The gross substitution axiom meets reality

The gross substitution axiom assumes that if the demand for good x goes up, its relative price will rise, inducing demand to spill over to the now relatively cheaper substitute good y. For an economist to deny this ‘universal truth’ of gross substitutability between objects of demand is revolutionary heresy – and as in the days of the Inquisition, the modern-day College of Cardinals of mainstream economics destroys all non-believers, if not by burning them at the stake, then by banishing them from the mainstream professional journals

via The gross substitution axiom — the backbone of mainstream economics | LARS P. SYLL.

Price of Illegal Drugs Is Dropping, Purity Is Increasing, and the Global War on Drugs Is Failing

Supply and demand in action? Legalising and regulating drugs would drive prices further whilst providing additional tax revenue streams and reducing costs of law enforcement and “justice” departments. Releasing prisoners would save even more. What better place than here, what better time than now?

The same story unfolds in the data for heroin and cocaine.  Prices for both drugs are down by eighty percent, while heroin purity is up sixty percent and cocaine purity is up eleven percent in the United States.  In Europe, the price of heroin dropped seventy-four percent and cocaine price dropped fifty-one percent.  Prices declined and purity rose despite ever-increasing seizures of those drugs and eradication of the drug crops globally.

via Price of Illegal Drugs Is Dropping, Purity Is Increasing, and the Global War on Drugs Is Failing | Alternet.

Branding Strategy Insider | The Fall of the Purchase Funnel

Take the relationship between supply and demand – its reversed. Today demand is scarce, supply plentiful.

via Branding Strategy Insider | The Fall Of The Purchase Funnel.

I’m not so sure this marketing guy quite understands—for what it’s worth—the concepts supply, demand, and equilibrium. That the relationship has been reversed, would indicate that the orthodox condition would be low supply to high demand (and essentially scorns the role of the market). Of course, from a Marketers position, it is quite understandable that one might want to be in a position absent of competition with the concomitant power to control prices, but this is not the correct state. It is simply a state.

Of course, given the author’s perspective, Says Law has again been undermined. If supply creates its own demand, then a surfeit of  supply should cause a surplus of demand, right?

Beats by Dre: More Disproof of a Rational Actors

In 2008, Monster, a tech company known for overpriced cables and zealous litigation against Rhode Island mini-golf courses, teamed up with Dr. Dre, the legendary hip-hop artist and producer who helped bring Snoop, Eminem, 50 Cent, and Kendrick Lamar to the masses. Just five years later you can look around any playground, subway train, or suburban mall to see the result, and it starts with a lower-case b: Beats by Dre headphones have locked down the market.

via Beats by Dre market share: How the headphones company conquered the market. – Slate Magazine.

Why Are Retail Petrol Prices What They Are?

Although this article is dated and conflates unit costs with administrative overhead costs—and is published by ExxonMobile to boot (whatever that means)—, I thought I’d share it.

I’m asked this question a lot. And I know a lot of drivers ask themselves this question when they pull up to the pump.The answer is based on the economics of supply and demand and how products are manufactured and sold – along with what the government takes in taxes. Let’s take a look, based on the U.S. Energy Information Administration’s breakdown of the estimated average price of a gallon of gas in December 2011, which was $3.27.

via What am I paying for in the price of a gallon of gasoline? | ExxonMobils Perspectives Blog.

Breaking Bad’s blue sky meth: Would addicts really pay more for higher quality?

Ever since I started moonlighting in the Breaking Bad TV Club, people have been asking me: Does it really make sense that Walter White has positioned himself as some kind of high-end meth manufacturer? Won’t desperate junkies just settle for anything? There’s no doubt showrunner Vince Gilligan has cut some logical corners to make compelling television, but Moneybox’s view is that it’s not on the economics side. If anything is shady about the idea of premium meth, it’s the chemistry.

via Breaking Bad’s blue sky meth: Would addicts really pay more for higher quality? – Slate Magazine.

Ronald Coase, Law Professor and Economist, Dies at 102

I am not a huge fan of Ronald Coase, but I do respect his insight into transaction costs. It is his further work in support of private property as a means to mitigate social costs I find lacking—and of course the necessity for zero transaction costs for his theory to apply to the real world.

Ronald H. Coase, whose insights about why companies work and when government regulation is unnecessary earned him a Nobel Memorial Prize in Economic Science in 1991, died on Monday in Chicago. He was 102.

via Ronald H. Coase, a Law Professor and Leading Economist, Dies at 102 – NYTimes.com.

The Problem with Price Gouging Laws

Many states have anti-gouging laws that curb price increases during disasters. In California, for instance, the maximum that retailers can raise prices after an emergency is 10%. Since this minimal upcharge wont effectively temper demand, limited supplies end up being rationed on a first-come, first-serve basis. While many view this policy as “fair,” gouging laws have two key drawbacks…

via The Problem with Price Gouging Laws – Rafi Mohammed – Harvard Business Review.

Whats Wrong With the U.S. Job Market?

The breakdown of the labor market can be blamed on either supply or demand. Those who argue that the supply of labor is the main problem say that many Americans simply aren’t qualified for the jobs available. On May 7, the BLS reported that there were more than 3.8 million job openings in the U.S. at the end of March—at a time when more than 11 million people were looking for work.

via Whats Wrong With the U.S. Job Market? – Businessweek.

Is Capitalism Dying?

It’as not very often that I agree with a large part of an article published by Forbes, but here is one.

Capitalism has been the dominant economic system in the Western world for, give or take, 400 years. And in that virtual eye blink in the grander scheme of things it has produced more wealth than all the prior economic systems put together.

via Is Capitalism Dying? – Forbes.