RE: upward sloping demand curves
> Fred Foldvary: > If the perception is that it is of better quality, then it is a different > product, and the demand curve, which is for just one product, does not > slope up. > Couldn't these two be disentangled? It seems to me that, OK, there are various reasons why, if the market price rises, this may influence the good (through perceptions) so that demand rises. However, if a single consumer is then told that "You know those expensive new jeans? I have a brother who works in a store and can get them cheap...", then this single consumer would buy more at this lower price. As long as the market price is held constant, the "price people in general face", if you like, then an individual consumer will have a downward sloping demand curve, since only the price (and not the good) will vary. Ole J. Rogeberg
Re: Imperfect Reasoning
Bryan Caplan wrote: > > People talk a lot about various irrationalities > > that they might fall into and ways they try to compensate for that. > > People talk about realizing that each person tends to think highly of > > him/herself, and trying to compensate for that. > >People "talk a lot" about this?! Maybe in a few odd sub-cultures. I >can't recall any family member every talking this way, for example. >Maybe you're meta-rational, but I can't think of anyone else who >resembles you in this way. :-) How about this example. People seem to believe that they tend "stereotype" groups of people based on small possibly non- representative sets of examples, and consciously try to overcome this tendency. Overall, I'd say they do a reasonable job of correcting for this possible cognitive bias. Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu Asst. Prof. Economics, George Mason University MSN 1D3, Carow Hall, Fairfax VA 22030- 703-993-2326 FAX: 703-993-2323
RE: Teacher's income
>So, are professors really underpaid? In general I think that when one hears complaints about people being underpaid it is because their earnings are low compared to what other people with similar credentials are being paid. In my experience most people don't think in terms of markets setting salaries. They think in terms of employers deciding what to pay and they think that employers can pretty much pay whatever they want. Pay is viewed as unfair if it doesn't reward the things that are supposed to be rewarded according to norms (talent, education, and experience). Economists have very different views of the reasons why people are paid for these things having to do with their scarcity and the cost of acquiring the characteristic. Our view would have little to do with fairness. On one level, I think many claims about "fairness" are just whining. I also think a society does less well than it might by rewarding whining. On a more exalted level, we have no consensus on the meaning and proper application of concepts like fairness or merit. We have a reasonable and objective way of determining a person's value to society. We have no such way to determine the fairness of their wages or general situation. The political process? I deny we can distinguish "fair outcomes" from "dead weight rent seeking." 2) Public schools do seem to set wages in a way which is typical of a price leader (quality adjusted pay is lower than the private sector unless there is a union). What is the evidence for this? Are there public schools without teachers unions? I find it hard to believe that this is true once parochial schools are included. Are there studies of wages in nonunion public schools and comparable private schools? Are professors underpaid? If one thinks that there is chronic excess supply this hardly seems arguable. The argument against this view is that there is also an oversupply of aspiring NBA players, but that doesn't mean that current NBA players aren't being paid the value of their marginal revenue product. Those who aspire may not be able to perform at the level of the incumbents. The NBA example would be relevant to my original post if the stars of one era were granted permanent employment. We would thus be enjoying the efforts of Bill Russell and Wilt Chamberlin (until he died). My original point was that we cannot know in universities that those who aspire may not be able to perform at the level of the incumbents because the incumbents have locked in their jobs and prevent any and all competition. My other point was that the chronic excess supply of PhDs grew out of the original monopoly. Freed from competition, tenured professors continued to admit and credential many more PhDs than the market could handle. Had there been a functioning market for professors, the number of new PhDs would have roughly matched the number of new jobs. In such a functioning market, the wages of professors would also be somewhat lower than than now. Thus tenured professors are overpaid. The market for nurses and teachers is largely local because of career co-location decisions while the market for Profs is national. The local nature of the nurse and teacher markets makes monopsonistic coordination possible (the Personnel director I talked to didn't take seriously the notion that high wages for nurses in her city would attract more nurses "They're all married and they can't move." even while she was willing to allow that there would be an increase in supply from "burnt out" nurses reentering the field). -- Bill Dickens Even if we grant the monopsony argument, I don't see how it could apply to universities which number in the thousands and compete in a national market. Wouldn't a monopsony be highly unstable? On the other hand, the supply side is clearly fixed. All of this raises three questions for me: 1. How do professors maintain their cartel? I remember reading a few years ago about a professor at Columbia who refused to accept tenure when it was offered. I don't recall that he was punished in any way. Are sanctions aimed largely at buyers? 2. Tenure protects an older generation from competition from a younger cohort. How does this fit into larger evolutionary theories? 3. Why have so few people on this list bothered to defend tenure? John Samples Cato Institute Washington, DC
Re: Upward Sloping Demand Curves
A. Woolf wrote: This reminds me of a paper I read as an undergrad in micro theory. I think it was by Harvey Liebenstein and titled Bandwagon, Snob, and Veblen Effects. I don't remember the journal, but it was probably from the 1960s or early 1970s. _ In response: The Chicago/MIT study focuses almost entirely on the marketing cue and informational content of price endings (in this case, 9). The bandwagon and conspicuous consumption issues that you find in the consumption of some goods, popularized by the mad Norwegian (Mr. Veblen), do not have a material effect in the Chicago/MIT catalog field test. Buying more of a good at $29 than $26 in the study is a very rational act. Veblen-esque effects simply don't touch the marketbasket makeup and price ranges featured in the study. J. Morrison New York, NY
Re: Upward Sloping Demand Curves
> The Role of Price Endings: Why Stores May Sell More at $49 than at $44 > This joint Chicago/MIT study, utilizing a large catalog field test, > found that increasing the price of an item from $44 to $49 may actually > increase demand of that item (quantity demanded for the anal-retentive > on the List) by up to 30%. This paradox is related to the "fact" that > $9 price endings lead to favorable customer price perceptions and > increased customer demand. However, overuse of the $9 price ending > dilutes this effect, as does the simultaneous use of sale signs. > J. Morrison Actually, when the greater quantity is bought at $49, it does indeed increase the demand, not the quantity demanded. When the price is raised to $50 from $49, the Q demanded falls. When the price falls from $49 to $48, it is the demand that shifts in, because the perception is that this is a different good. Try to reduce a price of a good that is familiar and has been selling at $49 to $48 and see if the quantity demanded declines. People won't knowingly throw away money unless they enjoy the throwing. Fred Foldvary
