Tuesday, December 16, 2008

Jocking my style.

No doubt noticing the explosive growth in my readership numbers, the NY Times Freakonomics blog has decided to crib my prostitution-economics nexus with a post discussing why prostitution is not a Giffen good.

Economics and prostitution, you saw it here first.

The discussion of Giffen goods in the post is quite good, though fairly useless as there has only ever been one found in the wild: rice among desperately poor peasants in China.

The two effects that work together to create a Giffen Good, the substitution effect and the income effect, are very useful indeed, however.

I can still remember the first time I used the income effect to explain an observed behavior. It was way back in college when Miller Lite was in the middle of a particularly fantastic run of advertising. I read an article in the Journal about how Miller was upset because despite this critically acclaimed and v. popular advertising push their product was not selling any better.

Of course, this was during the late 90's tech boom. My conjecture was that Miller Lite is an inferior product(fn1), that is people would prefer to drink some better beer if they can afford it. And in a boom everybody feels like they can afford it so Miller sales stall. And no amount of advertising was likely to change that.

fn1: I feel I should note that I do not personally view Miller Lite as all that inferior in the everyday sense. I prefer it to Bud Light or Coors Light. That said, they are all inferior in that I tend to buy nicer beers. But for certain uses, they are the best. Sports watching, for example, goes well with light beer, not so much with Guinness or Bass.

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