Economic Theory is not always correct

There was a Sunday article which indicated that the introduction of pork patties into the market place will create jobs. Noted economist Dr Damien King in a quick response tweeted  “Not even by $1. When we buy the Pork patty, is it not going to replace what we would otherwise have had for lunch?”

What is the reason for Dr King’s position? Substitution.

Well its based on classic economic theory which postulates that the introduction of a new item in the market place which competes with what exist, is not likely to add value because all that happens it will replace what existed buy an equal amount. ie  if we introduce item C in a population consisting of A &B, then either or A or B or both will be reduced by the amount of C that has been introduced.

The position is the population is fixed and is unlikely to increase, so all you have is substitution and not an overall increase in the economics.

So what Dr King is suggesting is the sales in Beef, Chicken or other form of patties will be reduced by the equal amount of pork patties that will be sold.

What Dr King missed was the people factor in terms of emotions which is not something one can predict.

Let’s look at the wireless telecom industry that had only Lime. It was believed that the introduction of Digicel would create no much added value as it would simply take Lime share because the population size was fixed. That it did, but what was never anticipated is people would choose to have two phones instead of one.

So while Lime lost market share, the number of customer lost was not equal to the number gained by Digicel, but what really happened is the population actually increased.

So as it relates to the pork patties, I don’t eat beef and is not a fan of chicken patty, so the introduction of pork patties is a viable option for me and others like myself.

Can it impact sales of the other, yes but as in the case of Lime and Digicel, classic economic theory does not always work, as people are emotional creatures and does not necessarily subscribe or fit into every equation.

I am not an economist, but I am a consumer.


2 Responses

  1. I am sure you are right.

    john f

  2. Well it sounds like you would make a good economist. Dr King was my teacher but what you say is making more sense.

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