Monday, November 2, 2009

Even Monkeys get Supply and Demand

What happens when you teach a low-status vervet monkey a valuable skill, for example as in this experiment how to open a container containing apples?  He gets paid (in more grooming, and in fact has to groom others less as well).  What happens if you teach a second monkey the same skill?  He gets paid too, but less than what the first guy got, and in fact the first guy's benefit diminishes.  Supply and demand baby:
A primate ethologist asked what would happen when a low-ranking monkey is trained to do things high-ranking monkeys can't do? The answer in human economic terms: The new skills translated into a much bigger income...

Sure enough, when they trained a low-ranking monkey to open the container, just as any technical college advertisement will tell you, the new skills translated into a higher income. Roughly an hour after she'd open the container for everyone, she was getting groomed a lot more, as much as a high-ranking monkey, and she no longer had to do hardly any grooming herself. But that was not the most spectacular finding...

So what then did, is we got a second low-ranking female, trained her to open a second container with apples in it, and then we saw that the value of the first provider dropped, more or less, to the half of what she had before. So now we had a competition between two animals. Both of them could provide this good, these apples, and so the value of the first one dropped down again...

So when there was a monkey monopoly on the skill, the monkeys paid one price. But when it became a duopoly, the price fell to an equilibrium point, about half of what it had been. And this all happened despite the fact that we're talking about monkeys here. Monkeys can't do math.
If only Congress had such intuitive understanding of economics.  It's also lamentable that, like monkeys, they can't do math.  I'd link to something that illustrates my point but there are too many examples to bother.

HT: Mankiw

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