It's the headline news in many Hong Kong newspapers these days - K仔, 氯胺酮. Chemical name Ketamine. From the news, we could guess that someone must have found a new way to mass produce Ketamine, as proven by the spread of production facilities all over South East Asia, as well as in mainland China.
While reading these news, I thought of something: A typical MicroEcon effect. How does this relate to the very subject that every econ major has to understand during his first day of class?
Answer: Supply curve shifts to the right; and market equilibrium shifts accordingly, driving market price down and induce more demands for the products.This is an important phenomenon. Most of us will be confused by the first effect: Would it be a "shift" in the supply curve? Or, would it be a "move along" on the supply curve?
The key is to first identify sequence of the occurrence of the events step by step. Then, we can analyze what will be affected next. In our Ketamine example, the first thing is the new technology discovered. It is not related to a price change in the first place. And REMEMBER THIS: anything except PRICE changes is "shift". The new method found pushes the supply curve to the right - NOT forcing the price down along the supply curve. The second effect is that AFTER the supply curve shifts, then, in order to maintain market equilibrium (i.e. demand needs to meet the new supply curve), it pushes the price down. And lastly, because the price is adjusted lower, there is more demand from the market for this product.
Take away: always identify the sequences of the event - and don't mix them up!!! Anything changes except Price is a shift (same thing for both demand and supply curve.)
P.S.
Well, if you want to see how those triads lure new customers into their trap, and why is that....
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