7 ms·

> 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 econo

> 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
"Induced Demand" is often, incorrectly, talked about as a shift in the demand curve in response to increase in supply. There is no shift. I am addressing this common misunderstanding, not debating the wording in the Wikipedia article. "Induced Demand" is a misnomer, as the demand was always there at the given price. It is not induced, just realized. If I offer you a gold bar for $0, did I induce your demand to accept it? Most people will always have demand for goods offered below their perceived intrinsic value. Ultimately it's semantics around definitions, but the thinking of lay people around this concept is typically more of the shifting demand curve, not realization along the existing curve
- fluoridation 2y ago
  >"Induced Demand" is a misnomer, as the demand was always there at the given price. That's not necessarily true. Suppose you're the government and you produce food for free, and every year people eat everything you make, and everyone is well-fed. You decide you want to prepare for a famine, so this year you start more farms such that next year you make 20% more food. The first two months you're able to save, but when people see that there's more food available, they change their habits and start doing even more exercise than before, and so they eat more until they eat all the food every month again.

deleted 2y ago

[deleted]

adam_arthur 2y ago

"Induced Demand" is often, incorrectly, talked about as a shift in the demand curve in response to increase in supply. There is no shift. I am addressing this common misunderstanding, not debating the wording in the Wikipedia article. "Induced Demand" is a misnomer, as the demand was always there at the given price. It is not induced, just realized. If I offer you a gold bar for $0, did I induce your demand to accept it? Most people will always have demand for goods offered below their perceived intrinsic value. Ultimately it's semantics around definitions, but the thinking of lay people around this concept is typically more of the shifting demand curve, not realization along the existing curve

fluoridation 2y ago
>"Induced Demand" is a misnomer, as the demand was always there at the given price. That's not necessarily true. Suppose you're the government and you produce food for free, and every year people eat everything you make, and everyone is well-fed. You decide you want to prepare for a famine, so this year you start more farms such that next year you make 20% more food. The first two months you're able to save, but when people see that there's more food available, they change their habits and start doing even more exercise than before, and so they eat more until they eat all the food every month again.