A lesson in demand for meat from one of my favorite economists, Daniel Hamermesh:
The Economist reports that pork prices have plunged 24 percent in the past year, partly because the demand for U.S. pork exports has dropped sharply. I don’t eat pork, so how does this help me?
With a lower price of pork, the quantity demanded will rise, as people shift into this now-cheaper meat. And that will shift the demand curve leftward in related markets, including pork substitutes, such as beef and perhaps even chicken. Since I eat those, I will benefit indirectly from the drop in pork prices.
Furthermore, the drop in pork prices may be a long-run phenomenon, since one reason for it is a set of technological improvements in pig-raising. With lower long-run average costs, prices will remain lower than they were last year for quite a while. That means that my benefits will continue even without any efficiency gains among beef and chicken producers.
This, of course, only works under the assumption that pork, beef and chicken are substitutes (which, to the majority of consumers, they are). This same principle, moreover, applies to imported goods that are cheaper than domestic goods.
For instance, foreign cars in the U.S. drive down (our should have driven down) the prices of domestic cars –resulting in a greater consumer surplus. Where does the surplus go? Either into other sectors of the economy or capital markets (i.e. investment). Sadly, the U.S. government has instead chosen to extort money from taxpayers to allow domestic car manufacturers to keep producing at their inflated costs and selling at their inflated prices. The consumer surplus–instead of flowing back into the economy–evaporates to the government where it is allocated less efficiently than it would have under a market mechanism.
A free market leads to innovation, production and prosperity. A government-run economy results in nothing but stagnation and poverty.