Goods of an addictive nature

getting worse · 24-11-2015 7:33pm #1

Hi guys I am a second level teacher, teaching economics. This is a small point I would like to clear up if possible.

When I cover Demand and Law of Deminishing Marginal Utility with my classes I always point out that I disagree with the text book when it deals with Goods of an addictive nature. The text books all agree and the LC marking scheme allows these goods to be considered as an exception. I argue that they are not, why should an addicit demand more of his drug of choice just because the price has increased, or why indeed would he not reach a point when the MU begins to decline. Surely an over dose constitutes a drop in marginal utility.

My stance in class of course tends to ensure that this is the one exception which they all remember and KNOW will be accepted in the LC.

Am I right? Goods of an addicitive nature should be consider as having a very inelastic demand curve rather as an exception to the Law of demand and is there any reason why they would not be subject to the Law of dem MU?

If I am correct why do all the text books include this point?

andrew · 25-11-2015 2:49pm

If having a unit of something makes me want more of that thing, then doesn't that mean it doesn't have diminishing marginal utility?

As in, if I take 1 unit of heroin today, and that makes me want to have 2 units of heroin tomorrow, then the utility of the heroin to me is increasing, not decreasing. So For each extra unit of heroin, my willingness to pay in terms of other goods goes up and up. It continues to increase so much that the marginal utility from that extra heroin to me, is greater than the marginal utility from living, so I overdose and die.

So it’s not so much my quantity demanded increasing if the price goes up, and more that my willingness to pay for the next unit, increases with each unit that I consume. I presume there’s a way to draw this out with Indifference curves etc…

getting worse · 25-11-2015 3:38pm

Thanks Andrew for the reply.

Regarding MU, I get your point but I am not convinced. Even if I accept that utility keeps increasing, surely the extra utility you get from the unit that kills you is less than the utility of the previous unit.

If instead of heroin you take cigarettes. A smoker become addicted but in general settles on consumption of a certain number of units per day, 10, 20 30 whatever. Smokers who are deprived of cigarettes for a long time, say a plane journey, would seem to get very high utility from the first cigarette, possibly this utility increases for the second or third but a point will be reached where the MU of the cigarettes will fall.

I don't really see why the same circumstances don't apply to heroin users. They need a certain quantity to achieve the high and but after that the additional utility begins to fall.

The second point is regarding the law of demand, Becoming addicted to a substance will shift the individual demand curve over time. Does this not happen with all products with usage, the more horse riding lessons I take the more I want to take horse riding lessons.

andrew · 25-11-2015 5:32pm

getting worse wrote: »

Thanks Andrew for the reply.

Even if I accept that utility keeps increasing, surely the extra utility you get from the unit that kills you is less than the utility of the previous unit.

If addicts are willing to take that extra unit, even though they know they’re at risk of death, wouldn’t that indicate that the MU from that unit is very, very high?

If instead of heroin you take cigarettes. A smoker become addicted but in general settles on consumption of a certain number of units per day, 10, 20 30 whatever. Smokers who are deprived of cigarettes for a long time, say a plane journey, would seem to get very high utility from the first cigarette, possibly this utility increases for the second or third but a point will be reached where the MU of the cigarettes will fall.

I think the point with cigarettes is a bit more nuanced. Yes you eventually settle on a steady state where you consume a certain amount a day. But just as you’re getting addicted, say going from 1 or 2 each weekend, to a pack a day, you display behaviour which isn’t consistent with DMU. You have one, and then that means you’d get even more utility from a second etc. Maybe what characterises addiction isn’t so much that DMU never sets in, but that there’s IMU at all. The same might apply, as you say, to things like horse riding lessons. Or someone completing a stamp collection.

getting worse · 25-11-2015 10:47pm

If addicts are willing to take that extra unit, even though they know they’re at risk of death, wouldn’t that indicate that the MU from that unit is very, very
high

?

I agree but when they take that fatal dose surely DMU sets in then.

You have one, and then that means you’d get even more utility from a second etc. Maybe what characterises addiction isn’t so much that DMU never sets in, but that there’s IMU at all. The same might apply, as you say, to things like horse riding lessons. Or someone completing a stamp collection.

But this is exactly my point the law allows for MU to increase as additional units are consumed and eventually a point is reached where DMU sets in. If DMU does not apply to drugs how then does it apply to Horse riding lessons or stamp collecting or indeed a whole range of other products and services.

Anyway thanks for the input, I will continue to ponder and no doubt my students will continue to get this one right in the LC.

andrew · 25-11-2015 11:02pm

getting worse wrote: »

?

I agree but when they take that fatal dose surely DMU sets in then.

Well you're dead; you go out in a blaze of utility

CelticRambler · 25-11-2015 11:15pm

Isn't it "too easy" to use addictive drugs in this context? In your heroin example, from an economics point of view the individual consumer simply "disappears" when he takes the overdose, but will be replaced by a new user. Similarly for cigarettes, the person "stabilised" at 20-a-day is only there at that point in time, having got there from 0 over a relatively long period and, depending on life circumstances, may increase his consumption in the future. In my experience of these addicts, while they may make some effort to source their drug of choice at a better price, the unit cost is pretty irrelevant (much to the satisfaction of tax collectors and dealers).

I think iPhones make the point more explicitly. The target market is iThingy addicts who expect "more" from the Apple brand with every new model, even if the technology is only average. I doesn't matter what price Apple set for the iPhone 7, nor how limited the functional improvement compared to their current device, there will be queues of people waiting to get their hands on the first ones "just because". Some time ago, I read of insurance data that "noted" a sudden increase in the number of iPhones falling down toilets in the weeks before and after the release of each new model. Accepting the hypothesis that this was not entirely accidental, it shows classic addict behaviour!

andrew · 25-11-2015 11:52pm

CelticRambler wrote: »

Isn't it "too easy" to use addictive drugs in this context? In your heroin example, from an economics point of view the individual consumer simply "disappears" when he takes the overdose, but will be replaced by a new user. Similarly for cigarettes, the person "stabilised" at 20-a-day is only there at that point in time, having got there from 0 over a relatively long period and, depending on life circumstances, may increase his consumption in the future. In my experience of these addicts, while they may make some effort to source their drug of choice at a better price, the unit cost is pretty irrelevant (much to the satisfaction of tax collectors and dealers).

I think iPhones make the point more explicitly. The target market is iThingy addicts who expect "more" from the Apple brand with every new model, even if the technology is only average. I doesn't matter what price Apple set for the iPhone 7, nor how limited the functional improvement compared to their current device, there will be queues of people waiting to get their hands on the first ones "just because". Some time ago, I read of insurance data that "noted" a sudden increase in the number of iPhones falling down toilets in the weeks before and after the release of each new model. Accepting the hypothesis that this was not entirely accidental, it shows classic addict behaviour!

I think that's a bit different in that as you mention with the insurance thing, people only ever want one phone at a time. So it's addictive in a sense, but in an economic sense, in terms of utility, it's not addiction at work there, and just standard inelastic demand.

CelticRambler · 26-11-2015 1:40am

I don't think I know anyone with only one mobile phone! My mother's got three (all still working) ...

KomradeBishop · 26-11-2015 3:47am

A better example of an exception to DMU is probably collectors of rare items, or even of money itself - it's not likely people will experience DMU from amassing greater and greater amounts of wealth!

One of the big problems with the concept of DMU also is: It doesn't take time into consideration.

If (taking the exception of drug addiction) you purchase/consume heroin, and then rapidly/immediately continue to purchase/consume more, you'll quickly die of an overdose - if you spread this out over time so that there is no chance of an overdose, the exception to DMU is very clear.

Marginalism in general has a huge number of internal-inconsistences/problems/exceptions like this - enough to argue that its primacy should be downgraded (it currently dominates economic teaching), and that there should be much more pluralism in teaching, of theories that present alternatives to marginalist views.

cnolan · 17-01-2016 3:46am

KomradeBishop wrote: »

even of money itself - it's not likely people will experience DMU from amassing greater and greater amounts of wealth!

Wealth has diminishing marginal utility.

If I had 0 yoyos and I got 100$ or € that'd be extremely brilliant, I'd be able to get food and blah blah blah.

If I had a million dollars and I got €/$100, it would be less useful, as I already have 100,000 $100.

KomradeBishop · 17-01-2016 2:18pm

Well, true, for the average person who only wants money to buy average stuff, there likely would be a point where increasing amounts of money is less use - though there are some people where this does not apply, and there is a kind of 'money addiction', or where the goal of accumulating money is gaining power (where there would be no DMU):
http://www.inc.com/kimberly-weisul/how-money-addiction-can-happen-to-anyone.html

Greater and greater amounts of money, confer greater and greater amounts of power. There's a lot that money can provide, beyond simple goods, if you go about endlessly accumulating ridiculous amounts of it.

Goods of an addictive nature

Comments