In my post on food deserts, I suggested that the demand for unhealthy foods, like that of addictive drugs, is inelastic. (That means that price changes have little effect on quantity consumed.)
And for that reason, shifting the supply curve is relatively ineffective relative to shifting the demand curve — you can shift the supply all you like, but if demand is inelastic then the price will simply rise, without changing quantity consumed very much.
Graphically, that failure to reduce quantity consumed by fiddling with supply, looks like this (click for larger image):
Now that is an extremely (and unrealistically) inelastic demand curve, but it illustrates the basic principle that shifting the supply curve doesn’t reduce quantity consumed when the demand curve is perfectly inelastic (i.e. vertical). In reality, even very inelastic demand curves are more elastic than this.
The more efficient approach to reducing consumption in the context of inelastic demand — shifting the demand curve inward — would look like this (click to enlarge):
Again, that is a grossly inelastic demand curve, too inelastic to be realistic, but you get the idea. Picture it a little less vertical, a little tilted, with a little change in the quantity consumed, and the principle still holds — shifting demand is much more efficient than shifting supply.
Now, via The Economist, here are two recent studies about two anti-smoking interventions — 1) laws against smoking in restaurants and bars, and 2) taxes on cigarettes — one of which works well, the other not so much. And which do you suppose works?
Here is the successful approach, discussed in study #1 and summarized by the The Economist as follows:
A new paper by Abel Brodeur of the Paris School of Economics, based on extensive surveys in America, suggests that bans on smoking are not just effective but actually make smokers happier. By not allowing them to light up in restaurants and bars (as New York already does), governments give weaker-willed individuals an excuse to do what they otherwise cannot: stop smoking. As an additional benefit, bans also seem to make spouses of smokers happier.
The policy of banning cigarettes in bars and restaurants, by making cigarettes less enjoyable, shifted the demand curve left. On the margin, some smokers quit smoking, simply because smoking wasn’t as enjoyable as before.
And here is the unsuccessful approach, discussed in study #2 and summarized by the The Economist as follows:
A second paper provides ammunition to those sceptical of higher cigarette taxes as a way of discouraging smoking. John Cawley of Cornell University and Stephanie von Hinke Kessler Scholder of York University looked at how sensitive young American smokers are to higher cigarette prices. Not very, it turns out. That is because a big share—46% of teenage girls and 30% of teenage boys—do not smoke for pleasure, but to stay thin or lose weight.
A tax on cigarettes adds to the price of any given quantity of cigarettes, which is the same thing as saying the supply curve is made higher, very much as in the first set of graphs above. (You can imagine the difference between the two gray bars in the first set of graphs as representing the size of the tax. Although in reality the supply curve would not only rise but would also get steeper.)
And sure enough, per the hypothesis that demand for nicotine is inelastic, the quantity consumed doesn’t change much — the kids just do what they must to afford the cigarettes they want.
Here is The Economist, suggesting what might be a more effective (and creative) demand-side approach to reducing teen smoking:
Luckily, the study also opens up a new line of attack: convincing smokers that they are in fact not overweight.
If some teens could only be convinced that their weight was appropriate, then on the margin that would shift the demand curve left, as in the second graph above, by reducing the value of smoking to those teens.
Note that previous studies have found that cigarette taxes do reduce smoking (somewhat)… though perhaps not as much as the architects of cigarette taxes want.
So the point I’m making is not that supply-side approaches to curbing consumption of unhealthy foods, addictive drugs, alcohol and tobacco are fundamentally wrong, just that there is something we can say about the demand curve on the basis of the evidence (i.e. it is insensitive to price), and that if that’s true, it would suggest that certain policies (those that shift demand) will be more effective than others (policies that shift supply).
Another implication of this I haven’t mentioned yet, is that a tax on an inelastically-demanded substance is very likely to make consumers poorer in real terms, as they shift their incomes away from spending on other goods and services in order to afford the same quantities (of cigarettes, sugar, or whatever) at the higher prices. That would seem to have important public health implications, given that lower real income might plausibly lead to all sorts of bad health outcomes — known and unknown — especially if it doesn’t result in (much) change in consumption of the substance that’s been taxed.
PS — It’s really easy to slip into the bad mental habit of confusing shifts of a curve with movements along the curve. For example, it would be wrong to say, “a cigarette tax shifts demand leftward.” That’s wrong, because the amount that consumers are willing and able to pay for any given quantity of cigarettes (which by definition is the demand curve) hasn’t changed. Only the amount that suppliers are willing and able to supply for any given price has changed… which by definition is a supply curve.
A related mental mistake is to confuse changes in quantity consumed with shifts of a curve. Just because quantity consumed changed, doesn’t mean that it was because the supply curve shifted, nor because the demand curve shifted. A useful caveat is “Never reason from a change in quantity” (the close cousin of the also-very-useful caveat “never reason from a price change“).
Those are two very easy mistakes to make, and a lot of undergraduate econ students make them, but if you understand what supply and demand curves actually are — vectors of quantities associated with given prices — then the dynamics will become clearer.