GLS1e_Chapter2 Goolsbee Levitt Economics

7/22/2019 GLS1e_Chapter2 Goolsbee Levitt Economics

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Supply and Demand

Copyright 2013 Worth Publishers, All Rights Reserved MicroeconomicsGoolsbee/Levitt/ Syverso1/e

2

Chapter Outline

2.1 Markets and Models

2.2 Demand

2.3 Supply

2.4 Market Equilibrium

2.5 Elasticity

2.6 Conclusion

2-1


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Introduction

Copyright 2013 Worth Publishers, All Rights Reserved MicroeconomicsGoolsbee/Levitt/ Syverso1/e 2-2

2In this chapter, we introduce the supply anddemandmodel. We will:

Describe the basics o supply and demand!se equations and "raphs to representsupply and demand

#naly$e markets or "oods and ser%icesusin" the supply and demand model


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2.1Markets and Models


hat is a market!# market is characteri$ed by a speciic

&roduct or ser%ice bein" bou"ht and sold

'ocation

&oint in time

Markets"acilitate e#chan$e, includin" economic

resources and inal "oods and ser%ices

2


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2.1Markets and Models


What are the supplyand demand or a "ood(Supply%)he combined amount o a "ood that all producers in amarket are willin" to sell

Demand%)he combined amount o a "ood that all consumersare willin" to buy

2


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2.2Demand


What actors inluence the demand or a"ood or ser%ice(

&rice'um(er o" consumers

Consumer )ealth

Consumer tastes

&rices o" other* related $oods Compliments and substitutes

2


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2.2Demand


Many actors inluence demand or "oods andser%ices* is there one actor that stands out(

+ocus on how the price o a "ood inluences the+uantity demanded by consumers

Demand cur,e describes relationship betweenquantity demanded and price, holdin" all other

actors constant

2


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2.2Demand


+i"ure -. Demand or )omatoes

2


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2.2Demand


Consider the market or oran"es. We want to map out thequantity /in pounds0 demanded by local consumers at %ariousprices /12pound0

0 400 800 1,200 1,600 2,000 2,400 Quantity of oranges

(pounds)

Price of oranges

(dollars/pound)

1

2

3

4

5

6

#t 13, consumers demand nooran"es4 this is known as the demandchoke price

#s the price drops, consumersdemand a "reater quantity ooran"es

We draw a demand cur,ethatconnects all the obser%ed price5quantity combinations

-MM/- 0O S /-&S

2


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2.2Demand


We can also describe the demand cur%emathematically

)he demand cur%e on the pre%ious slide is "i%en as

QD= 2,400 400P

where QDis the quantity o oran"es demanded /inpounds0 and P is the price o oran"es /12pound0

It is common in economics to plot price on the%ertical a6is.

Sol%in" or price as a unction o quantity demandedyields the in,erse demand cur,e

P = 6 0.0025QD

2


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2.2Demand


What about the other actors that inluencedemand()he demand cur%e is "raphed in two dimensions4 all

other actors are assumed constantI another actor chan"es, the demand cur%e will shift

Chan$e in +uantity demanded a mo%ement alongthedemand cur%e in response to a price chan"e, with

e%erythin" else held constant

Chan$e in demand a shit o the entire demandcur%e caused by a chan"e in a non5price actor thataects demand

2


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2.2Demand


+i"ure -.- Shits in the Demand Cur%e

2


12/74

pplication


Mad Co) disease and (ee"

Bovine spongiform encephalopathy/Mad CowDisease0, is a potentially atal disease contractedthrou"h the consumption o inected bee products

Schlenker and 7illas58oas /-990 in%esti"ate theimpact o the announcement o the irst conirmedcase o MCD in the !S /December -;, -99;0 ondaily bee sales or a national supermarket chain

)he authors ind a si"niicant drop in the quantityo bee purchased ollowin" the announcement:appro6imately -< less bee was purchased in theollowin" ;= days

>ow do we represent this ?shock@ usin" demandcur%es(

2

Citation: Wolram Schlenker and Soia 8. 7ilas58oas. -99. Consumer and Market Aesponses to Mad Cow

Disease. American Journal of Agricultural Economics /B0:B9=-.

Image: FreeDigitalPhotos.net



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pplication


2

0Quantity ofbeef per day(millions of pounds)

Price of beef($/pound)

3

4 5

Demand cure prior to

announcement of !"D

Demand cure afterannouncement of !"D

Prior to discovery, consumers demand five millions pounds of beefper day at $3 per pound numbers are e!amples"

Post#discovery, health concerns cause demand to shift inard,

reducing %uantity demanded at $3 by one million pounds per day


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2.2Demand


Why do we treat price dierently(

.&rice is usually the most important actor inluencin"demand

-.&rices in most markets can chan"e easily and oten

;.&rice is the one actor o demand most likely tomeasurably impact the supplyo a "ood, and thereore

ties to"ether the two sides o the modelow to the supply side o the model

2


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2.3Supply


What actors inluence the supply o a "oodor ser%ice(

&rice'um(er o" sellers

&roduction costs /related to production

technolo"y0Sellers7 outside options

2


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2.3Supply


+i"ure -.B Supply o )omatoes

2


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2.3Supply


We can describe the relationship between the quantity ooran"es supplied /in pounds0 and the price /12pound0 witha supply cur,e

0 400 800 1,200 1,600 Quantity of

oranges (pounds)

Price of oranges

(dollars/pound)

1

2

3

4

5

6

#t prices below 1- per pound, suppliers indit unproitable to sell any oran"es4 this isknown as the supply choke price

#s the price increases beyond 1-, supplierswill pro%ide oran"es to the market

ust as with demand, we connect theobser%ed price5quantity combinations usin"a supply cur,e

2


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2.3Supply


We can also describe the supply cur%emathematically

)he supply cur%e on the pre%ious slide is "i%en as

QS= 400P 800

where QSis the quantity o oran"es supplied /inpounds0 and P is the price o oran"es /12pound0

Since we plot price on the %ertical a6is, the in,ersesupply cur,e is "i%en as

P = 2 + 0.0025QS

2


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2.3Supply


When a actor aectin" supply other than pricechan"es, the result is a shift in the supply cur%e

Chan$e in +uantity supplied a mo%ement alongthesupply cur%e in response to a price chan"e, withe%erythin" else held constant

Chan$e in supply a shit o the entire supply cur%e

caused by a chan"e in a non5price actor that aectssupply

2


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2.3Supply


+i"ure -.= Shits in the Supply Cur%e

2


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pplication


Solar panels and polysilicon

Solar ener"y is oten touted as a key in"redient inthe uture o ener"y, but has historically beencost5prohibiti%e

Aecently, prices or solar modules ha%e allenrapidly, pushin" the cost o solar power closer to?"rid parity@

rid parity means solar can compete with other sourceso ener"y on a cost basis

Fne o the key reasons has to do with the cost oproductionGthe price o polysilicon, asemiconductor that is the basis or most solarsystems, dropped more than 9< between -99Hand -9

>ow can we describe this phenomenon usin"

2

Citation: Aoca, M and 8. Sills. o%ember 9, -9. ?Solar lut Worsens as Supply Sur"e Cuts &rices ;


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pplication


2

0#e solar

capacity(megaatts)

Price of

solar

capacity

($/att)

3

%0 30

Supply curve in 2008

Supply curve in 2011

In &''(, the cost of solarinstallation averaged $3 per att)producers ere illing to supply*' megaatts +" numbers aree!amples"

-s suppliers of polysilicon e!pandcapacity, the cost of this ey inputdrops, shifting the supply of solarenergy out

Producers are illing to supply 3'+ in &'** at a price of $3 peratt


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2.4Market +uili(rium


Combinin" the descriptions o market supply andmarket demand completes the model

Aemember, supply and demand cur%es relate the price o

a "ood to the +uantity demanded or supplied

)he point at which these two cur%es cross is calledthe market e+uili(rium

Market e+uili(rium occurs when the price o a "ood

results in the quantity demanded equal to the quantitysupplied

+uili(rium price the only price at which the quantitydemanded equals the quantity supplied

2


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)he market equilibrium can be identiied mathematically.+or the oran"e e6ample:

QD= 2,400 400P , QS= 400P 800

#t equilibrium, Qe=QD= QS/Qeis equilibrium quantity04 we

sol%e or equilibrium price, Pe,by settin" supply equal to

demand

2,400 400Pe= Qe= 400Pe 800Combinin" terms containin" Peyields

800Pe= 3200 ,Pe= 4

)o ind Qe, substitutePe= 4 into either equation, yieldin"= 800

2


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raphically, equilibrium can be ound by plottin"supply and demand to"ether

0 400 &00 %'00 %'00 '000 '400 Quantity of oranges

(pounds)

Price of oranges

(dollars/pound)

%

3

4

5

Demand and supply intersect at

price o 1B.99 per pound ooran"es, resultin" in H99 poundso oran"es bein" sold

)his is the only price that can?clear@ the market>i"her prices: quantity supplied

e6ceeds quantity demanded'ower prices: quantity demandede6ceeds quantity supplied

S

D

2


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>ow do markets mo%e toward equilibrium( +irst, i P>Pe, quantity supplied will e6ceed quantity

demanded

E6cess supply is reerred to as surplus)o sell their products, producers must lower prices

#s prices all, quantity demanded increases and quantitysupplied decreases until the market reaches equilibrium

at a lower price

2


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Describin" a surplus "raphically


(pounds)

Price of oranges

(dollars/pound)

%

3

4

5

#t a price o 1=, ,-99 pounds aresupplied, but only B99 are demanded

)here is a surpluso H99 pounds

)o reach equilibrium, prices must all,leadin" to a decrease in the quantitysupplied, and an increase in thequantity demanded

S

D

*urplus

2


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'ikewise, ifP


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Describin" a shorta"e "raphically


(pounds)

Price of oranges

(dollars/pound)

%

3

4

5

#t a price o 1;, B99 pounds aresupplied, but ,-99 pounds are

demanded

)here is a shorta$eo H99 pounds

)o reach equilibrium, prices mustrise, leadin" to a decrease in thequantity demanded, and an increasein the quantity supplied

S

D

*+ortage

2


30/74


Figure it outThe Demand for Gym Memberships

)he supply and demand or monthly "ym

memberships are "i%en as

QS= 10P 300 , QD= 600 10P

WherePis the monthly price, in dollars

ns)er the "ollo)in$ +uestions%.I the current price or memberships is 1=9 permonth, is the market in equilibrium(

-.Would you e6pect the price to rise, or all(

;.I so, by how much(


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. )wo ways to sol%e the problem

Compute quantity supplied and demanded at a price o1=9, or

Sol%e or the equilibrium price, and compare with 1=9

!sin" the irst method

QS=10P 300 = 10(50) 300 = 200

QD=600 10P = 600 10(50) = 100

QS>QD,and the market is not in equilibrium.

-. What must happen to price(

&rice needs to all* but by how much(

;. Sol%e or equilibrium price and quantity

QS=QD=Q* => 10P* 300 = 600 10P* => P*, $45, Q*, %50

&rice must all by 85, and 59 more memberships are


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2.4


What happens to the market equilibrium when thereis a shit in demand or supply(

Aemember the actors that can shit the demand cur%e

umber o consumersWealth or income

Consumer tastes

&rices o related "oods /complements or substitutes0

and the supply cur%eumber o producers

Costs o production

&roducer outside options

Market +uili(rium2


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2.4


+i"ure -. Why PeIs the Equilibrium &rice

Market +uili(rium2


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2.4


In anuary, -9-, the +D# announced it had detectedlow le%els o carbendazim, a potentially dan"erousun"icide, in samples o oran"e Juice

>ow will this announcement aect the market ororan"es(

Supply side the le%els detected were not suicient toinduce action by +D#4 assume no impact on supply

Demand side bad press can ha%e ne"ati%e impacts ondemand or ood products* what should happen(

Market +uili(rium2


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2.4


We can describe this "raphically

0 400 &00 %'00 %'00 '000 '400 Quantity of

oranges (pounds)

Price of oranges

(dollars/pound)

%

3

4

5

&rior to the +D#Ks disco%ery, H99 poundso oran"es are sold at 1B per pound

#ter the announcement, demand shitsrom D1to D2

)he new equilibrium occurs when B99pounds are sold at a price o 1; perpound

)here has been a decrease in demandand a decrease in the +uantity o" oran$essuppliedin response to a allin" price

S

D%

Market +uili(rium

D

2


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Figure it outA Shift in Demand

Draw a supply and demand dia"ram o the market or

"enerators in )ampa, +lorida

ns)er the "ollo)in$ +uestions%

.Suppose a hurricane watch is issued, and someresidents e6pect to lose power. !sin" the supply and

demand dia"ram, show what will happen to theequilibrium price and quantity in the )ampa marketor "enerators

-.Does this chan"e relect a chan"e in demand or a

chan"e in the quantity demanded(


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Figure it outA Shift in Demand

Q1 Q2 Quantity of

generators

Price of

generators

(dollars)

P1

P2

S

D%

D

)he initial equilibriumoccurs at a price o P1and

quantity Q1

When the hurricane watchis issued, demand shitsoutward

)he new price isP2, and the

new quantity is Q2

So, price and quantitye6chan"ed ha%e bothincreased

)his represents a chan$e :orshi"t; in demand


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2.4


In +ebruary, -9, 8ra$il won a trade dispute with the!.S. re"ardin" imported oran"e Juice, indin" the !.S. wasunairly e6cludin" 8ra$ilian suppliers rom !.S. markets

by use o a tari)he result was more oran"e Juice imported rom 8ra$il

>ow should this announcement aect the market ororan"es(

Demand side this should not aect demandSupply side the rulin" applies to oran"e Juice, notoran"es* what is the dierence(

I applied to oran"es, more sellers supply shits out

#s it applies only to Juice, aects outside opportunities odomestic oran"e producers* what happens(

Market +uili(rium2


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2.4


We can describe this "raphically


(pounds)

Price of oranges

(dollars/pound)

1

2

3

4

5

6

With the tari, H99 pounds o oran"es aresold at 1B per pound

When the tari is repealed, domesticoran"e producers shit product rom Juiceprocessors to ruit markets, supply shitsrom S1to S2

ew equilibrium: ,-99 pounds at 1; per

pound

)here has been an increase in supply andan increasein the +uantity o" oran$esdemanded in response to a lower price

S%

D

Market +uili(rium

S

2


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Figure it outA Shift in Supply

)his summer, you noticed the price o lobster in your

supermarket risin", but also that there was muchmore lobster bein" sold

!sin" a supply and demand dia"ram, what can youiner about this market(


41/74


Figure it outA Shift in Supply

Q1Q2 Quantity of

generators

Price of

generators

(dollars)

P1

P2

D

SS

)he initial equilibriumoccurs at a price o P1and

quantity Q1

What chan"e in supply ordemand would result inprices risin" and quantity

e6chan"ed allin"(

# ne"ati%e shit in supplyL

)he new price isP2, and the

new quantity is Q2

)his represents a chan$e :orshi"t; in supply and a chan"ein the +uantity demanded


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oin" back to the pre%ious e6ample o "ym

memberships

QS= 10P 300 , QD= 600 10P

ow, suppose the town opens a new communitycenter with a pool and a wei"ht room. #s a result,

consumers demand -99 ewer "ym memberships ate%ery price


.Write down the new demand equation

-.What do you e6pect to happen to the equilibriumprice and quantity /remember, pre%iously P*, $45, Q*,%50"/

;.Compute the new equilibrium price and quantity.


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2.4


Market +uili(rium

Summary o the eect o a shit in supply or demandon market equilibrium

2


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2.4


What determines the ma"nitude o the chan"e inequilibrium price and quantity(

)wo important parameters

Si


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2.4


Consider an outward shit in supply /increase0

Market +uili(rium

0 Quantity

Price

D

-Q

S% S

Demand has relati,ely steep slope% shit insupply results inlargechan"e in price and

small chan"e in quantity e6chan"ed

Demand has relati,ely shallo) slope% thesame shit in supply results in smallchan"e in price andlarge chan"e inquantity e6chan"ed

-P

D

-P

-Q

2


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2.4


+i"ure -. Si$e o Equilibrium &rice and uantity Chan"es,and the Slopes o the Supply and Demand Cur%es

Market +uili(rium2


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2.4


Sometimes, supply and demand shit simultaneously

urricane =atrina and the 'e) Orleans housin$ market

Natrina destroyed many homes* what happens tosupply(

)he hurricane displaced thousands o residents, manyha%e not returned* what happens to demand(

>ow will these shits aect the housin" marketequilibrium in ew Frleans(

Market +uili(rium2


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2.4


>urricane Natrina and the ew Frleans housin"market

Market +uili(rium

0 Quantity

Price S2 S1 )he hurricane shits supply anddemand inward. )he result is a lar"edrop in quantity, and a small drop inprice

>owe%er, without speciic inormationon shits and slopes o supply anddemand, we cannot know or surewhat happens to price

E6ample: Consider smaller demandshit4 quantity still alls, but price hasrisen sli"htlyL

P

Q

D2 D1

P

Q

D2

2


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2.5lasticity


)he slopes o the supply and demand cur%esdetermine how markets respond to shits in supplyand demand

Steep cur,es%large chan"es in price and small chan"es inquantity, all else equal

Shallo) cur,es% small chan"es in price andlarge chan"es inquantity, all else equal

2


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2.5lasticity


lasticity

!nit5less measure that describes the sensiti%ity oquantity demanded or supplied

&ercenta"e chan"e in one %ariable /e."., quantity0di%ided by the percenta"e chan"e in another /e."., price0

2


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2.5lasticity


&rice elasticity o" demand% percenta"e chan"e inquantity demanded di%ided by percent chan"e inprice

&rice elasticity o" supply: percenta"e chan"e inquantity supplied di%ided by percent chan"e in price

ED

=

!QD

!P

ES =!QS

!P

2


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2.5lasticity


When price elasticity o demand is hi$h*Aelati%ely small increases in price result in relati%ely lar"edrops in quantity demanded

E6amples(

McDonaldKs hambur"ers

When price elasticity o demand is lo)*Aelati%ely lar"e increases in price result in relati%ely smalldrops in quantity demanded

E6amples(

asoline

2


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2.5lasticity


What %ariables aect the elasticity o demand(

)hea,aila(ility o" close su(stitutes

/readth o the market

0ype o" product /e."., necessity or lu6ury item0&ercenta$e o" incomespent on the "ood

0ime hori


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2.5lasticity


)erminolo"ylastic%Demand is elastic i .ED. %

>nit elastic% Demand is unit elastic i .ED. , %

Inelastic% Demand is inelastic i 0 .ED. %

&er"ectly elastic% Demand is perectly elastic i .ED. , 1

&er"ectly inelastic% Demand is perectly inelastic i .ED. , 9

Important% Elasticities do not ha%e units attached4can be compared across dierent "oods andser%ices in dierent markets, and also used todescribe supply

2


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pplication


0he price o" $as and tra""ic con$estion

8ur"er and Naine /-990 in%esti"ate "as prices,hi"hway speed, and con"estion in 'os #n"eles between-99 and -993

In theory, hi"her "asoline prices should reduce hi"hwayspeeds because dri%in" slowly tends to increaseeiciency

)he authors ind dri%ers do not slow down when traic isli"ht4 howe%er, durin" rush hour, a%era"e speeds actuallyincrease /about ;.; miles per hour or e%ery

1.992"allon0

)hey attribute this to reduced con"estion4 dri%ersrespond to hi"h prices by takin" ewer trips, or usin"public transportation

#ccountin" or the relationship between %ehicle miles

tra%elled /7M)0 and con"estion, the authors estimate theprice elasticity o demand or 7M) to be appro6imately

2

Citation: 8ur"er, .E. and D.). Naine. -99. ?as &rices, )raic, and +reeway Speeds in 'os#n"eles.@ he !eview of Economics and "tatistics /;0: 3=-53= Image: FreeDigitalPhotos.net



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2.5lasticity


lasticities and linear demand and supply

We oten assume demand and supply are linear, so knowin"how to calculate elasticity on a linear cur%e is important

Equation or price elasticity /demand or supply0

or,

Mo%in" up or down a linear supply or demand cur%e, the ratioQ/P is equal to 1/slope

E=!Q

!PE=

Q / Q

P/P

E= Q / Q

P/P=

Q

P

P

Q=

1

slope

P

Q

2


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2.5lasticity


&rice elasticity o" demand "or a linear demand cur,e


(pounds)

Price of oranges

(dollars/pound)

1

2

3

4

5

6

-t the top of our demand curve,

perfectly elastic"===

0

"#00

1

D

D

Q

P

slopeE

elastic"2

$00

##00 ==DE

unit elastic"

3#00 1

1,200

DE = =

inelastic"

2#00 0%&1,"00

D

E = =

perfectlyinelastic"

0#00 0

2,#00

DE = =

2


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2.5lasticity


#s you mo%e down a demand cur%e, demand becomesless elastic, e%entually perectly inelastic at the hori$ontala6is

D

D

D

QP

PQE

=

0lope is constant along

the demand curve

P/Q falls as you move don the

demand curve

2


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2.5 lasticity


&rice elasticity o" supply "or a linear supply cur,e

elastic""

#00 1%&1,"00

SE = =

elastic"

1%"'

1, 200

SE = =

elastic"E

S=#00

#

$00=2

elastic"

ES =#00 3

#00

= 3

-t the bottom of the supply curve,

perfectly elastic"ES =

1

slope

P

QS =#00

2

0=

0 400 800 1,200 1,600 Quantity of

oranges (pounds)

Price of oranges

(dollars/pound)

1

2

3

4

5

6

2

Figure it out


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Figure it outThe Elasticity of Demand for Movie Tickets

)he demand or mo%ie tickets in a small town is "i%en

as

QD= 1,000 50P


.Calculate the price elasticity o demand when theprice o tickets is 1=

-.Calculate the price elasticity o demand when theprice o tickets is 1-

;.#t what price is the price elasticity o demand unitelastic!

B.What happens to the price elasticity o demand asyou mo%e down a linear demand cur%e(

Figure it out


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. )he price elasticity o demand is "i%en as

#t 1=, is constant /linear demand cur%e0

#t a price o 1=,

)hereore,

#nd, demand is

Inelastic

D

DDDD

Q

P

P

Q

PP

QQE

=

=

/

/

QD

P= &0

1&0

1

(&)&01000

&=

=DQ

P

33333%01&0

1&0 ==

=

D

DD

Q

P

P

QE

Figure it out


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12 3

1, 000 &0 )12( 100DP

Q= =

&%1

100

3&0 ==

=

D

DD

Q

P

P

QE

Figure it out


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;. #t what price is demand unit elastic(

/!nit elastic impliesED= 10

)o sol%e or the correct price, use the equation orelasticity o demand

Multiply both sides by 1,000 50P

#nd combine terms, yieldin" a price oP =19

B. What happens to the elasticity o demand as youmo%e downa linear demand cur%e(

Demand becomes less elastic

1 &0

1, 000 &0

P

P

=

&0 1, 000 &0P P =


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2.5lasticity


&er"ectly inelastic demand and supplyImplies quantity demanded2supplied does not chan"e inresponse to a chan"e in price

E6ample: lie5sa%in" dru"s /near5perectly inelasticdemand0

&er"ectly elastic demand and supplyImplies the quantity demanded2supplied is infinitely

responsi%e to miniscule chan"es in priceE6ample: Commodity crops /near5perectly elasticdemand0

2


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2.5lasticity


0Quantity

Price

When is demand2supply perectlyinelastic /E = 00(

WhenP = 0 /hori$ontal a6is0

When the slope o demand2supply is

ininite

When is demand2supply perectlyelastic /E = 0(

When Q = 0 /%ertical a6is0

When the slope o demand2supply is$ero

Q

P

slopeE =

1

01 =

=QPE

==

Q

PE

0

1

2


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2.5


Demand elasticity aects consumer e6penditures orproducts

Ae%enue OP Q

ED

is the ratio o the percenta"e chan"e in quantitydemanded to the percenta"e chan"e in price.

I demand is inelastic, a < increase in price reduces demand bylessthan


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2.5


0 400 800 1,200 1,600 2,000 2,400 Quantity of

oranges (pounds)

Price of oranges(dollars/pound)

1

2

3

4

5

6

lasticity

Quantity of

oranges (pounds)

!"#$l e%pen&i#ure' = #"#$l revenue =P Q

2,000

3,200

3,600

0 400 800 1,200 1,600 2,000 2,400

ni# el$'#ic

2


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2.5lasticity


EID

=

!QD

!I = QD / QD

I/I

2


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2.5lasticity


2+i"ure -. E6penditures alon" a 'inear Demand

Cur%e


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2.5lasticity


EXYD

=!QX

D

!PY=

QXD

/ QXD

PY /PY

2


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pplication


2

Citation: allet, C.#. and .#. 'ist. H. ?Elasticities o 8eer Demand Ae%isited.@ Economics #etters3: 35




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pplication


2

Citation: allet, C.#. and .#. 'ist. H. ?Elasticities o 8eer Demand Ae%isited.@ Economics #etters3: 35



What mi"ht e6plain chan"es in elasticities o%er time(

Consumer tastes% release o inormation re"ardin"ne"ati%e health eects be"innin" in the 9s mayha%e led to reduced demand

Increased proportion o drinkers who are less healthconscious and2or addicti%e in nature

E%idence su""ests hea%y drinkers are less price5sensiti%e to alcohol, hence the chan"e to inelastic

&oorer consumers are "enerally ha%e less educationand are less health conscious, hence the mo%e to aninerior "ood

Chan"e in beer5wine relationship rom substitutes tounrelated "oods perhaps due to increased productdierentiation /e."., microbreweries, lite beers0 in thebeer industry


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2.6Conclusion 2

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GLS1e_Chapter2 Goolsbee Levitt Economics