The relevant question is how does the chicken economy change when one person who used to demand a chicken at the market price switches to demanding no chicken at the market price. In this case, the supply-offered vs price-offered curve is not changed, the demand-offered vs price-offered is shifted down by one chicken on the demand curve at any given price point. If supply and demand curves were real, the new equilibrium would be reduced by LESS than one chicken traded, the price would be down by a tiny bit.
One can be very modern and say that supply and demand curves are not real, but they are. Chickens are produced at a variety of costs by a variety of producers. The low cost producers will change their behavior perhaps not at all with the slight price decrease in the market. But the highest cost producer, the marginal producer, should react if he is rational, and that of course is the assumption.
Consider an easier to understand situation. 1% of the market disappears, suddenly goes vegetarian. In the short run following causality, the chickens they don't buy that week go on clearance prices, a price set so that as many chickens as got unsold are priced low enough to grab some people who weren't having chicken that week at market prices. Meanwhile the store lowers its order for chickens next week. Its suppliers fill their needs at a lower price at the chicken auction. chicken producers see the lower auction price and most of them decide to hatch a few less chickens and save on the cost of chicken feed and processing.
You KNOW the market will respond with lower prices if demand is cut 50% There doesn't seem to be any quantity at which the forces that produce that disappear. Perhaps a reduction of one chicken cannot be measured reliably to have produced a lower production and a lower price, because the systematic noise in these measurements is higher than the change. But that doesn't mean the effect isn't there, we measure the effect by turning up the perturbation to a level where the effect is above the noise floor.
If SOME people switch away from chicken towards other food, then every thing we know about markets and production suggests you will see a slightly lower price and a slightly lower equilibrium production level, but the lower price will cause a switch towards chicken consumption among other people who were on the margin of demand. The reduction in net chicken production will be less than one for each demanded chicken removed from the demand curve.
One can be very modern and say that supply and demand curves are not real, but they are.
I'm not arguing that supply curves aren't real; I'm arguing that the super-long term supply curve is virtually flat (the price elasticity of supply is arbitrarily high). I find it compelling to imagine a chicken producer accepting contracts to produce chickens 10 years from now. At what prices and quantities would the producer accept the contracts? I would say it would accept all contracts at or above the Cost, at as high a quantity as possible. With lead time and ce...
A ewe for a ewe
In a discussion with Benquo over his recent suffering-per-calorie estimates I learned that there have been a few different proponents of incorporating short term elasticities into such estimates. But do empirical short term elasticities really improve our estimates of consumption's long term effect on production? For example, if I decide to reduce my lifetime consumption of chicken by one, should I expect the long term production of chicken to drop by ~1, ~0, or something in between?
I believe we should have a relatively strong prior that long term production has a roughly 1:1 relationship with consumption, including for small individual decisions. Below are a couple arguments I find compelling, and a major exception that is not a short term elasticity.
Black box economies in general
If I go to a large alien civilization of uncertain economic structure and surprise them by buying(?) one widget, how should I expect that to affect their long term production of widgets? Seems like I should expect it to increase by one, because now they have one less than they used to. If it was originally decided that that widget should be produced; why wouldn't they decide to replace it when lost?
Neoclassical capitalism in the long term
In a simplified market, I expect there to be a lowest price at which chickens can be reliably produced at scale ("the Cost"). If producers expect the market price to be less than the Cost in the future, they will shut down production to avoid losses. If they expect it to be more than the Cost in the future, they might expand operations to make more profit. In the long term (when we can ignore temporary shocks to the system and producers have time to make adjustments), I expect the equilibrium price of chicken to approach the Cost of chicken (because other prices lead to conditions that push the price back toward the Cost). In other words, my prior is that the "price elasticity of supply" in the arbitrarily long term becomes arbitrarily high (imagine a virtually horizontal supply curve).
How many chickens will be produced at that long term price? However many are worth the Cost to consumers. If 50% of chicken consumers permanently become vegetarians, I expect that eventually the chicken industry will end up producing about 50% fewer chickens at a price similar to today's.
Similarly if consumption is reduced by just one chicken. My prior is that producers have an unbiased estimate of consumption, and that doesn't change when I eat one less chicken (so my best guess about their long term estimate of consumption drops by one when I forgo one chicken).
Time breaks the elastic limit
Compare my prior that every chicken forgone causes (in the long term) one less chicken to be produced, to the estimates that it only causes 6% or 76% of a chicken to not be produced (as Peter Hurford points out in the second case, the enormous range in these estimates alone is enough to raise flags).
Those numbers sound plausible in the short term when there's a backup in the chicken pipeline and a drop in price because producers were caught off guard by the drop in consumption. But if the vegetarians hold their new diets, won't the producers eventually react to the changed market? When they do I bet the equilibrium price will be somewhere close to the original Cost, and the quantity produced will be about 50% less (not 3% less or even 38% less). I think the thing these elasticity estimates are forgetting is that the producers aren't satisfied (in the long term) with the lower price that results from a chicken glut caused by vegetarianism. If they were, they'd be producing more chickens now.
Said another way, it all comes down to the difference between producers' reaction in the short term vs. the long term. In the short term, when someone decides not to eat a chicken, it goes to the next highest bidder (so price drops and production doesn't change much). But in the long term, producers produce all the chickens that will be demanded at the Cost (they want to produce as many as they can at that price, but if they produce any more, the chickens will be sold at a loss). When one person permanently becomes vegetarian, we should expect that long term size of the industry decreases accordingly.
When the long term Cost changes with industry size
To be clear, if we could actually measure consumption's effect on long term production in specific cases, it would rarely be exactly 1:1, though my prior is that it will average out to that over time. The exception is if consumption consistently affects the long term price in a particular direction. For example, here are some reasons that I might expect the Cost of chicken to grow or shrink as the size of the chicken industry increases:
If we have sufficiently certain estimates on any of these effects, we can certainly try to model them, although it would be a very different exercise than using empirical estimates of short-term elasticities. As it is, I have no idea which of the above effects win out (ie, whether the "consumption elasticity of the Cost" is positive or negative in the long term).
I think we would make our estimates more simple and accurate by sticking with the prior that eating one less chicken causes about one less chicken to be produced in the long term.