Consideration 1: Economists often consider small actors in competitive markets to be price-takers meaning that they cannot influence prices on their own. This seems like a pretty plausible characterization of any individual food buyer.
Consideration 2: “He reasoned that economics says a drop in demand for some commodity should cause prices to fall for that commodity, and overall consumption remains the same.” This is not correct. In inward shift in the demand curve (“a drop in demand”) (for ordinary downward sloping demand curves and upward sloping supply curves), causes both equilibrium price and quantity to decrease. I’d guess the thing he’s trying to get at is that for a good which is unit elastic, a small drop in price is offset by a small increase in quantity which leads to total revenue being unchanged.
So our first option is to regard individual actors as too small to influence the price. If we reject this and think they do have an effect, their effect would be to shift the demand curve in—dropping equilibrium price and quantity.
Aside: I’m reasonably well-informed about economics and don’t recall having ever heard the term “cumulative elasticity” before.
It doesn’t seem consistent to me to say “I’m too small of an actor to affect price, but not to affect quantity sold.”
Thank you for the small education in economics of consideration 2, though. I’ve read the Wikipedia article and found it helpful, although I have further questions. Are there goods that economists think do work like what my friend is describing? Is there a name for goods like this?
Are there goods that economists think do work like what my friend is describing?
Relative to Econ 101 models, that would only happen if supply is perfectly inelastic (i.e., the supply curve is vertical).
Edited to add: …or if demand is perfectly elastic (i.e., the demand curve is horizontal). Given how much people like eating meat, this seems very implausible.
Consideration 1: Economists often consider small actors in competitive markets to be price-takers meaning that they cannot influence prices on their own. This seems like a pretty plausible characterization of any individual food buyer.
Consideration 2: “He reasoned that economics says a drop in demand for some commodity should cause prices to fall for that commodity, and overall consumption remains the same.” This is not correct. In inward shift in the demand curve (“a drop in demand”) (for ordinary downward sloping demand curves and upward sloping supply curves), causes both equilibrium price and quantity to decrease. I’d guess the thing he’s trying to get at is that for a good which is unit elastic, a small drop in price is offset by a small increase in quantity which leads to total revenue being unchanged.
So our first option is to regard individual actors as too small to influence the price. If we reject this and think they do have an effect, their effect would be to shift the demand curve in—dropping equilibrium price and quantity.
Aside: I’m reasonably well-informed about economics and don’t recall having ever heard the term “cumulative elasticity” before.
It doesn’t seem consistent to me to say “I’m too small of an actor to affect price, but not to affect quantity sold.”
Thank you for the small education in economics of consideration 2, though. I’ve read the Wikipedia article and found it helpful, although I have further questions. Are there goods that economists think do work like what my friend is describing? Is there a name for goods like this?
Relative to Econ 101 models, that would only happen if supply is perfectly inelastic (i.e., the supply curve is vertical).
Edited to add: …or if demand is perfectly elastic (i.e., the demand curve is horizontal). Given how much people like eating meat, this seems very implausible.