6 ms·

> I have more people wanting to buy my honey than I can supply Isn't that a question of price?

coldtea 10y ago
Changing the price so that you're 1-1 with supply and demand is not usually the most wise thing to do. There's price elasticity complications, etc. A price hike can: (a) alienate and drive away existing customers, (b) not replace them with new ones (because you suddenly play in another price league where are established "expensive" products there) (c) make the product seem to be priced ridiculously for what it is, and thus drive off most potential customers, even if demand at the lower price level was strong.
- moron4hire 10y ago
  ... that's the whole point. You want demand to drop, because you don't have the supply to match it. Demand outstripping supply is lost revenue.
  - igk 10y ago
    Or you know, this is him making a living (I assume) of providing a good at a certain price, which allows everyone in his community who buys it right now to enjoy it. They know and trust him and are willing (I assume) to pay a little extra for that. If everybody is already happy, there is not really a point in and of itself to imagine how you could squeeze even more out of people. Not everything needs to be ruthless capitalism to work
    - moron4hire 10y ago
      You have it exactly backwards. People willingly paying for a good means they are happy with the purchase, and just as many people will be happy at the higher price if he's still selling out every week. It's not "ruthless capitalism", it's protecting your supply and communicating the correct value. If prices get high enough, it will attract other people to become honey producers, increasing the supply and making more people happy. By keeping prices low, artificial scarcity is created, which is a harm to consumers.
      - adwn 10y ago
        > By keeping prices low, artificial scarcity is created, which is a harm to consumers. No: If a producer can't satisfy demand at his/her prices, then that leaves room for a competitor with higher prices to come in. There, artificial scarcity crisis averted.
        bawana 10y ago
        The problem with most economic theories is that they neglect the phenomenon of entitlement. Since welfare was invented, more and more people find the utility of their choices distorted. They will spend discretionary income on luxury goods and use welfare to obtain the necessities. I find more and more people using their cash to buy cell phones, big screen tv, etc. but they are still unemployed, getting Medicaid as well as disability income sometimes. So the decision to purchase a luxury good (like honey) sometimes does not respond to price hikes as one would expect. Normal users might stop buying it as the price goes up but 'entitled' users may continue buying it and thus they become even more dependent on welfare (and our taxes) for survival.
        pc86 10y ago
        Where do you live that earned income does not affect welfare income? I make a good living and can't go out and buy a Maserati then say "oh darn I'm out of money, better go grab a welfare check for groceries this week." If someone's buying $20 jars of locally sourced honey they're almost certainly not on welfare.
        brbsix 10y ago
        Welfare income is not affected by money earned working under the table or selling drugs.
        coldtea 10y ago
        There are tens of millions of recipients of welfare income. The idea that any statistical significant number of them is selling drugs is so out of touch with reality (and borderline racist, because it draws from minority stereotypes first and foremost) that it's not even funny.
    - michaelvoz 10y ago
      I have to agree with you. Having been in that position, sometimes its better to just run out and be happy with your profit. I've seen situations where a price hike is too severe, and you end up selling less, which causes a smaller profit combined with alienating the very community you support. Perhaps in something with a very long shelf life (honey), but I think, were I in their position, I would do as you say and change nothing.
  - themartorana 10y ago
    Except you assume consumers will pay more. A price increase of X does not necessarily yield an equilibrium of demand reduction. Even a 10% price increase might yield a 90% demand reduction. You want to sell out your stock, even at the cost of higher demand. Being left with stock is an expense of its own, and can cut into extra revenue.
    - moron4hire 10y ago
      Generally speaking, it's better to be left with just a little stock than to sell out every week. You can't know if you've hit the price equilibrium unless you do. Especially on a product like honey that doesn't spoil, a higher than average price during high seasons means you are protecting stock for future low seasons. I don't know of anything that has an actually demand curve like that. In some cases, increasing price increases demand, as it opens you up to a new market of conspicuous spenders. It does no good to talk such hypotheticals. On the other hand, I have worked a lot in the food service and vending businesses. Missed revenue today is a war chest you won't have to ride out the seasonal fluctuations. How many customers are you going to make happy when you're out of business?
      - autokad 10y ago
        its also very unlikely that their low prices will keep competitors out of the market, unless they can produce so much honey to flood it.
  - pc86 10y ago
    That is an Econ 101 answer to a thesis-level question.
  - coldtea 10y ago
    You missed the whole point... Which is that a price hike can potentially drop demand more than the supply-equilibrium level -- and can even get it to the point you're losing money compared to before despite the higher asking price. Imagine e.g. the slashback if Arizona (tea) raises their traditional $1 asking price.
    - snowwrestler 10y ago
      If you plot sales volume on the vertical axis and price on the horizontal axis, you get a line called the price elasticity curve. Very few price elasticity curves are linear. Many have an inflection point beyond which volume falls faster than prices rise. If you raise your price beyond this point, you'll actually get declining revenue despite having a higher price. Unfortunately, every product has its own curve, and there's no way to know the shape without changing the price and seeing what happens. So knowing that this is possible is not a great argument against raising prices. You won't know until you try it.
      - coldtea 10y ago
        >If you plot sales volume on the vertical axis and price on the horizontal axis, you get a line called the price elasticity curve. Very few price elasticity curves are linear. That's why I've already mentioned "price elasticity complications" in my first comment -- and gave some examples of how those can play out in real life.
      - Double_Cast 10y ago
        Guys, this isn't about Elasticity Curves. This is about Just Prices [0]. In tight-knit communities, it was evolutionarily advantageous for customers to throw a hissy fit if a vendor hiked their prices. It's a Game Theory thing that relies on information asymmetry. [0] http://daviddfriedman.com/Academic/econ_and_evol_psych/economics_and_evol_psych.html http://daviddfriedman.com/Academic/econ_and_evol_psych/econo...
        snowwrestler 10y ago
        Price elasticity is an observed correlation. "Just Prices" seems like an interesting way to help explain why it happens, but I doubt business owners need to grok Just Prices in order to anticipate price elasticity.
  - Spooky23 10y ago
    You're still selling a commodity. Agricultural commodities aren't very elastic -- and local honey purveyors are already pretty high up on the cost curve. Jack up the price 50% and people will find other vendors selling at market prices unless you're selling in a venue that increases perceived value. Example: Two liters of coke costs $1.29 in my local market. A cold, 20oz coke in the soda machine outside my office is $2.50.

Changing the price so that you're 1-1 with supply and demand is not usually the most wise thing to do. There's price elasticity complications, etc. A price hike can: (a) alienate and drive away existing customers, (b) not replace them with new ones (because you suddenly play in another price league where are established "expensive" products there) (c) make the product seem to be priced ridiculously for what it is, and thus drive off most potential customers, even if demand at the lower price level was strong.

moron4hire 10y ago
... that's the whole point. You want demand to drop, because you don't have the supply to match it. Demand outstripping supply is lost revenue.
- igk 10y ago
  Or you know, this is him making a living (I assume) of providing a good at a certain price, which allows everyone in his community who buys it right now to enjoy it. They know and trust him and are willing (I assume) to pay a little extra for that. If everybody is already happy, there is not really a point in and of itself to imagine how you could squeeze even more out of people. Not everything needs to be ruthless capitalism to work
  - moron4hire 10y ago
    You have it exactly backwards. People willingly paying for a good means they are happy with the purchase, and just as many people will be happy at the higher price if he's still selling out every week. It's not "ruthless capitalism", it's protecting your supply and communicating the correct value. If prices get high enough, it will attract other people to become honey producers, increasing the supply and making more people happy. By keeping prices low, artificial scarcity is created, which is a harm to consumers.
    - adwn 10y ago
      > By keeping prices low, artificial scarcity is created, which is a harm to consumers. No: If a producer can't satisfy demand at his/her prices, then that leaves room for a competitor with higher prices to come in. There, artificial scarcity crisis averted.
      - bawana 10y ago
        The problem with most economic theories is that they neglect the phenomenon of entitlement. Since welfare was invented, more and more people find the utility of their choices distorted. They will spend discretionary income on luxury goods and use welfare to obtain the necessities. I find more and more people using their cash to buy cell phones, big screen tv, etc. but they are still unemployed, getting Medicaid as well as disability income sometimes. So the decision to purchase a luxury good (like honey) sometimes does not respond to price hikes as one would expect. Normal users might stop buying it as the price goes up but 'entitled' users may continue buying it and thus they become even more dependent on welfare (and our taxes) for survival.
        pc86 10y ago
        Where do you live that earned income does not affect welfare income? I make a good living and can't go out and buy a Maserati then say "oh darn I'm out of money, better go grab a welfare check for groceries this week." If someone's buying $20 jars of locally sourced honey they're almost certainly not on welfare.
        brbsix 10y ago
        Welfare income is not affected by money earned working under the table or selling drugs.
        coldtea 10y ago
        There are tens of millions of recipients of welfare income. The idea that any statistical significant number of them is selling drugs is so out of touch with reality (and borderline racist, because it draws from minority stereotypes first and foremost) that it's not even funny.
  - michaelvoz 10y ago
    I have to agree with you. Having been in that position, sometimes its better to just run out and be happy with your profit. I've seen situations where a price hike is too severe, and you end up selling less, which causes a smaller profit combined with alienating the very community you support. Perhaps in something with a very long shelf life (honey), but I think, were I in their position, I would do as you say and change nothing.
- themartorana 10y ago
  Except you assume consumers will pay more. A price increase of X does not necessarily yield an equilibrium of demand reduction. Even a 10% price increase might yield a 90% demand reduction. You want to sell out your stock, even at the cost of higher demand. Being left with stock is an expense of its own, and can cut into extra revenue.
  - moron4hire 10y ago
    Generally speaking, it's better to be left with just a little stock than to sell out every week. You can't know if you've hit the price equilibrium unless you do. Especially on a product like honey that doesn't spoil, a higher than average price during high seasons means you are protecting stock for future low seasons. I don't know of anything that has an actually demand curve like that. In some cases, increasing price increases demand, as it opens you up to a new market of conspicuous spenders. It does no good to talk such hypotheticals. On the other hand, I have worked a lot in the food service and vending businesses. Missed revenue today is a war chest you won't have to ride out the seasonal fluctuations. How many customers are you going to make happy when you're out of business?
    - autokad 10y ago
      its also very unlikely that their low prices will keep competitors out of the market, unless they can produce so much honey to flood it.
- pc86 10y ago
  That is an Econ 101 answer to a thesis-level question.
- coldtea 10y ago
  You missed the whole point... Which is that a price hike can potentially drop demand more than the supply-equilibrium level -- and can even get it to the point you're losing money compared to before despite the higher asking price. Imagine e.g. the slashback if Arizona (tea) raises their traditional $1 asking price.
  - snowwrestler 10y ago
    If you plot sales volume on the vertical axis and price on the horizontal axis, you get a line called the price elasticity curve. Very few price elasticity curves are linear. Many have an inflection point beyond which volume falls faster than prices rise. If you raise your price beyond this point, you'll actually get declining revenue despite having a higher price. Unfortunately, every product has its own curve, and there's no way to know the shape without changing the price and seeing what happens. So knowing that this is possible is not a great argument against raising prices. You won't know until you try it.
    - coldtea 10y ago
      >If you plot sales volume on the vertical axis and price on the horizontal axis, you get a line called the price elasticity curve. Very few price elasticity curves are linear. That's why I've already mentioned "price elasticity complications" in my first comment -- and gave some examples of how those can play out in real life.
    - Double_Cast 10y ago
      Guys, this isn't about Elasticity Curves. This is about Just Prices [0]. In tight-knit communities, it was evolutionarily advantageous for customers to throw a hissy fit if a vendor hiked their prices. It's a Game Theory thing that relies on information asymmetry. [0] http://daviddfriedman.com/Academic/econ_and_evol_psych/economics_and_evol_psych.html http://daviddfriedman.com/Academic/econ_and_evol_psych/econo...
      - snowwrestler 10y ago
        Price elasticity is an observed correlation. "Just Prices" seems like an interesting way to help explain why it happens, but I doubt business owners need to grok Just Prices in order to anticipate price elasticity.
- Spooky23 10y ago
  You're still selling a commodity. Agricultural commodities aren't very elastic -- and local honey purveyors are already pretty high up on the cost curve. Jack up the price 50% and people will find other vendors selling at market prices unless you're selling in a venue that increases perceived value. Example: Two liters of coke costs $1.29 in my local market. A cold, 20oz coke in the soda machine outside my office is $2.50.