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Slartibartfast 
Collaborator
Honorary Collaborator / In Memoriam
Joined: April 29 2006
Location: Atlantais
Status: Offline
Points: 29630
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 Posted: September 16 2010 at 21:37 |
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Released date are often when it it impacted you but recorded dates are when it really happened... 
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CCVP
Prog Reviewer
Joined: September 15 2007
Location: Vitória, Brasil
Status: Offline
Points: 7971
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Posted: September 16 2010 at 21:40 |
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stonebeard
Forum Senior Member
Joined: May 27 2005
Location: NE Indiana
Status: Offline
Points: 28057
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Posted: September 16 2010 at 21:51 |
 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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Equality 7-2521
Forum Senior Member
Joined: August 11 2005
Location: Philly
Status: Offline
Points: 15784
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Posted: September 16 2010 at 21:57 |
Dean wrote:
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.
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.
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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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"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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Dean
Special Collaborator
Retired Admin and Amateur Layabout
Joined: May 13 2007
Location: Europe
Status: Offline
Points: 37575
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Posted: September 17 2010 at 04:26 |
thellama73 wrote:
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 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.
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.
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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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What?
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Dean
Special Collaborator
Retired Admin and Amateur Layabout
Joined: May 13 2007
Location: Europe
Status: Offline
Points: 37575
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Posted: September 17 2010 at 05:09 |
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".
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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