5 ms·

This is IMO a spefic case of the induced demand concept (https://en.wikipedia.org/wiki/Induced_demand https://en.wikipedia.org/wiki/Induced_demand).

rawkintrevo 2y ago
I was just coming here to say, this looks like the fancy way to say 'induced demand'. Why do you think this is a specific case of induced demand (as opposed to induced demand being a specific case of Jevons paradox, or the two being different words for the same thing?)
BenFranklin100 2y ago
As an aside, the concept of Induced demand has been criticized. A more precise way to think about “induced demand” is that the demand for a product at a lower price point was preexisting. The transaction didn’t clear until the price actually became lower and this demand manifested itself. This seems like splitting a hair but it is a more consistent intellectual framework for understanding the dynamics of a particular market.
- simgt 2y ago
  I don't see how that is more precise. What is the definition of "demand" in that case? Anything that could ever happen at one point, or something that is actually wanted (needed?) by someone who's formulating the thought consciously?
- enragedcacti 2y ago
  Induced demand is just the name for realized latent demand, your more precise way to think about it is the concept*. It's only muddled because it is often invoked in complex markets where the costs are often not monetary, there are substantial externalities to consider, or the supply is centrally managed. Should a city spend $500,000 to install lighting in the park downtown? After all nobody uses it at night because its too dangerous! Induced demand is central to the answer but isn't a first thought for many because the problem space doesn't look like a traditional market. * there is the additional concept that the long term availability of a good or service at a lower cost changes consumer behavior in a durable way. Building a new train station realizes latent demand but also creates new demand as it causes denser housing to be constructed near it**. ** Whether you want to model that as just more realized latent demand or as a consequence that's technically distinct from induced demand is IMO where a lot of the confusion comes from. If you ask me this should probably have a distinct name as it is a long-term, interrelated process that doesn't map well to sliding around supply and demand curves. Generated demand is what Bloomberg calls it but that has insane overlap with a marketing technique.
  - BenFranklin100 2y ago
    Thanks, very interesting. The term ‘induced demand’ has been used a lot in the urban transit & housing discourse. Occasionally you will see the term hijacked by NIMBYs who argue against new housing by claiming construction only serves to create more demand for housing. Or people will argue against widening highways because it will only and always just create ‘induced demand’. A more precise way of thinking about the problem is that a market will pay up to Y amount of time to get from point A to point B. It may be impossible to meet the total demand in this market at time Y with low-efficiency car transit, but a mass transit train system could saturate and address the entire market demand at price point time Y. That is, thinking more precisely about the problem can help inform policy choices.
isaacfrond 2y ago
Reddit explains the difference thus: "Induced demand": The highway is expanded such that it only takes me 15 minutes to get downtown instead of 45, so I go downtown more. Jevson paradox: The highway is expanded such that it only takes 15 minutes to get from the suburbs to my office instead of 45, so I move to the suburbs. So one is movement along the demand curve, while the other is a movement of the demand curve. https://www.reddit.com/r/badeconomics/comments/oo2s48/that_one_articlechart_is_not_as_a_definitive/ https://www.reddit.com/r/badeconomics/comments/oo2s48/that_o...
- mkleczek 2y ago
  I fail to see a difference. In both cases demand increased, no?
  - satvikpendem 2y ago
    Here's [0] a good overview as to the differences. [0] https://www.toppr.com/guides/business-economics/theory-of-demand/movement-along-the-demand-curve-and-shift-of-the-demand-curve/ https://www.toppr.com/guides/business-economics/theory-of-de...
  - diziet_sma 2y ago
    Yes, but for subtly different reasons. In the case of induced demand, the supply curve shifts to the right (eg number of highway lanes increases) so we move to the right on demand curve (or quantity increases, eg more people drive). On the Jevon's paradox case, efficiency increases (eg fuel efficiency increases), so the _demand_ curve shifts (eg more people people drive).
    - mkleczek 2y ago
      Ahh so the difference is in a definition of supply. You say drilling more oil is something different than building more efficient cars. I would say in both cases supply of oil increased so there is no real difference.
      - 2y ago
adam_arthur 2y ago
Induced Demand is a poorly conceived mental model. The concept of "Induced Demand" is easily explained by the default state of the downward sloping demand curve, and upward sloping supply curve. In basic economic theory, if you reduce the cost of a good, more people will consume it. e.g. the classic building a highway example; there was always demand for cheap housing with accessibility to downtowns, but the supply of cheap housing with accessibility to downtowns did not exist prior to building the highway there. The "demand curve" doesn't shift at all, you're just moving along it as perception of cost changes. Has there ever been a case where a highway was run through the middle of nowhere and traffic didn't increase? It's intuitive why
- enragedcacti 2y ago
  > The concept of "Induced Demand" is easily explained by the default state of the downward sloping demand curve, and upward sloping supply curve. In basic economic theory, if you reduce the cost of a good, more people will consume it. It is easily explained by that because that is literally the definition of induced demand (see sentence one of wikipedia). The concept has a name because its important to discuss the externalities and long term implications of that additional consumption. w.r.t your highway example, how you define the market is extremely important and is sensitive to context. The market for "transportation between suburb X and city Y" experiences a durable change in the demand curve as a result of the construction of all that cheap housing. Both market definitions are valid but if your concern is e.g. urban sprawl then contextually one is a lot more relevant than the other. All that said, you can think of the change in the demand curve of market B not as induced demand itself, but as a consequence of realized latent demand (i.e. induced demand) in market A (cheap housing with accessibility to downtown). Alternative solutions to realizing latent demand in Market A (public transit, denser housing, etc.) have different and potentially preferable externalities which is why considering induced demand and its consequences are important.
  - deleted 2y ago
    [deleted]
  - adam_arthur 2y ago

rawkintrevo 2y ago

I was just coming here to say, this looks like the fancy way to say 'induced demand'. Why do you think this is a specific case of induced demand (as opposed to induced demand being a specific case of Jevons paradox, or the two being different words for the same thing?)

BenFranklin100 2y ago

As an aside, the concept of Induced demand has been criticized. A more precise way to think about “induced demand” is that the demand for a product at a lower price point was preexisting. The transaction didn’t clear until the price actually became lower and this demand manifested itself. This seems like splitting a hair but it is a more consistent intellectual framework for understanding the dynamics of a particular market.

simgt 2y ago
I don't see how that is more precise. What is the definition of "demand" in that case? Anything that could ever happen at one point, or something that is actually wanted (needed?) by someone who's formulating the thought consciously?
enragedcacti 2y ago
Induced demand is just the name for realized latent demand, your more precise way to think about it is the concept*. It's only muddled because it is often invoked in complex markets where the costs are often not monetary, there are substantial externalities to consider, or the supply is centrally managed. Should a city spend $500,000 to install lighting in the park downtown? After all nobody uses it at night because its too dangerous! Induced demand is central to the answer but isn't a first thought for many because the problem space doesn't look like a traditional market. * there is the additional concept that the long term availability of a good or service at a lower cost changes consumer behavior in a durable way. Building a new train station realizes latent demand but also creates new demand as it causes denser housing to be constructed near it**. ** Whether you want to model that as just more realized latent demand or as a consequence that's technically distinct from induced demand is IMO where a lot of the confusion comes from. If you ask me this should probably have a distinct name as it is a long-term, interrelated process that doesn't map well to sliding around supply and demand curves. Generated demand is what Bloomberg calls it but that has insane overlap with a marketing technique.
- BenFranklin100 2y ago
  Thanks, very interesting. The term ‘induced demand’ has been used a lot in the urban transit & housing discourse. Occasionally you will see the term hijacked by NIMBYs who argue against new housing by claiming construction only serves to create more demand for housing. Or people will argue against widening highways because it will only and always just create ‘induced demand’. A more precise way of thinking about the problem is that a market will pay up to Y amount of time to get from point A to point B. It may be impossible to meet the total demand in this market at time Y with low-efficiency car transit, but a mass transit train system could saturate and address the entire market demand at price point time Y. That is, thinking more precisely about the problem can help inform policy choices.

isaacfrond 2y ago

Reddit explains the difference thus: "Induced demand": The highway is expanded such that it only takes me 15 minutes to get downtown instead of 45, so I go downtown more. Jevson paradox: The highway is expanded such that it only takes 15 minutes to get from the suburbs to my office instead of 45, so I move to the suburbs. So one is movement along the demand curve, while the other is a movement of the demand curve. https://www.reddit.com/r/badeconomics/comments/oo2s48/that_one_articlechart_is_not_as_a_definitive/ https://www.reddit.com/r/badeconomics/comments/oo2s48/that_o...

mkleczek 2y ago
I fail to see a difference. In both cases demand increased, no?
- satvikpendem 2y ago
  Here's [0] a good overview as to the differences. [0] https://www.toppr.com/guides/business-economics/theory-of-demand/movement-along-the-demand-curve-and-shift-of-the-demand-curve/ https://www.toppr.com/guides/business-economics/theory-of-de...
- diziet_sma 2y ago
  Yes, but for subtly different reasons. In the case of induced demand, the supply curve shifts to the right (eg number of highway lanes increases) so we move to the right on demand curve (or quantity increases, eg more people drive). On the Jevon's paradox case, efficiency increases (eg fuel efficiency increases), so the _demand_ curve shifts (eg more people people drive).
  - mkleczek 2y ago
    Ahh so the difference is in a definition of supply. You say drilling more oil is something different than building more efficient cars. I would say in both cases supply of oil increased so there is no real difference.
    - 2y ago

adam_arthur 2y ago

Induced Demand is a poorly conceived mental model. The concept of "Induced Demand" is easily explained by the default state of the downward sloping demand curve, and upward sloping supply curve. In basic economic theory, if you reduce the cost of a good, more people will consume it. e.g. the classic building a highway example; there was always demand for cheap housing with accessibility to downtowns, but the supply of cheap housing with accessibility to downtowns did not exist prior to building the highway there. The "demand curve" doesn't shift at all, you're just moving along it as perception of cost changes. Has there ever been a case where a highway was run through the middle of nowhere and traffic didn't increase? It's intuitive why

enragedcacti 2y ago
> The concept of "Induced Demand" is easily explained by the default state of the downward sloping demand curve, and upward sloping supply curve. In basic economic theory, if you reduce the cost of a good, more people will consume it. It is easily explained by that because that is literally the definition of induced demand (see sentence one of wikipedia). The concept has a name because its important to discuss the externalities and long term implications of that additional consumption. w.r.t your highway example, how you define the market is extremely important and is sensitive to context. The market for "transportation between suburb X and city Y" experiences a durable change in the demand curve as a result of the construction of all that cheap housing. Both market definitions are valid but if your concern is e.g. urban sprawl then contextually one is a lot more relevant than the other. All that said, you can think of the change in the demand curve of market B not as induced demand itself, but as a consequence of realized latent demand (i.e. induced demand) in market A (cheap housing with accessibility to downtown). Alternative solutions to realizing latent demand in Market A (public transit, denser housing, etc.) have different and potentially preferable externalities which is why considering induced demand and its consequences are important.
- deleted 2y ago
  [deleted]
- adam_arthur 2y ago