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    Posted: September 17 2010 at 05:09
Originally posted by Equality 7-2521 Equality 7-2521 wrote:


In the aggregate consumers certainly understand inflation as I've explained.
I'm not sure I understand your use of "in the aggregate" in this situation - if you said "on average" or "in general" I would still disagree with you - people know what inflation is because they are told in absolute terms that inflation is currently x% (they know for instance that big number=bad) - but I really doubt that they know what causes it or what can be done to reduce it or the difference between short-term and long-term inflation, to me that would be "understanding inflation".
Originally posted by Equality 7-2521 Equality 7-2521 wrote:


Sorry Dean I flat out disagree with you. I think your position is completely illogical. I don't mean it as an insult, but we clearly disagree in many ways. 
It is completely illogical from a polarised perspective because it goes against the generalised wisdom - it is logical in a wider perspective if you consider the cases that are not included in the generalisation. Economic models are generalised simplified models - they can ignore extreme, localised and rare events because they do not affect the overall outcome. Single commodity inflation does not affect general inflation proportionally because they are contained within the (weighted) price-index and do not show a proportional change in the rate-of-change of the price index (which is how inflation is measured).
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Points: 37575 		Direct Link To This Post Posted: September 17 2010 at 04:26
Originally posted by thellama73 thellama73 wrote:

Originally posted by Dean Dean wrote:

I was aware of elasticity before this (I have done a few basic economics courses in my life, including one as part of a MBA). Yes, I picked up on the bread thing because it is a staple (for me at least) and not a luxury so it will be one of ther last things to be heaved out of the shopping trolly at the cash-till - if you look at the list of elasticities on the wiki page you'll see that all daily commodities that we in the Western World deem to be necessities have an elasticity of less than -1 ... this means that the price can go up and demand will drop, but the net result is an increase in revenue.


This is not necessarily true. Whether or not a price increase is profitable depends not only on elasticity but also the firm's marginal cost. A firm with a sharply declining marginal cost as output increases might find it advantageous to sell at a lower cost than they would if they had constant marginal cost, given the same elasticity of demand.
Confused I said revenue not proft, and your example is for a +elasticity since your output increases as selling price increases (and the example contains a number of other implied but unexplained cost increases associated with cost of sales that you're not disclosing). Marginal costs are the revenue minus the cost of sales, where, in a relatively inelastic but still negative situation, increased revenue and decreased sales is an increase in gross margin, an increased gross margin with steady-state fixed costs (overheads) result in increased profit.
Originally posted by thellama73 thellama73 wrote:


I do agree that demand for necessities is generally inelastic, but you are still disregarding people who only buy necessities. If the price of necessities goes up, the will have to buy less of them, since they have a fixed budget which they spend on no other goods. Then of course there are people like me, who will readily forgo meals in order to buy more CDs. I forgot now what the original point of this argument was.
Why shouldn't I disregard people who only buy necessities or people who will buy CDs over bread? - in terms of percentages they do not figure siginificanly in the equation so do not affect the outcome. This is adding complication to prove an over-simplified point - which was that the gods of economics prevent monopolies from increasing prices indefinitely. I say that there are scenarios where this is not necessarily true and that the simplified economic model people use to make their point are generalisations.
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Points: 15784 		Direct Link To This Post Posted: September 16 2010 at 21:57
Originally posted by Dean Dean wrote:

Originally posted by Equality 7-2521 Equality 7-2521 wrote:

WIth regards to some normalization of prices occuring in the consumers minds, sorry but I find that absurd. Can you support it in some way? People have fixed budgets. Consumption decisions are made relative to that budget. No matter how long the change takes to occur, or for how long the process stops, the consumer is still making decisions about managing a fixed resource and will adjust consumption behavior accordingly. Clearly the limiting process of the logic you're describing leads to a falsehood.
Of course there is normalisation - people adjust their buying to suit their budget, but it is not food that gets adjusted, it is the luxuries and unnecessaries that get affected - once people get use to bread at $2.30 a loaf the price can start going up again at 1˘ every two weeks for another couple of months. At no time have I said that this works for every commodity being sold - but the principle is there and with the right incremental, the right time intervals and the right normalisation periods it can work for anything - Bread is a good example because it is something that people buy regularly and its unit price is not something that causes you to think about buying it or not buying it - you don't budget to buy bread, even though the average household probably spends $800/year on the stuff.
Originally posted by Equality 7-2521 Equality 7-2521 wrote:

 
Inflation is probably not realized explicitly by the individual. But the differences between inflation and a price increase are certainly known to consumers in the aggregate. Consumption of candy hasn't changed much since 1913, but the dollar has lost 90% of its value since then and candy prices have soared. This is not because people are irresponsive to price increases. Inflation is a different kind of price increase than the one we're discussing.
 
You brought-up inflation and it's nothing to do with the price increases we're discussing - to the consumer any price increase is called "inflation" because most consumers don't understand inflation beyond whatever their pet partisan politician tells them it is.

In the aggregate consumers certainly understand inflation as I've explained.

Sorry Dean I flat out disagree with you. I think your position is completely illogical. I don't mean it as an insult, but we clearly disagree in many ways. 
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Points: 28057 		Direct Link To This Post Posted: September 16 2010 at 21:51
Originally posted by Equality 7-2521 Equality 7-2521 wrote:

I didn't realize people actually doubted a non-zero price elasticity of demand until this thread on the military's policy on homosexual's.

Strange how you learn things. 


I'll go ahead and doubt it. Especially since I have no idea what it is.
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Points: 7971 		Direct Link To This Post Posted: September 16 2010 at 21:40
Originally posted by Slartibartfast Slartibartfast wrote:

Originally posted by thellama73 thellama73 wrote:

Originally posted by CCVP CCVP wrote:

What exacly is this"don't ask, don't tell" thing about? Is it about allowing gays on the military?


Shhh! We're not talking about that anymore.


We could tell you but we'd have to kill you? Tongue


The NRA won't allow that. LOL
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Points: 29630 		Direct Link To This Post Posted: September 16 2010 at 21:37
Originally posted by thellama73 thellama73 wrote:

Originally posted by CCVP CCVP wrote:

What exacly is this"don't ask, don't tell" thing about? Is it about allowing gays on the military?


Shhh! We're not talking about that anymore.


We could tell you but we'd have to kill you? Tongue
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Points: 7971 		Direct Link To This Post Posted: September 16 2010 at 21:31
Originally posted by Easy Money Easy Money wrote:

Originally posted by CCVP CCVP wrote:

What exacly is this"don't ask, don't tell" thing about? Is it about allowing gays on the military?

Yeah that, plus runaway cheese prices at supermarkets pushing people to use Cheeze Whiz which will never happen to someone who cares about what they put in their body ... cheeeze whiz


We have that here too (the gay thing, I mean), but quite frankly that only makes things worse. A huge part of the military IS gay, specially in the navy.

IMO allowing gay ppl on the military would only make the life of soldiers easier, at least the ones that ARE gay (LOL) and could reduce the cases of sexual harrassment inside the military. I really can't see a downside here. I would just ask them to shower in a different time than me because I would be terribly of that "get the soap" thing. TongueLOL
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Points: 10679 		Direct Link To This Post Posted: September 16 2010 at 21:22
Originally posted by CCVP CCVP wrote:

What exacly is this"don't ask, don't tell" thing about? Is it about allowing gays on the military?

Yeah that, plus runaway cheese prices at supermarkets pushing people to use Cheeze Whiz which will never happen to someone who cares about what they put in their body ... cheeeze whiz
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Points: 8368 		Direct Link To This Post Posted: September 16 2010 at 21:19
Originally posted by CCVP CCVP wrote:

What exacly is this"don't ask, don't tell" thing about? Is it about allowing gays on the military?


Shhh! We're not talking about that anymore.
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What exacly is this"don't ask, don't tell" thing about? Is it about allowing gays on the military?
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Points: 8368 		Direct Link To This Post Posted: September 16 2010 at 21:05
Originally posted by Dean Dean wrote:

I was aware of elasticity before this (I have done a few basic economics courses in my life, including one as part of a MBA). Yes, I picked up on the bread thing because it is a staple (for me at least) and not a luxury so it will be one of ther last things to be heaved out of the shopping trolly at the cash-till - if you look at the list of elasticities on the wiki page you'll see that all daily commodities that we in the Western World deem to be necessities have an elasticity of less than -1 ... this means that the price can go up and demand will drop, but the net result is an increase in revenue.


This is not necessarily true. Whether or not a price increase is profitable depends not only on elasticity but also the firm's marginal cost. A firm with a sharply declining marginal cost as output increases might find it advantageous to sell at a lower cost than they would if they had constant marginal cost, given the same elasticity of demand.
I do agree that demand for necessities is generally inelastic, but you are still disregarding people who only buy necessities. If the price of necessities goes up, the will have to buy less of them, since they have a fixed budget which they spend on no other goods. Then of course there are people like me, who will readily forgo meals in order to buy more CDs. I forgot now what the original point of this argument was.
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Points: 37575 		Direct Link To This Post Posted: September 16 2010 at 10:44
Originally posted by Equality 7-2521 Equality 7-2521 wrote:

WIth regards to some normalization of prices occuring in the consumers minds, sorry but I find that absurd. Can you support it in some way? People have fixed budgets. Consumption decisions are made relative to that budget. No matter how long the change takes to occur, or for how long the process stops, the consumer is still making decisions about managing a fixed resource and will adjust consumption behavior accordingly. Clearly the limiting process of the logic you're describing leads to a falsehood.
Of course there is normalisation - people adjust their buying to suit their budget, but it is not food that gets adjusted, it is the luxuries and unnecessaries that get affected - once people get use to bread at $2.30 a loaf the price can start going up again at 1˘ every two weeks for another couple of months. At no time have I said that this works for every commodity being sold - but the principle is there and with the right incremental, the right time intervals and the right normalisation periods it can work for anything - Bread is a good example because it is something that people buy regularly and its unit price is not something that causes you to think about buying it or not buying it - you don't budget to buy bread, even though the average household probably spends $800/year on the stuff.
Originally posted by Equality 7-2521 Equality 7-2521 wrote:

 
Inflation is probably not realized explicitly by the individual. But the differences between inflation and a price increase are certainly known to consumers in the aggregate. Consumption of candy hasn't changed much since 1913, but the dollar has lost 90% of its value since then and candy prices have soared. This is not because people are irresponsive to price increases. Inflation is a different kind of price increase than the one we're discussing.
 
You brought-up inflation and it's nothing to do with the price increases we're discussing - to the consumer any price increase is called "inflation" because most consumers don't understand inflation beyond whatever their pet partisan politician tells them it is.


Edited by Dean - September 16 2010 at 10:46
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Originally posted by Equality 7-2521 Equality 7-2521 wrote:

Originally posted by Negoba Negoba wrote:

Originally posted by Equality 7-2521 Equality 7-2521 wrote:

Every person exerts influence over the market. The market is just the aggregate of the every individual's preferences.

 
The first sentence I accept. But some not only influence the dynamics of the game but the rules by which it's played. So I disagree with the second sentence. Unless you say "I prefer not to compete with product xxx" so I'll sabotage it rather than let the buyer decide is part of "individual preferences."
 
I don't understand the distinction you are making between dynamics of the game and rules by which it is played. Care to define these terms?
 
Fair enough.
 
An example of manipulating the rules is Walmart using their market share to force vendors to sell to them at a loss just so their product remains viable by keeping total distribution numbers at a certain level.
 
Normal dynamics is that if I have a higher quality, more expensive product, it will sell better when consumers have more money in their pockets.
 
Just off the top of my head.
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Points: 15784 		Direct Link To This Post Posted: September 16 2010 at 10:11
Originally posted by Dean Dean wrote:

Originally posted by Equality 7-2521 Equality 7-2521 wrote:

 

Yes they have limited shelf lives, but the correction I just said it within that shelf-life so there.

Bread has a shelf-life of 5-7 days, so 1 loaf per week is the maximum time interval between loaves. Two problems with bread are mold and staleness - refrigeration will hold-up mold growth, but it will accelerate drying-out so that on balance the shelf-life is unaffected.
 
Originally posted by Equality 7-2521 Equality 7-2521 wrote:

The substitutes may be more expensive, Cheeze Wiz is not, however then certainly there is an upper bound on this incremental change

Cheez-wiz is an imported product over here so is priced accordingly, but I take your point - processed cheeses are probably cheaper than "the real thing". Yes there is an upper bound on the incremental change, but the process can be halted to normalise the effect and restarted at a later date - as long as no one detects the slow d$/dt then it can continue like that indefinitely.

Originally posted by Equality 7-2521 Equality 7-2521 wrote:

  

Intuitively, the demand function is independent of time. I think inflation skews this notion we have of incremental vs instantaneous price increase. We think people will accept incremental price increase because prices gradually increase over time due to value devaluation, but this is entirely different than a supplier price increase.

Again, I wonder what llama knows about this point.

I think it is difficult (perhaps impossible) for the consumer to tell one from the other - they will assume that supplier driven price increases are inflation or inflation driven price increases are just the supplier charging more.
 
Sorry Dean I forgot you were from across the pond.
 
WIth regards to some normalization of prices occuring in the consumers minds, sorry but I find that absurd. Can you support it in some way? People have fixed budgets. Consumption decisions are made relative to that budget. No matter how long the change takes to occur, or for how long the process stops, the consumer is still making decisions about managing a fixed resource and will adjust consumption behavior accordingly. Clearly the limiting process of the logic you're describing leads to a falsehood.
 
Inflation is probably not realized explicitly by the individual. But the differences between inflation and a price increase are certainly known to consumers in the aggregate. Consumption of candy hasn't changed much since 1913, but the dollar has lost 90% of its value since then and candy prices have soared. This is not because people are irresponsive to price increases. Inflation is a different kind of price increase than the one we're discussing.
 
"One had to be a Newton to notice that the moon is falling, when everyone sees that it doesn't fall. "
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Points: 37575 		Direct Link To This Post Posted: September 16 2010 at 10:05
Originally posted by Equality 7-2521 Equality 7-2521 wrote:

 

Yes they have limited shelf lives, but the correction I just said it within that shelf-life so there.

Bread has a shelf-life of 5-7 days, so 1 loaf per week is the maximum time interval between loaves. Two problems with bread are mold and staleness - refrigeration will hold-up mold growth, but it will accelerate drying-out so that on balance the shelf-life is unaffected.
 
Originally posted by Equality 7-2521 Equality 7-2521 wrote:

The substitutes may be more expensive, Cheeze Wiz is not, however then certainly there is an upper bound on this incremental change

Cheez-wiz is an imported product over here so is priced accordingly, but I take your point - processed cheeses are probably cheaper than "the real thing". Yes there is an upper bound on the incremental change, but the process can be halted to normalise the effect and restarted at a later date - as long as no one detects the slow d$/dt then it can continue like that indefinitely.

Originally posted by Equality 7-2521 Equality 7-2521 wrote:

  

Intuitively, the demand function is independent of time. I think inflation skews this notion we have of incremental vs instantaneous price increase. We think people will accept incremental price increase because prices gradually increase over time due to value devaluation, but this is entirely different than a supplier price increase.

Again, I wonder what llama knows about this point.

I think it is difficult (perhaps impossible) for the consumer to tell one from the other - they will assume that supplier driven price increases are inflation or inflation driven price increases are just the supplier charging more.
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Points: 15784 		Direct Link To This Post Posted: September 16 2010 at 09:03
Originally posted by Dean Dean wrote:

Originally posted by thellama73 thellama73 wrote:


If that's true, then why don't bread companies raise their prices?
I never said the bread companies don't believe the model and I never said supermarket buyers don't believe the model
Quote One supplier, who like his peers refused to be named for fear of losing business, said: "It is extremely difficult to get price increases past supermarkets and every time you ring up and mention price increases they just put the phone down."
I'm saying the shop-floor reality is a little different from the idealised economic science model.
Originally posted by Equality 7-2521 Equality 7-2521 wrote:

Also Dean besides llama's complaint you're ignoring two things:

1) You cannot buy 94% of a loaf, but you can choose to buy two loafs every three weeks instead of one loaf every week.
 
2) Things like Cheese-wiz exist, and things like flatbread. Customers have plently of substitutes for cheese and bread. This makes them all the more responsive to price changes.
Yep, I'm ignoring them - loaves of bread have a limited shelf-life so you cannot buy two loaves every three weeks and cheez-wiz and flatbreads are more expensive than normal cheese and normal bread.
 
Yes, I know you can freeze bread and I know there are less costly alternatives bread and cheese for my starch & fat snack but they are rather complex ways of proving an over-simplified point. I accept that supply and demand fixes a market price at any instantaneous moment and that elasticity exists, but it is not a constant - it varies with both time and the rate-of-change of the various factors that contribute to it. So while a large change in price will effect a proportional change in demand, small changes may not because the elasticity for a large variation is larger than the elasticity for a small variation - if the small change is so small and over a long time frame then the elasticity is practically zero. Most supermarket shopping trolley items are relatively inelastic - a small price increase will result in an increase in revenue.

 

Yes they have limited shelf lives, but the correction I just said it within that shelf-life so there.

The substitutes may be more expensive, Cheeze Wiz is not, however then certainly there is an upper bound on this incremental change

 

Intuitively, the demand function is independent of time. I think inflation skews this notion we have of incremental vs instantaneous price increase. We think people will accept incremental price increase because prices gradually increase over time due to value devaluation, but this is entirely different than a supplier price increase.

Again, I wonder what llama knows about this point.

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Points: 15784 		Direct Link To This Post Posted: September 16 2010 at 08:58
Originally posted by Negoba Negoba wrote:

Originally posted by Equality 7-2521 Equality 7-2521 wrote:

Every person exerts influence over the market. The market is just the aggregate of the every individual's preferences.

 
The first sentence I accept. But some not only influence the dynamics of the game but the rules by which it's played. So I disagree with the second sentence. Unless you say "I prefer not to compete with product xxx" so I'll sabotage it rather than let the buyer decide is part of "individual preferences."
 
I don't understand the distinction you are making between dynamics of the game and rules by which it is played. Care to define these terms?
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Points: 37575 		Direct Link To This Post Posted: September 16 2010 at 08:44
Originally posted by Negoba Negoba wrote:

I had never heard of price elasticity so I looked it up - it was helpful.

Dean, it's a variable based on the specific commodity and market. Some instances, perhaps the specific one you're discussing, aren't very elastic. I.E. people will tolerate price increases with little change. But it's not infinite as eventually people start running out of money. (absolute limit) Some are very elastic. It's just a modelling concept but makes sense.
I was aware of elasticity before this (I have done a few basic economics courses in my life, including one as part of a MBA). Yes, I picked up on the bread thing because it is a staple (for me at least) and not a luxury so it will be one of ther last things to be heaved out of the shopping trolly at the cash-till - if you look at the list of elasticities on the wiki page you'll see that all daily commodities that we in the Western World deem to be necessities have an elasticity of less than -1 ... this means that the price can go up and demand will drop, but the net result is an increase in revenue.
Originally posted by Negoba Negoba wrote:

 
I'm still stuck on one thing - who gets to control the parameters of the market. No one has absolute control, but certainly some participants in the system get to exert influence over the parameters of the game they're playing. This again makes the idea of a level playing field silly.
 
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Actually (if you read the article I linked in my previous post) supermarkets have a far larger control over the markets than they are entitled to - to the extent where they determine the entire economic profile of a whole country so any supplier/demander control is bypassed and negated.
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Points: 5210 		Direct Link To This Post Posted: September 16 2010 at 08:36
Originally posted by Equality 7-2521 Equality 7-2521 wrote:

Every person exerts influence over the market. The market is just the aggregate of the every individual's preferences.

 
The first sentence I accept. But some not only influence the dynamics of the game but the rules by which it's played. So I disagree with the second sentence. Unless you say "I prefer not to compete with product xxx" so I'll sabotage it rather than let the buyer decide is part of "individual preferences."
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Points: 37575 		Direct Link To This Post Posted: September 16 2010 at 08:32
Originally posted by thellama73 thellama73 wrote:


If that's true, then why don't bread companies raise their prices?
I never said the bread companies don't believe the model and I never said supermarket buyers don't believe the model
Quote One supplier, who like his peers refused to be named for fear of losing business, said: "It is extremely difficult to get price increases past supermarkets and every time you ring up and mention price increases they just put the phone down."
I'm saying the shop-floor reality is a little different from the idealised economic science model.
Originally posted by Equality 7-2521 Equality 7-2521 wrote:

Also Dean besides llama's complaint you're ignoring two things:

1) You cannot buy 94% of a loaf, but you can choose to buy two loafs every three weeks instead of one loaf every week.
 
2) Things like Cheese-wiz exist, and things like flatbread. Customers have plently of substitutes for cheese and bread. This makes them all the more responsive to price changes.
Yep, I'm ignoring them - loaves of bread have a limited shelf-life so you cannot buy two loaves every three weeks and cheez-wiz and flatbreads are more expensive than normal cheese and normal bread.
 
Yes, I know you can freeze bread and I know there are less costly alternatives bread and cheese for my starch & fat snack but they are rather complex ways of proving an over-simplified point. I accept that supply and demand fixes a market price at any instantaneous moment and that elasticity exists, but it is not a constant - it varies with both time and the rate-of-change of the various factors that contribute to it. So while a large change in price will effect a proportional change in demand, small changes may not because the elasticity for a large variation is larger than the elasticity for a small variation - if the small change is so small and over a long time frame then the elasticity is practically zero. Most supermarket shopping trolley items are relatively inelastic - a small price increase will result in an increase in revenue.
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