Wednesday, February 17

Supplier-induced demand in Quebec City

I was in Quebec City over the weekend for a reading break vacation with my girlfriend and noticed an interesting phenomenon. I'm not sure if this is common in other cities, but in Quebec City there are women who walk from table to table in restaurants trying to sell flowers to diners. This is a perfect real-world example of supplier-induced demand.

In economics, we generally think of demand as being generated by consumers. People demand products because the good can help them fulfill a want or desire. Supplier-induced demand is the opposite — it occurs when the producer causes us to desire their product. It often comes up in health care, since we often only decide to "consume" different medical services at the advice of our doctor; if our doctor doesn't recommend the procedure, we don't have any demand for it.

The same concept is at play with the flower sellers in restaurants. If I need flowers, I go to a florist (or maybe my local supermarket) and buy them. I don't think I've ever been eating dinner in a restaurant and thought, "Gee, I could really use a flower right now. If only a flower salesperson were to walk by right now, I'd buy a flower and be much better off thanks to gains from trade."

But if you're at a restaurant on a date with someone special and a flower salesperson walks by, you're suddenly put in a bind. You don't really want a flower. If you did, you'd have bought it before the date. But if you say no to the flower saleswoman, you'll look cheap in front of your date and risk making her feel like you don't care about her enough to buy her a flower. In essence, the only reason you would want to buy that flower is because the supplier herself is causing you to demand it.

Luckily, I got off easy. My girlfriend was interested enough in her meal and the conversation that she failed to notice the flower saleswoman. I was able to briefly make eye contact with the flower saleswoman to indicate that I was not going to fall victim to her evil plan of supplier-induced demand.