Oct 20th 2010, 18:13:38
rebut 2 "scarity will almost always increase price"
No, you can't really say that. Demand has just as much of a role of determining price as supply. Supply is irrelevent if people don't want the product, this is true whether the supply is 2 units or 2 billion units. On the same token Demand is irrelevent if there is no supply, because no transactions are occuring.
Price determination is made through the equalibrium between the 2 forces, with a price floor equating to the marginal cost to produce the suppply (aka if the price is set lower than the marginal cost of production, than the producer will simply choose to produce nothing). This is in perfectly competitive markets of course; Monopoly/oligopoly prices and other non perfect competition scenarios are a different animal due to the capturing of producer and consumer surpluses.
Rebut 4: You cant' say this (refer to my post above, its for the same reasons. Demand on its own makes absolutely no statment about the price, as it is the relationship between demand and supply that determines price).
A good example of this would be the wheat/grains market. There is an extremely high demand for grains globally, in fact it is among the highest demanded commodities in the world (out of things that aren't classed as public or at least quasi-public goods, such as water), yet the price is grain is extremely low, why? This is because the supply is higher than what is demanded. This is the case so much so that the entire market doesn't even clear and grains get dumped into the ocean every year in attempt to keep the prices from bottoming out even moreso.
Rebut 7:"You're correct that increasing prices always lowers demand, but there is a certain threshold where you can maintain a price that demand is willing to pay for without too much decrease, but if you go over that price there is a steep drop in demand. I guess I wasn't really being clear on this point. "
This argument makes no sense to me. Maintaining the price shouldn't see any effect in demand inless there is a exogenous force that shocks the market. Neither prices or demand just fluctuate on their own accord.
The idea that the elasticity of demand increases/decreases as you move above/below the local minima of the demand curve isn't being contested by me (aka the idea the that demand curve is in fact a convex curve rather than a straight line). However, this isnt' particularly revelent to the analysis I was intially criticizing, so I question why it is being mentioned.
No, you can't really say that. Demand has just as much of a role of determining price as supply. Supply is irrelevent if people don't want the product, this is true whether the supply is 2 units or 2 billion units. On the same token Demand is irrelevent if there is no supply, because no transactions are occuring.
Price determination is made through the equalibrium between the 2 forces, with a price floor equating to the marginal cost to produce the suppply (aka if the price is set lower than the marginal cost of production, than the producer will simply choose to produce nothing). This is in perfectly competitive markets of course; Monopoly/oligopoly prices and other non perfect competition scenarios are a different animal due to the capturing of producer and consumer surpluses.
Rebut 4: You cant' say this (refer to my post above, its for the same reasons. Demand on its own makes absolutely no statment about the price, as it is the relationship between demand and supply that determines price).
A good example of this would be the wheat/grains market. There is an extremely high demand for grains globally, in fact it is among the highest demanded commodities in the world (out of things that aren't classed as public or at least quasi-public goods, such as water), yet the price is grain is extremely low, why? This is because the supply is higher than what is demanded. This is the case so much so that the entire market doesn't even clear and grains get dumped into the ocean every year in attempt to keep the prices from bottoming out even moreso.
Rebut 7:"You're correct that increasing prices always lowers demand, but there is a certain threshold where you can maintain a price that demand is willing to pay for without too much decrease, but if you go over that price there is a steep drop in demand. I guess I wasn't really being clear on this point. "
This argument makes no sense to me. Maintaining the price shouldn't see any effect in demand inless there is a exogenous force that shocks the market. Neither prices or demand just fluctuate on their own accord.
The idea that the elasticity of demand increases/decreases as you move above/below the local minima of the demand curve isn't being contested by me (aka the idea the that demand curve is in fact a convex curve rather than a straight line). However, this isnt' particularly revelent to the analysis I was intially criticizing, so I question why it is being mentioned.