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>In a world of pure supply and demand considerations that would be true. but as I've pointed out, we don't live in that world. We live in a world where many con

>In a world of pure supply and demand considerations that would be true. but as I've pointed out, we don't live in that world. We live in a world where many consumers are experiencing the same drought as the nut growers, and are aware of the impact it could have on prices, either because they live in the same place as where the nuts are grown or because they like to read the news. None of this explains how knowledge of supply shocks would change a consumer's intrinsic demand for nuts. >In other words, consumer preferences can result in inelasticity of demand. Earlier you said As long as nut prices are going up faster than nut costs, so will nut acreage No matter how inelastic demand is, it is impossible for prices to increase faster than costs. In the limit of infinitely inelastic demand, prices increase at the same rate as costs (all costs are passed on to the consumer).

anigbrowl 11y ago
I agree that supply shocks are not changing the intrinsic demand for nuts. Rather, nut popularity happens to be increasing around the same time as a supply shock. No matter how inelastic demand is, it is impossible for prices to increase faster than costs. In the limit of infinitely inelastic demand, prices increase at the same rate as costs (all costs are passed on to the consumer). That only obtains under perfect competition, as I already said. I'm not trying to convince you that this behavior falls out of basic economic laws, I'm saying you're looking at it in the wrong context. Please look up the terms perfect competition and monopolistic competition, or we will just be talking past each other.
- animefan 11y ago
  Re ceteris paribus, I address simliar criticism here: https://news.ycombinator.com/item?id=10064126 https://news.ycombinator.com/item?id=10064126. The key point is that the original post I was critiquing was already implicitly keeping all other factors fixed. And I only aimed to critique that post's reasoning, not the conclusions it made. As for imperfect competition (which I'm also familiar with, I have a PhD in economics), I see you mentioned it above but I still don't know why. Even if not sellers were a monopoly or oligopoly, everything I said above would apply, at least in very broad terms. You could probably come up with some demand function such that increasing input costs of a monopolistic producer resulted in an increase in production, but I don't see why you would think that actually applied here.

anigbrowl 11y ago

I agree that supply shocks are not changing the intrinsic demand for nuts. Rather, nut popularity happens to be increasing around the same time as a supply shock. No matter how inelastic demand is, it is impossible for prices to increase faster than costs. In the limit of infinitely inelastic demand, prices increase at the same rate as costs (all costs are passed on to the consumer). That only obtains under perfect competition, as I already said. I'm not trying to convince you that this behavior falls out of basic economic laws, I'm saying you're looking at it in the wrong context. Please look up the terms perfect competition and monopolistic competition, or we will just be talking past each other.

animefan 11y ago
Re ceteris paribus, I address simliar criticism here: https://news.ycombinator.com/item?id=10064126 https://news.ycombinator.com/item?id=10064126. The key point is that the original post I was critiquing was already implicitly keeping all other factors fixed. And I only aimed to critique that post's reasoning, not the conclusions it made. As for imperfect competition (which I'm also familiar with, I have a PhD in economics), I see you mentioned it above but I still don't know why. Even if not sellers were a monopoly or oligopoly, everything I said above would apply, at least in very broad terms. You could probably come up with some demand function such that increasing input costs of a monopolistic producer resulted in an increase in production, but I don't see why you would think that actually applied here.