Can raising supply raise demand? Farmers vs. poachers...

Economics Economics Questions
1

I posted this on my Facebook wall:

This is an example of what I meant in a conversation with [D.] and his friends when I said that economic illiteracy of the liberals is much more dangerous for our society than the scientific illiteracy of the conservatives. Look at this comment (from the article linked below):

“I’m afraid that raising rhinos and selling their horns will just make the problem ten times worse. You will just create an even bigger market for their horns. Anyway, as for using a rare rhino for demonstrations is beyond stupid. It is unforgivable. No question that the left is just as dangerous as the right (and all points in between). Meanwhile, as we argue about it all, about ten really wealthy families are buying up the world.”

So, I am guessing this guy is against raising cows to make milk commercially available, since it makes the chance of cows dying out as a species “ten times worse”. What?..

Yes, it will create a bigger market, genius, but why would people buy horns from poachers if they can buy them from respectable farmers (who would saw off the horns without killing the rhinos, let the horns grow back, etc., all the while taking a good care of the rhinos — since it’s their business)? Free market for farmed rhino horns will drive the poachers out of business. If nothing else, it will make sure that the rhinos don’t go extinct.

http://www.nydailynews.com/news/world/rare-rhino-killed-conservationists-anti-poaching-demonstration

D.'s response:

His criticism isn’t entirely stupid. He assumes that demand outstrips supply and, in the transient where supply ramps up, irrevocable damage is done to the wild rhino population.

My question is: how does supply and demand work in this situation? I increase the supply of any product, say, diamonds. That makes it more affordable. But then the demand for the product increases, since the people who could not afford it now can. But that should drive the prices up. But that should make the product not affordable to the poorer people again! Etc. So, wil the prices drop to some equilibrium point, but not so low as they would if the total amount of demand was constant?

P.S. Another response (I am less interested in addressing this one):

You’re assuming that farmers can afford to undercut poachers, but farmers have fixed costs (land ownership, licensing, etc.) whereas poachers do not. Furthermore, poachers can sell in an unregulated way whereas farmers have to ensure compliance with relevant regulations. You can be sure that local governments will want to regulate. Supply will increase because consumers might not know the source of their horns, and so customers who would previously not have bought horns now would. Furthermore, they would probably be unable to distinguish between poached and farms horns without government intervention – again, a cost that poachers might circumvent cheaply with counterfeiting, in a way that doesn’t allow farmers to catch up in the near-term.

2

I guess his other point was that announcing “rhino hornes are now farmed; they can be bought legally” will in an of itself raise the demand.

3

In your conventional supply-demand model, you would be shifting the supply curve of diamonds to the right, moving it along the demand curve. This means a greater quantity sold at a lower equilibrium price. Your actions would not directly shift the demand curve; the increased sales at the lower price is already accounted for in the downward-sloping demand curve.

But he is right that legalizing the sale of rhino horns would probably increase demand, as producers would now view it as a viable input. As it is, many producers may not even consider using rhino horns, thus suppressing demand.

4

Great on you for understanding and making the farming argument. Funny thing is…it’s already played out…just like you said (Stossel on 20/20):

Guy can make all the baseless conjecture he wants. You have reality on your side.

Farming does solve the problem of poaching…or, more accurately, private property solves it. In the specific sense, private ownership of the animals (or at least the land).

And Michael gets the curve right. Your friend doesn’t have a full understanding of microeconomic supply and demand laws. (See here for links with details).

An increase in sellers shifts the supply curve, thus all this means is that at every possible price, a greater quantity is supplied (which would make sense, as there’s an increase in supply).

What he’s thinking about is an increase in the quantity supplied decreasing the price, thus increasing the quantity demanded. But that is simply movement from one point to another point on the same curve. The situation you’re describing would be a shift of the entire curve.

The only thing that would change demand is if one of the things listed here changed.

And on top of that, as shown in the video segement, they don’t even have to harvest horns or kill the rhino.

Again, his entire argument breaks down from the very beginning if we understand property rights. If the land where the animals live and roam is privately owned, any poachers would not only be trespassing, but they would be damaging (and probably stealing) the property of the land owner.

He’s talking as if farmers would be in direct competition with poachers, which is nonsense.

Again, it would be the exact same thing if someone went on a dairy farmer’s land and started killing his cows. (1) The person would be breaking the law and subject to the consequences of that. But much much more importantly, (2) the land owner would not only have the right, but the incentive to protect his land and his animals. And you better believe a farmer cares about and will protect his herd with a hell of a lot more enthusiasm and interest (and therefore a lot more effectiveness) than some government agent. It is the farmer’s property and livlihood afterall.

Again, you only have to look as far as the video.