curve of gold.


Separating Markets

My son is renting a car in December. He’ll drive it for two days in Orlando, then he’ll drive to South Florida for an eight-day stay. With the drop-off charge, the price is $900. But if he drops the car off in South Florida when he arrives and rents a new one from the same company, the total price is only $500. He values his time spent dropping off the car at less than $400, so he’ll do it.


When a Changing Labor Market Changes Business

There are innumerable great examples of goods in related markets. And of complements and substitutes. (One of my favorites is the local store that sold rock music and condoms, clearly complements.) It’s harder to cook up neat examples of goods markets that are impinged upon by labor-market changes.


The Fundamental Forces of Supply and Demand

I’ve been waiting for a news story to come along to give me the excuse to post my favorite economics photo of the year. Now that the year is over, I figure I’ll just post it.
This photo illustrates the two most important forces in my life.


Adderall Speculation

Students apparently consume mass quantities of the performance-enhancing drug Adderall during exam time. Normally the price is $3 for 10 mg., but it rises during exam week to at least $5. One student reports that in his suburban Dallas hometown drug dealers, realizing this price variation, speculated by buying up large supplies of the drug at $3 and dumping them on the market during exam time, hoping to sell at $5.


Keeping Kosher and Benefiting from Cheap Pork

The Economist reports that pork prices have plunged 24 percent in the past year, partly because the demand for U.S. pork exports has dropped sharply. I don’t eat pork, so how does this help me?


Loneliness or Cheap Wine

I’m alone in Europe, living in an apartment and cooking for myself. I bought a bottle of decent red wine for the remarkably low price of $2.99 and am consuming about one-fourth of it with each dinner (instead of the one-fifth or one-sixth of a bottle I would drink with each dinner at home).
Have I substituted toward wine, moving down the demand curve because the price is lower than at home? Or am I drinking more because I am alone and miss my wife? has my demand curve for wine merely shifted out due to my solitary lifestyle?


How Laziness Makes Me Keep My Used Car

Prices of used cars are rising, and the reason is substitution: in tough times, people substitute away from new cars and toward used cars. The two markets are closely related, so a decrease in demand in the new-car market causes an increase in demand in the used-car market. I’m sorely tempted to trade in my gorgeous 1999 Honda Civic SI, . . .


The Army's Not Coming Up Short

NPR reported last month that, for the first time in five years, the U.S. Army had more than met its recruiting goals. This happens every time unemployment rises, and it should be absolutely no surprise. People choose military service after high school partly out of a desire to serve the country; but there is strong evidence that incentives matter. Higher . . .


Indonesia’s Drinking Problem

In the wake of a crackdown on black-market alcohol in Indonesia, the country’s sole legal alcohol importer is suddenly faced with meeting demand four times higher than what the government’s import quotas allow. The resulting crunch has led to chronic alcohol shortages and skyrocketing prices across the country, the BBC reports. Alcohol consumption is generally frowned upon in Indonesia — . . .


The Sperm-Supply Problem

There’s a shortage of sperm in Britain! Apparently, Britain needs donations for about 4,000 women per year; to reach that number, about 500 sperm donors per year are required, while only 300 are currently registered. Things were fine until 2005, when a law was enacted allowing children of sperm donors the right to discover the identity of their father at . . .