{"id":5255,"date":"2011-10-15T05:59:43","date_gmt":"2011-10-15T13:59:43","guid":{"rendered":"http:\/\/www.oeconomist.com\/blogs\/daniel\/?p=5255"},"modified":"2011-10-25T11:05:45","modified_gmt":"2011-10-25T19:05:45","slug":"on-the-elasticity-of-dachshund-sausages","status":"publish","type":"post","link":"https:\/\/www.oeconomist.com\/blogs\/daniel\/?p=5255","title":{"rendered":"On the Elasticity of Dachshund Sausages"},"content":{"rendered":"

A recent comment by Zenicurean notes, implicitly, that economic pædagogy often uses a widget<\/span> as a hypothetical economic good.<\/a><\/p>

I most frequently use the veeblefetzer<\/span> (borrowed from Harvey Kurtzman<\/a>) when I want a good about which the audience will know little or nothing<\/a>, and the hot dog<\/span> when I want a good that will seem familiar.<\/p>

I like the hot dog as an example in part because it has a long tradition in economic education while being fairly absurd as an artifact.<\/p>

I also like it because it is easy to explain the idea of a shift in the demand curve<\/span> using the hot dog. First, I present my students with a set of prices, polling them as to how many hot dogs they would buy at each of these prices; that gives us an initial demand curve. Then I discuss some of the things that are permitted<\/em> to go into hot dogs, and we repeat the process for the prices. (So far, the demand curve has always shifted inwards.)<\/p>

But the main reason that I like to use hypothetical hot dogs is because I think back to a question on the economics GRE<\/abbr> when I took it.[1]<\/span> In the set-up for the question, a family was working-out its annual budget, and decided that they would spend $800 per year on hot dogs, regardless of the price of hot dogs<\/em>.[2]<\/span><\/p>

The question was of what sort of demand elasticity<\/span> were here displayed. Elasticity<\/span> is a measure of sensitivity or responsiveness, with a general form of

±(%Δy \/ %Δx) = ±(Δy\/y) \/ (Δx\/x) = ±(Δy\/Δx)·(x\/y)<\/div> or of
±(dy<\/var>\/dx<\/var>)·(x<\/var>\/y<\/var>)<\/div> (Whether there's a negative sign and whether an instantaneous form is used is based on what's convenient and practicable.) In the case of demand elasticity<\/span>, the y<\/var> is quantity demanded, and the x<\/var> is unit price. One might think that demand responsiveness could be measured more simply<\/em> by slope<\/span> (Δy<\/var>\/Δx<\/var> or dy<\/var>\/dx<\/var>), but elasticity has a useful property. When elasticity is less<\/em> than 1 in absolute value, responsiveness is sufficiently weak<\/em> that expenditures (the product of quantity demanded and unit price) increase<\/em> as price is increased; whereäs if elasticity is greater<\/em> than 1, responsiveness is sufficiently strong that expenditures<\/em> shrink<\/em> as price is increased. The seller gets less<\/em> revenue by increasing prices in the second case, where the curve is said to be elastic (sensitive); the seller gets more<\/em> revenue by increasing prices in the first case, where the curve is said to be in<\/em>elastic (in<\/em>sensitive).<\/p>

If the elasticity is exactly<\/em> 1 (in absolute value) then quantity demanded drops or rises to exactly off-set<\/em> any price change; expenditures are constant<\/em> as price changes. This is called unit<\/q> elasticity. (BTW<\/abbr>, a demand curve that is everywhere unit elastic will be a hyperbola<\/em>.)<\/p>

On the GRE<\/abbr>, I was supposed to identify the demand curve of the family in the question as unit elastic, and so I did. But, because I'm not autistic, I was also greatly amused<\/em> by this example. Imagine a family that is conscientious enough to budget, but they eat hot dogs. Imagine a family that budgets, but budgets such that if a hot dog costs $1600 then they will try to buy half a hot dog<\/em>, and if a hot dog costs a penny then they will buy eighty thousand<\/em> g_dd_mn'd hot dogs!<\/em><\/p>

I laughed when I read this question. And, because I made multiple passes through the test, I glanced at that question repeatedly, laughing each time. I was the only person in room laughing. (The room had people taking different subject<\/q> GRE<\/abbr>s, and I may have been the only one taking the economics test.)<\/p>

When I use hot dogs as an example, it's mostly just in fond memory of that hypothetical family, crazy for hot dogs.<\/p>

[1]<\/span> This tale may seem somewhat familiar to those who read my now long-since-purged LJ<\/abbr>.<\/p>

[2]<\/span> The amount may have been $600 per year, or perhaps $400 per year; it has been quite some time since I took that test, and I don't remember. But, mutatis mutandis<\/span>, my remarks hold.<\/p>","protected":false},"excerpt":{"rendered":"A recent comment by Zenicurean notes, implicitly, that economic pædagogy often uses a widget as a hypothetical economic good. I most frequently use the veeblefetzer (borrowed from Harvey Kurtzman) when I want a good about which the audience will know little or nothing, and the hot dog when I want a good that will seem […]","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_bbp_topic_count":0,"_bbp_reply_count":0,"_bbp_total_topic_count":0,"_bbp_total_reply_count":0,"_bbp_voice_count":0,"_bbp_anonymous_reply_count":0,"_bbp_topic_count_hidden":0,"_bbp_reply_count_hidden":0,"_bbp_forum_subforum_count":0,"footnotes":""},"categories":[6,117,36,5,4],"tags":[1075,1074,1330,1069,1072,1070,1071,1067,1068,1073],"class_list":["post-5255","post","type-post","status-publish","format-standard","hentry","category-commentary","category-communication","category-economics","category-personal","category-public","tag-demand-curves","tag-economic-education","tag-economics","tag-economics-education","tag-elasticity","tag-hot-dogs","tag-hotdogs","tag-paedagogy","tag-pedagogy","tag-unit-elasticity"],"_links":{"self":[{"href":"https:\/\/www.oeconomist.com\/blogs\/daniel\/index.php?rest_route=\/wp\/v2\/posts\/5255","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.oeconomist.com\/blogs\/daniel\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.oeconomist.com\/blogs\/daniel\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.oeconomist.com\/blogs\/daniel\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.oeconomist.com\/blogs\/daniel\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5255"}],"version-history":[{"count":0,"href":"https:\/\/www.oeconomist.com\/blogs\/daniel\/index.php?rest_route=\/wp\/v2\/posts\/5255\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.oeconomist.com\/blogs\/daniel\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5255"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.oeconomist.com\/blogs\/daniel\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5255"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.oeconomist.com\/blogs\/daniel\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5255"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}