When the price of the good rises from P1 to P2, the quantity demanded falls from Q1 to Q2.
The responsiveness of quantity to price depends on the substitutes available. If consumers have good substitutes, a small increase in price can lead large numbers of consumers to go elsewhere. Responsive demand curves are said (roughly) to be elastic. Consumers without good substitutes are likely to have inelastic, or not very responsive, demand schedules. For example, if my neighborhood Shell gasoline station raises price, with the prices at other stations held constant, I will likely go to the BP station across the street. It is a good substitute, in my view. But if the price of gasoline at all stations rises, my options are not nearly so good—I can travel less, take the bus, buy a more fuel efficient car. Since I do not find these alternatives particularly compelling, I will not reduce my gasoline consumption substantially in response to a (modest) price rise. If the price rise is large, or expected to persist, I am more likely to buy a more fuel-efficient car when I trade in my current vehicle, and may even move up the date I buy a new car. We say, therefore, that the demand for any particular brand of gasoline can be expected to be elastic, while that for gasoline as a whole will be inelastic. Demand schedules are more elastic in the long run than in the short run, since the passage of time will likely increase the options available to me.
The price I pay does not need to be measured directly in money. If traffic becomes congested between my home and my office because of road construction activity, I may decide to work at home more often—the rise in the price of the commute leads me to demand fewer commutes. If the NCAA basketball tournament is on TV the night before a final exam, I may decide to study less that I otherwise would, for the price of studying is higher when the alternatives are more attractive.
The law of demand holds generally. If an activity becomes more costly, people will demand less of it. This includes, for example, criminal behavior. If the penalty that can be expected when a crime is committed is increased, other things held equal, we expect the amount of that crime to decline. Note that it is the expected penalty that matters. Even if the punishment dealt to convicted criminals is severe, crime may not be much deterred if criminals view the chance of the penalty being imposed as small, either because the chances of getting caught are small or because the likelihood that the severe penalty will actually be imposed is low.
The criminal who premeditates is more likely to succeed in his criminal aim (and thus do more harm) than is the impulsive criminal, and the premeditator is also harder to apprehend and punish and therefore less likely to be punished. On both counts effective deterence requires a heavier punishment if he is caught. A further point is that the would-be criminal who plans his crime ... may be more responsive than the impulsive criminal to threats of punishment, becausie he sees in his mind's eye the full array of costs and benefits, including punishment, before deciding which course to follow. Punishing him may therefore be socially more productive than punishing the impulsive criminal.2 (footnote omitted)
While the law of demand is perhaps the most fundamental in all of economics, there remains the question of just how responsive behavior is to legal sanctions. The legal system shows evidence penalties that vary according to the anticipated responsiveness of behavior. For example, premeditated crimes are often punished more severely that the same crime committed either by the insane, or as impulse crimes. The legal doctrine of mens rea,Mens Rea: criminal intent or evil mind. meaning criminal intent or evil mind, says that a crime is to be judged both on its consequences and on the intent of the perpetrator. Why?
If the costs of incarceration were the same, the reason would seem to be that the wrongdoers who act without mens rea are not as readily deterred. The person killed by an impulsive act is just as dead as the victim of a premeditated murder. Should not each criminal therefore be treated in the same way?
Not if the goal is to deter future crimes. Deterrence should be practiced to the point where the additional benefit of ratcheting up the punishment, a benefit in the form of reduced crime, is just equal to the additional cost associated with more jail time and more resources devoted to catching and convicting criminals. The distinction between criminals who plan their crimes carefully and those who act either irrationally or in insane fashion is that the latter are less likely to be deterred by the promise of punishment.
But are not severe crimes penalized more stringently than lesser crimes? Does this make sense? If the goal of punishment is deterrence, why not simply execute all convicted miscreants? Not many people would fail to clean up after their dogs in the park if the penalty for failing to do so was death. One could argue that the cost to society of losing valued members to the electric chair might well be greater than the benefit from kite-flyers not having to watch their feet as they scan the sky, but an effective deterrence program would so motivate pooper scoopers that only the threat of execution would not be necessary. Is there another possible reason for our timidity in imposing severe punishments?