Don't Ask, Don't Tell Deemed Unconstitutional

Cheese is bought by weight not price - if the price per pound increases by 3% you won't buy 3% less cheese you will still buy 8oz and not 7¾oz  or 0oz - this is true whether you buy your cheese loose from a cheese shop or pre-packed from the supermarket. Bread is sold by the loaf, not by the slice - you either buy bread or you don't - you cannot by 97% of a loaf. A weekly shop is not 100 minor shopping expeditions to buy 100 individual items - it's a one-stop fill the trolley, pay and leave situation - people do not price-check every item - if their bill this week is more than last week then next week they'll down-grade one or more of the luxuries (or can justify paying the higher price for bread if they have a coupon for 3¢ off a tin of baked beans), but they'll still buy bread and cheese. Of course there is still a limit on how much people will pay for bread and cheese, (notice I said "I don't completely agree" not "I completely disagree"), but they won't consciously notice which individual items have caused the overall increase in the weekly shopping bill as they occur.

 

You are free to disagree on what people will and will not notice, but I really do not believe that people walk around with a list of last weeks prices for every item in their shopping trolley so any minor price change in any single item will go un-noticed... Now pump price for gasoline, that's different because that's a single commodity purchase, people will and do notice that.

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 never said the bread companies don't believe the model and I never said supermarket buyers don't believe the model

I'm saying the shop-floor reality is a little different from the idealised economic science model.

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.

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.

 

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

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.

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.