Thursday, April 10, 2008

My Econ 101

I have to teach two days later, and I am now preparing for it:

Taro's Econ 101

Price of Pepsi and Human Behavior
When the price of Pepsi rises, what should we do? It’s an easy question. We usually seek substitutes, say, Coke. The price rise makes us shift to Coke.
Price is one of the factors that changes people’s behavior.

Economists say that people react to incentives. Incentives mean a motive for a particular action. Do people really react to incentives?

Case Study
On a teenage oral-sex craze in the United States by Tim Harford.

Oral sex is to stimulate penis or vagina by using mouth, say, fellatio and cunnilingus. Both the adults and the teenagers are related to much more oral sex than in 1990. Why not?

Schools teach the risks of sex, particularly HIV/AIDS and some other sexually transmitted infections (STI). Oral sex can be safer than penetrative sex. It dramatically reduces the risk of HIV and other STI.

(a) The economic analysis
If the price of risky sex went up and teenagers really did think about the results of their actions, they would have less risky sex, oral sex.

People switch to safer sex due to the price rise in risky sex: use of the contraceptive pill is down, but use of condoms is up. Moreover, the percentage of teenage virgins has risen by more than 15 percent since the beginning of the 1990s.

(b) Policy implication
Abortion-notification laws force teenagers to get permission to abort from their parents. Some scholars found that wherever and whenever such laws have been passed, STI rates in the teenage and adult populations start to diverge.

When it becomes more difficult to abort, teenagers seem to reduce unprotected sex.

To sum up, now we can see that people really react to incentive.


Alejandro said...

Taro, I'll try to comment on your blog frequently.
With respect to incentives and individual choice...I agree that price changes economic decisions by an individual. However, we can also think about preferences influencing these decisions. In general it is the interaction between preferences and your income (budget constraint) that influences people choices.
If the price of coke goes up, a person may decide to keep drinking coke, reflecting his strong preference towards coke. Meaning there is no substitution between coke and pepsi or any other soft drink.
Similarly, in the oral sex context people may now have a stronger preference towards oral sex. As you have noted this could have been because teenagers find it more difficult to abort or V.D's.
I guess we could think of both a change in preferences and/or a change in the price of risky sex in this in the oral sex context.

Taro said...


Thank you for your nice pointer. You're so accurate that I won't post any comment.

I deleted another important reason of our choice, preference.

If I taught micro in Econ 101, I would have to talk about pereference when I talk about consumer behavior.

By the way, what I care is why teenagers now prefer oral sex. Is it much cooler than penetrative sex? I was just thinking about it and I found nothing clear to answer.