A Stitch in Haste

Greg Mankiw:

We have been learning about elasticity in ec 10. One of the students emails me this clip from The Wire (a great TV show, by the way) on the concept. For those who have not seen the show, the main character in the clip, Stringer Bell, runs a drug operation but wants to go legit and has an apparent interest in economics.

The clip:

The demand curve exists independently of the supply curve. Even if there are no suppliers — indeed, even if the good does not exist — there is a still a demand curve for it. It is therefore inappropriate to say that “competition” — or any other component of supply — can be a determinant of the elasticity of demand.

On the other hand, Stringer could be referring to the demand, not for “the” service, but for his service. We do teach that “the availability of alternatives” is a key determinant of demand elasticity, and a merchant in a highly competitive industry has customers who have plenty of alternatives to him. But that’s very different from alternatives to the good, which is typically what we are referring to when we speak of “elasticity.”

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Meanwhile, we are all of us being a little sloppy (as we tend to be in introductory economics) by leaving off the word “price” — when we say simply “elasticity” we are almost always talking about the price elasticity of demand. What does employing incompetent, unmotivated flunkies have to do with how customers respond to hypothetical changes in price?

(I suppose we could define a new metric — the “unmotivated employee elasticity of demand” — but that’s not what we typically mean by the abbreviated term “elasticity.”)

Finally, anyone notice the two errors the instructor makes in the classroom scene?

Previously:
–Economics 101 and The Politics of the Warm Fuzzy Feeling
–On the Federal Gas Tax and the Candidates’ Respective Panders
–What is the Elasticity of Supply for Doctors?

Filed under: Economics & Finance