Contents
What to Do
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In this demo you play the role of a rich or a poor person buying meat and bread to control caloric intake. When you click on the "RichMan" or "PoorMan" button you will see a graph with the X axis labeled "Amount of Bread" and the Y axis labeled "Amount of Meat". Move the cursor "shopping" arrow to the origin of the graph to start purchasing meat and bread by moving the arrow away from the origin. Meat purchases are indicated by the height of the red meat line. Bread purchases are indicated by the horizontal position of the blue bread line.
The vertical position of the unfilled horizontal calorie bar on the right side of the graph indicates your caloric intake level, going up or down as purchases of meat and/or bread increase or decrease, respectively. Your aim is to purchase enough meat and bread to meet your caloric needs, indicated by the space between the two filled horizontal bars on the right of the graph; when the calorie level bar is approximately centered between these filled horizontal bars your caloric needs are met.
It is relatively easy to meet your caloric needs if you don't care about the relative amounts of meat and bread purchased. The demo becomes interesting, however, when you try to meet your caloric needs through the purchase of as much meat as possible (if you are a vegetarian you can still do the demo by thinking of the meat as eggplant parmesan).
Start the demo in the role of a "Rich Man". Start trying to meet you caloric requirement by purchasing as much meat as possible (make the red meat purchase line go as high on the Y axis as possible). If you try to buy too much meat, however, you will exceed your budget limits. When this happens you will find that the red meat purchase line will go no higher; you can't buy any more meat because you have no more money. When this happens, move the "shopping" arrow to the intersection of the purchase lines and try to reduce the amount of meat and increase the amount of bread purchased (move the arrow so that the blue bread purchase line move to the right).
Once your meat and bread purchases have approximately centered the calorie intake bar between the two filled horizontal "caloric needs" bars, press the mouse button to end a trial. The graph will clear and you can start shopping again (by moving the shopping arrow to the origin of the graph), but with the price of bread increased.
You get four "shopping" trials as "RichMan" and four as "PoorMan", with the price of bread increased on each new trial. The price of meat is always the same, $ 5.00 per pound, as shown in the lower left part of the display. You begin each trial by moving the shopping arrow to the origin of the graph and then moving it over the graph to buy meat and bread until your caloric needs are met (caloric intake bar centered). When the shopping arrow seems to have no effect on the red meat or blue bread purchase lines it is because you have run out of money. (Your budget -- the money available to you -- is shown in the lower right part of the display. The cost of your purchases -- the amount of money spent on meat and bread -- is shown below your budget). When this happens, move the shopping arrow so as to reduce your meat and/or bread purchases as necessary. You end each trial by pressing the mouse button.
At the end of four trials you will see a graph of the data showing the caloric intake level on each trial (open dots that should all be at the same level) and the amount of bread purchased (filled squares) as a function of the price of bread. The latter is a "demand curve" showing changes in purchases of (demand for) bread as a function of the price of bread. The shape of this demand curve will be very different for the "RichMan" and "PoorMan" if you have tried hard to purchase as much meat as possible on every trial.
A basic assumption of classical economics is that demand for a commodity (measured as the amount of the commodity consumed) is inversely related to its cost (price) in the marketplace. This demo shows that this assumption about the demand curve is not necessarily correct. When you acted as a "RichMan" you probably found (if you were trying to maximize your consumption of meat) that the demand curve was essentially flat; the amount of bread you purchased was about the same regardless of the price of bread. When you acted as a "PoorMan", however, you probably found (again, if you were trying to maximize your consumption of meat) that the demand curve sloped up to the right; the amount of bread you consumed increased as the price of bread increased. This result is the exact reverse of what is expected by classical economics. But it has actually been observed in certain real world situations. It is such a surprising result that it has a special name: the Giffen Effect (in A. Marshall (1961) Principles of Economics, London: Macmillan). The Giffen effect is a puzzle for conventional economics (which is probably why it is often ignored in economics texts). But it is readily explained by perceptual control theory (W. Williams (1989), The Giffen effect: A control theory resolution. in Hershberger (Ed.)Volitional Action, North-Holland: Elsevier). The control theory model assumes two levels of control systems: two high level systems controlling caloric intake and monetary expenditure; two lower level systems controlling the amount of meat and bread that is purchased. Both of the high level systems control their inputs (calories and money) by varying the reference specifications for the inputs controlled by the two lower level systems. If a person is rich, the reference for the system controlling monetary expenditure can be quite high. This means that the references for meat and bread input can be set at nearly any level; the rich person can satisfy the caloric intake reference with a large amount of meat because this person can afford to do it. The amount spent on meat will not break this person's budget (exceed the reference for monetary expenditure). If the person is poor, however, the reference for the system controlling monetary expenditure is constrained; purchases of meat quickly force the perception of monetary expenditure past the reference. In order to get the required number of calories, the poor person must make up with bread the calories that cannot be obtained with meat. The need to use bread to control caloric intake increases as the price of bread increases. In order to get the needed caloric input without breaking the budget (exceeding the reference for monetary expenditure) the poor person must reduce purchases of meat in order to have enough money available to but the now more expensive bread.
A paper describing an attempt to empirically confirm the existence of the Giffen Effect in the real world cam be found here.
Notice that the Giffen effect (increase in demand for bread with increase in the price of bread) only happens when you have a very limited budget (when you are a "PoorMan"). Notice also that the effect occurs only when you can satisfy a need (caloric intake) with both an expensive (meat) and a less expensive (bread) commodity. If you were a "breaditarian" and wanted only bread to satisfy your caloric intake requirement, the Giffen effect would not occur in this situation.
The demo works best if you start each trial by trying to purchase as much meat as you can. If the amount of meat purchased doesn't meet the caloric intake requirement then lower the meat purchase slightly and try to meet the requirement with an increased purchase of bread. This way you are always buying as much meat as your budget will permit while allowing you to satisfy you caloric intake needs with added purchases of bread.