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>Why on Earth do you think producers will be unable to raise prices? Because of the law of supply and demand, as it pertains to the outputs of a productive pro
by nwah1 9y ago
>Why on Earth do you think producers will be unable to raise prices?
Because of the law of supply and demand, as it pertains to the outputs of a productive process in a relatively free market context. The prices will generally tend towards the costs (including opportunity costs) in the long run, and demand shocks will only cause temporary rises in price until production can catch up.
With naturally scarce commodities, that is not possible, because there is no production.
>you don't think that more construction happens when there's more demand?
Land supply is perfectly inelastic. Improvements on land are somewhat elastic, although ultimately anchored by lots of factors... and the speculative holding of land is a big one. Furthermore, there's an upper limit to the amount of density that a region can sustain and still be livable.
There's a "standard of comfort" that people have, which ultimately determines a lot of it, though. So, in theory, if we became more comfortable at higher densities, we could live like people in Hong Kong. Yet, that doesn't mean even they can sustain infinite density, and indeed they have high rents in Hong Kong.
- Godel_unicode 9y agoThe idea of speculative holding of land is incompatible with perfectly inelastic supply. If someone is speculatively holding land, there is a price (demand) at which they will sell (supply) that land to be used. The supply of land is not the amount of land which exists, it's the amount of land in the market (just like the supply of oil is not the oil in the ground it's the gasoline in pumps). That amount reacts to price, which is the definition of elasticity of supply.
- nwah1 9y agoLand is not the same as oil commodities because oil must be discovered and drilled, whereas we already know where all the terrestrial land is, and for the most part it is all already owned by someone. Oil rights are a kind of land, of course, because that is what land really is... the rights. Those rights are precisely quantifiable in the form of land titles. The scope of those titles, and the quantity of land subsumed under them, is precisely quantifiable and does not change from year to year. The speculative holders of the rights are often neglecting to rent out the land, but in economic terms they are just consuming their own imputed rents. The rents are a flow that continuously accrues to the title.