Sunday, September 4, 2022

Supply and Demand are Dynamic, So Sometimes You Get the Opposite Result from What You Expected

If you have you ever noticed that adding more lanes to an expressway often does not seem to less auto congestion, you are seeing a dynamic supply-demand response in action. 

So one wonders: if video chat for customer service really becomes popular because it works so well, demand might well grow so much that response times are slowed. thus creating an outcome the opposite of what was intended. 

Economist John List talks about this inThe Voltage Effect. Uber wanted to reward its drivers so it raised wages. The higher wages attracted more drivers. So average wages declined, instead of increasing. 

Uber issued discounts to stimulate demand, which apparently worked for a short time. But that demand also lengthened wait times, which depressed demand. 

Supply and demand are dynamic. What you get sometimes is the opposite of what you intended. 

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