The coke-coke elasticity

Economics can teach all kinds of quirky things. For example, if your biggest concern is that your teenager doesn’t use drugs, then you should be happy when the price of street sneakers goes up, and sad when the restaurant owner gives them a pay rise.

Even for Teenagers, Money Does Not Grow on Trees: Teenage  Substance Use and Budget Constraints
Sara Markowitz and John Tauras     
This paper is about the spending choices of youth, with a particular focus on how the demand for cigarettes, alcohol and marijuana are influenced by changes in the prices of other products. Youth tend to have small incomes and limited wants, with the result that many students spend the bulk of their income on only a few items. Fast food, clothing and entertainment make up the majority of products purchased by teenagers. The hypothesis to be tested in this project is that changes in the prices of the other goods commonly bought by teenagers will affect budget allocations and thereby affect the demand for substances. We estimate own and cross price effects using the prices of cigarettes, alcohol, marijuana and other consumer products including gasoline, clothing, entertainment, and fast food. Income effects are also estimated and show that teens with higher incomes and allowances are more likely to use substances. The policy implications of the results are discussed.

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