Economics and Antihealth Behavior: The Economic Analysis of Substance Use and Abuse
Frank J. Chaloupka University of Illinoisat Chicago and National Bureau of Economic Research
Rosalie Liccardo Pacula University of San Diego and National Bureau of Economic Research
Economists study the allocation of scarce resources among competing alternatives. One of the basic assumptions of economic theory is that individuals have limitless desires but limited budgets and therefore must make choices among the different alternatives, or goods, they desire. Markets facilitate these choices by determining the monetary price associated with each choice. Given these prices, individuals determine the best way to spend their limited budgets and still satisfy their most important desires. Economists refer to this process as constrained utility maximization and rational choice.
When individuals decide to buy a particular good at a specified price, they must be willing to pay the price that is being charged. Therefore, economists view price as a measure of a good's worth to the people who buy it. When the cost of a previously chosen alternative rises, individuals are faced with a new decision. They either can dedicate more of their limited budget to the more costly good, which requires that they reduce their purchase of the other alternatives, or they must reduce their purchase of the now more costly good so as to keep their consumption of the other goods the same (or some combination of the two). One of the fundamental principles of economic theory, known as the law of demand, implies that individuals will consume less of a good as its price rises. This means that an inverse relation will exist between the price of a good and the quantity demanded of that good, implying a downward-sloping demand curve.