Microeconomics for MBAs 30. The Economic Way of Thinking for Managers. Microeconomics for MBAs develops the economic way of thinking through problems that MBA students will find relevant to their career goals. Maths is kept simple and the theory is illustrated with real-life scenarios | Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 37 curves the dark lines are each very inelastic but the long-term demand curve dashed line is rather elastic. Indeed Becker and Murphy maintain that the more addictive the good the more elastic will be the long-term This is the case because a reduction in the current time period might not stimulate current sales very much. However for highly addictive goods current consumption can give an even greater increase in the future demand because the buyers have to have more of it bad thus resulting in even more future consumption than would be the case for less addictive goods. Hence it is altogether understandable why cigarette firms decades ago would often have cigarette girls parading around campus in short skirts giving away small packs of cigarettes and why many drug dealers to this day eagerly give away the first hits to their potential customers. Indeed it seems reasonable to conclude from the Becker Murphy line of argument the more addictive the good the lower the current price. We might not even be surprised that for some highly addictive goods the producers would sell their goods at below zero prices or would pay their customers to take the good . FIGURE The Lagged Demand Curve As the price falls from P3 to P2 the quantity demanded in the short run rises from Q1 to Q2. However sales build on the sales causing the demand in the future to expand outward to say D2. The lower the price in the current time period the greater the expansion of demand in the future. The more the demand expands over time in response to greater sales in the current time period the more elastic in the long-run demand. In contrast to the theory of lagged demand this theory of rational addiction suggests explanations for a variety of behaviors most notably the observed differences in the consumption behavior of young and old the tendency of overweight people to go on crash diets even when they may only .
