Re: Upward Sloping Demand Curves
Very often for water bills, you have to pay more per unit once your consumption goes above a certain level. This might make it seem like the price goes up because your quantity demanded goes up(which reverses the causality) and would mean an upward sloping demand curve. Cyril Morong At a lower price the consume would be willing to buy more water, but the regulated utility is offering the first amount at a subsidy, creating a large consumer surplus. The price only goes up because it is controlled by regulators. In other cases, it is the opposite: large users get a volume discount. Fred Foldvary
Upward Sloping Demand Curves
Very often for water bills, you have to pay more per unit once your consumption goes above a certain level. This might make it seem like the price goes up because your quantity demanded goes up(which reverses the causality) and would mean an upward sloping demand curve. But if there is a fixed amount of water available per day (let's say due to a given amount of rainfall), if you use more than average, you are making water scarcer (reducing the supply) and when supply decreases, the price goes up. Thus, if you want to increase your quantity demanded, you must pay a higher price. So it is quantity demanded that seems to cause price, not the usual case where price causes your quantity demanded. It may be the case that we cannot increase water production (that is, move along the supply curve) in response to an increase in demand. Cyril Morong San Antonio College
Re: Upward Sloping Demand Curves
Ed Dodson responding... [EMAIL PROTECTED] wrote: Very often for water bills, you have to pay more per unit once your consumption goes above a certain level. This might make it seem like the price goes up because your quantity demanded goes up(which reverses the causality) and would mean an upward sloping demand curve. Ed here: I would expect that consumer sensitivity to higher marginal prices is very dependent upon household income. Lower income households would tend to curtail water consumption as marginal unit prices increase; moderate income households would be less prone to do so and higher income households not at all sensitive to pricing increases. Another variable, of course, is whether the households allocate water for lawncare. Households with large lawns (and sprinkler systems installed) may simply absorb the increased costs in order to maintain their lawn in accord with the "neighborhood standard". I wonder whether a similar analysis would apply to business use. But if there is a fixed amount of water available per day (let's say due to a given amount of rainfall), if you use more than average, you are making water scarcer (reducing the supply) and when supply decreases, the price goes up. Thus, if you want to increase your quantity demanded, you must pay a higher price. So it is quantity demanded that seems to cause price, not the usual case where price causes your quantity demanded. Ed here: I assume you are referring to a rationalized rather than typical market. Water provided by public agencies is priced based on the successful pursuit of subsidy in many parts of the U.S. Water projects are funded by the Federal government and the debt paid for out of general revenues rather than user charges. Water brought to arid parts of the country in order to irrigate land for crops is a case where heavily subsidized water results in two things: (1) waste; and (2) creation of an imputed income stream to landlowners that is capitalized into higher land prices (e.g., if farmers were paying the true cost of water, farmland prices would be much lower but profit margins from actual farming -- as opposed to the buying and selling of land as a speculative investment -- would be the same. begin:vcard n:Dodson;Edward tel;fax:215-575-1718 tel;home:856-428-3472 tel;work:215-575-1819 x-mozilla-html:TRUE org:Fannie Mae;Housing and Community Development, Northeast Regional Office (NERO) version:2.1 email;internet:[EMAIL PROTECTED] title:Senior Affordable Housing Business Manager note:If you need to reach me during non-business hours, send an email to: [EMAIL PROTECTED] adr;quoted-printable:;;1900 Market Street=0D=0ASuite 800;Philadelphia;PA;19103;U.S.A. fn:Edward J. Dodson end:vcard
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: 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
Upward Sloping Demand Curves
All this time I've been living under the impression that there wasn't a Santa Claus and that upward sloping demand curves were the unicorns of economic theory. Alas, I was wrong. The current presidential race had already convinced me that Santa Claus does in fact exist afterall, and he even comes with a running mate. And now I've finished reading the Anderson/Simester study (May 2000): The Role of Price Endings: Why Stores May Sell More at $49 than at $44 First, Santa Claus - and now I've had to throw in the towel on upward sloping demand curves as well. 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. Furthermore, the study suggests that this is all a quite rational response to a marketing cue. Let's ponder the ramifications of this study. Now we have the possibility of parallel demand and supply curves . . .the absence of an equilibrium price and quantity . . .sacrilege! J. Morrison New York, NY
Re: Upward Sloping Demand Curves
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. Art Woolf On Tue, 26 Sep 2000 [EMAIL PROTECTED] wrote: All this time I've been living under the impression that there wasn't a Santa Claus and that upward sloping demand curves were the unicorns of economic theory. Alas, I was wrong. The current presidential race had already convinced me that Santa Claus does in fact exist afterall, and he even comes with a running mate. And now I've finished reading the Anderson/Simester study (May 2000): The Role of Price Endings: Why Stores May Sell More at $49 than at $44 First, Santa Claus - and now I've had to throw in the towel on upward sloping demand curves as well. 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. Furthermore, the study suggests that this is all a quite rational response to a marketing cue. Let's ponder the ramifications of this study. Now we have the possibility of parallel demand and supply curves . . .the absence of an equilibrium price and quantity . . .sacrilege! J. Morrison New York, NY Art Woolf Phone: (802) 656-4711 Vermont Council on Economic Education 219 Kalkin Hall University of Vermont email: [EMAIL PROTECTED] Burlington, VT 05405
upward sloping demand curves
My understanding of the upward sloping demand curve is that consumers may be willing to buy more of a product if the price is higher because the higher price may signal better quality. This seems to imply that two factors are changing. I always thought that along a demand curve just one factor was changing, the price. If two factors are changing at the same time, what is it that we are talking about? Is it still the demand curve? What about attributes of the product? Isn't that what we really demand? If you pay more for quality, maybe you are not actually paying more per quality unit, like CPU second or sweetness of the orange. Cyril Morong San Antonio College
Re: upward sloping demand curves
On Tue, 26 Sep 2000, Cyril Morong wrote: My understanding of the upward sloping demand curve is that consumers may be willing to buy more of a product if the price is higher because the higher price may signal better quality. 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. What about attributes of the product? Isn't that what we really demand? Yes. So the demand curve is for just one set of characteristics. Fred Foldvary
Re: Upward Sloping Demand Curves
You can download it at: http://papers.ssrn.com/paper.taf?ABSTRACT_ID=232542 Scott Merryman --- Where's the paper printed? I did a search on Econlit and couldn't find anything. Daljit Dhadwal
