Tyler Cowen's Idea #1: Demand Slopes Down

♪ [music] ♪

- [Tyler] Now Socrates --
I actually disagree with him --

he said the only true wisdom
is in knowing that you know nothing.

So I'm an economist.

I'm not a philosopher.

So what does the economist say?

The economist does not say
that he or she knows nothing.

The economist says
"I know one thing --

maybe it's only one thing,
but it's one thing.

And that one thing is

that the demand curve
slopes downward."

(audience laughing)

And I know some
of you are thinking

what about Giffen goods?

But there are no Giffen goods,

certainly not in wealthy, modern,
contemporary America.

We have at least one thing to teach
and in my imaginary lesson

or I just have someone,
and they're paying attention,

first thing I tell them is
the demand curve slopes downward,

and then I would discuss for awhile
how many applications of economics

are really instances
or generalizations of this principle:

If something becomes more expensive,
you do less of it.

So I just came here from Montreal,

and originally my wife and I
were going to spend the weekend

in Montreal
before what I was doing there,

my event there.

She went to Orbitz
and she saw that the price

of flying to Montreal
was about $800,

and I said, "Oh, come on,
go anyway," and she didn't do it.

Her demand curve
sloped downwards.

It's very, very simple.

So that's like what we do know,

and what we don't know is

well, the world changes
in many ways.

There are a lot of effects going on
that are not just price effects.

People may change their tastes
or their expectations, right?

Then you're not always sure
how the law of demand applies there

in a simple way.

Another set of things
we don't know --

we don't always know
what is the real price?

So if you go to the store --

say, you need
to buy ping pong balls.

You know the price, right?

They're pretty cheap.

It's not really
a very ambiguous decision.

You buy the ping pong balls
or you don't -- the price is clear.

Economic theory applies very well
to this kind of circumstance.

But say you're dealing
with one of your children.

You're trying to get your daughter
to do the dishes --

this is something
I've written about --

and there are different ways

you could incentivize
your daughter to do the dishes.

You could pay her.

You could threaten to punish her.

You could make
the discipline tougher.

There are costs or prices
to all of those decisions.

Or maybe you could try to win
an argument with your daughter.

And then you would ask, well,
I can win that argument with her --

I'm older, I'm bigger,
I control her money,

I control her life, right?

But you know there's a price
to winning that argument,

and when you try to think through

what's the real price
of that course of behavior?

I think it's pretty hard
to figure it out.

Let's say you want to get educated.

The real benefit,
the real price of that --

much more ambiguous than
just buying those ping pong balls.

We as economists, we do best
when price is unambiguous

like those ping pong balls.

But if you're doing economics
of the family --

well, the demand curve does
still slope downwards.

But what's price,
what are people maximizing,

much trickier, much more complex

so we're much less certain
about economic knowledge

in, say, the area of the family
than we are when it comes

to the ping pong balls,
and that's fine,

but it's a way of helping people see
how the pieces fit together.

So a lot of the ambiguity
of our knowledge,

and how economics relates
to the other social sciences,

which all of our students
are learning, right?

They're like well, how does
what you're telling me relate

to what I get in my sociology class
or history or anthropology?

Some of the other social sciences
are about people trying

to figure out
what the real price is,

and that's important.

♪ [music] ♪

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