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Ability to pay is only one aspect of demand. There’s also how much you actually want it, and the amount of opportunity cost you’re willing to pay. Keeping price

Ability to pay is only one aspect of demand. There’s also how much you actually want it, and the amount of opportunity cost you’re willing to pay. Keeping prices artificially low keeps demand artificially high, while supply doesn’t increase, or cannot increase if it’s inelastic.

burkaman 7y ago
> There’s also how much you actually want it, and the amount of opportunity cost you’re willing to pay. Money doesn't have much relation to opportunity cost in the presence of enormous wealth inequality. An unemployed person willing to pay their entire bank account of $100 for some good clearly wants it more than a work-from-home tech worker willing to pay the $600 they made yesterday. The same applies to businesses using cloud services. A struggling local business has a ludicrously low cap on what they can pay for Teams compared to Walmart or something.
- AmericanChopper 7y ago
  I’d consider providing essential services to low income people disadvantaged during a crisis to be a seperate issue all together. I’d also suggest that such an issue would only apply to a narrow band of essential products and services. An unemployed person with $100 in their account isn’t going to care about how much access they have to high quality video conferencing. However, if I have the option of using a 12 person video conference for my morning standup, why wouldn’t I use it? If there was an additional cost for every video conference I wanted to have, I’d think more judiciously about when to use it. Which sounds better than the current situation of knowing that video conferencing is simply going to be unreliable and slow, regardless of how much I may need it for any particular meeting.
- loeg 7y ago
  You've just described how a monetary system works and have not refuted the link between prices and opportunity cost.
  - chipotle_coyote 7y ago
    I'm not sure "opportunity cost" is the correct term for what the OP wanted to say, since it usually refers to the (theoretical) loss incurred by choosing one alternative over another. The point is simply that a consumer's ability to pay is not necessarily a reflection of their need of the product. That's not an argument to blithely decouple pricing from supply and demand, but it's a recognition of a problem that a market-based society needs to deal with under extraordinary conditions.
    - AmericanChopper 7y ago
      Opportunity cost is everything you choose to forgo when you choose to allocate any resources to anything. If supply and demand is allowed to have its normal influence on price, then you can decide what you actually have the most demand for, and allocate your resources accordingly. The decisions you make regarding your own needs are always going to be much more efficient than those that any rationing authority could ever make.
      - wtallis 7y ago
        > The decisions you make regarding your own needs are always going to be much more efficient than those that any rationing authority could ever make. If that were true, then hoarding wouldn't happen in the first place. You're obviously wrong here, and there's abundant evidence that consumers don't always make the best choices for themselves. Try scaling back your claims to something less absolute.
        AmericanChopper 7y ago
        The hoarders benefit massively from hoarding. They benefit from a regulation that prevents the markets from responding to shortages and spikes in demand. They have no problem whatsoever deciding how to allocate their resources in that situation, which is the entire problem, because the market doesn’t force them to. An individual will always, every single time, without fail, know what they need better than a 3rd party who nominates themselves to make decisions on behalf of others. If you remove market forces from the situation, and establish an authority to decide who gets rationed what, it will always impact the efficiency of those resource allocation decisions.
- deleted 7y ago
  [deleted]
ineedasername 7y ago
It doesn't matter if demand is artifial if there's a filter in place to allocate resources on a need-basis. Not matter the demand from non-need customers, they won't get it, or get less of it. The point in a crisis isn't to let markets find a natural equilibrium, which could mean it stabilizes into a state that isn't optimal to public health. On a crisis, the point is to prioritize those usages that will deal with and help lessen the crisis.
- AmericanChopper 7y ago
  What mechanism do you plan to use to determine the severity of a need?
  - ineedasername 7y ago
    I've laid out a basic structure for my stance already so let me turn the question back to you: Do you feel that traditional market forces, with hoarding, panic buying, and price gouging at the same time health care providers run out of PPE, ventilators and other equipment... Do you feel the market forces are working in a way that best serves resolving this crisis and helping those in medical peril?
    - AmericanChopper 7y ago
      The basic structure of your approach is a vague idea that falls over in all sorts of ways once you attempt to put it into practice. Your comment is also conflating many different issues together. Contrary to your claim, I don’t think the general public has been rushing out to panic buy ventilators, or other heavy duty medical equipment. The government assuming an elevated level of control over the supply chain for medical PPE is also a completely different proposition to allowing Microsoft to increase the costs of video conferencing to properly scale to demand. The phrase “panic buying” is really just a way to confound discussion about what’s really happening. There is a perfectly legitimate increase in demand, and a perfectly legitimate decrease in supply. If you wanted to stop people from hoarding, allowing market forces to respond to those changes would certainly shut it down. Any centrally enforces rationing policy is going to be far less efficient. The distinction between essential products and services, and non essential ones is also very real. You may choose that for any particular category of product or service, that the benefits in providing stability through rationing outweigh the costly efficiency trade offs. However that doesn’t obviously apply to every category of product or service under the sun. The trade offs in efficiency are two fold. Firstly, the rationing authority has no effective way to gauge the actual needs of any person or organisation. So they will unavoidably end up allocating too much to some and not enough to others. Secondly, the market will typically respond to increased prices by increasing production. By keeping prices artificially low, you completely remove that incentive, and if the costs of production have risen (as they have), then you end up trying to manage the shortage by applying downward pressure on supply. Finally, the issue of people not being able to afford the basic necessities of life is completely separate to that of supply and demand. There always have been and always will be people in that boat, regardless of whether there’s a global crisis taking place or not. In developed countries those people receive increased government assistance. I’ve never heard anybody seriously suggest that we should instead engage in mass price fixing to reduce the price of everything, rather than simply providing that assistance.

burkaman 7y ago

> There’s also how much you actually want it, and the amount of opportunity cost you’re willing to pay. Money doesn't have much relation to opportunity cost in the presence of enormous wealth inequality. An unemployed person willing to pay their entire bank account of $100 for some good clearly wants it more than a work-from-home tech worker willing to pay the $600 they made yesterday. The same applies to businesses using cloud services. A struggling local business has a ludicrously low cap on what they can pay for Teams compared to Walmart or something.

AmericanChopper 7y ago
I’d consider providing essential services to low income people disadvantaged during a crisis to be a seperate issue all together. I’d also suggest that such an issue would only apply to a narrow band of essential products and services. An unemployed person with $100 in their account isn’t going to care about how much access they have to high quality video conferencing. However, if I have the option of using a 12 person video conference for my morning standup, why wouldn’t I use it? If there was an additional cost for every video conference I wanted to have, I’d think more judiciously about when to use it. Which sounds better than the current situation of knowing that video conferencing is simply going to be unreliable and slow, regardless of how much I may need it for any particular meeting.
loeg 7y ago
You've just described how a monetary system works and have not refuted the link between prices and opportunity cost.
- chipotle_coyote 7y ago
  I'm not sure "opportunity cost" is the correct term for what the OP wanted to say, since it usually refers to the (theoretical) loss incurred by choosing one alternative over another. The point is simply that a consumer's ability to pay is not necessarily a reflection of their need of the product. That's not an argument to blithely decouple pricing from supply and demand, but it's a recognition of a problem that a market-based society needs to deal with under extraordinary conditions.
  - AmericanChopper 7y ago
    Opportunity cost is everything you choose to forgo when you choose to allocate any resources to anything. If supply and demand is allowed to have its normal influence on price, then you can decide what you actually have the most demand for, and allocate your resources accordingly. The decisions you make regarding your own needs are always going to be much more efficient than those that any rationing authority could ever make.
    - wtallis 7y ago
      > The decisions you make regarding your own needs are always going to be much more efficient than those that any rationing authority could ever make. If that were true, then hoarding wouldn't happen in the first place. You're obviously wrong here, and there's abundant evidence that consumers don't always make the best choices for themselves. Try scaling back your claims to something less absolute.
      - AmericanChopper 7y ago
        The hoarders benefit massively from hoarding. They benefit from a regulation that prevents the markets from responding to shortages and spikes in demand. They have no problem whatsoever deciding how to allocate their resources in that situation, which is the entire problem, because the market doesn’t force them to. An individual will always, every single time, without fail, know what they need better than a 3rd party who nominates themselves to make decisions on behalf of others. If you remove market forces from the situation, and establish an authority to decide who gets rationed what, it will always impact the efficiency of those resource allocation decisions.
deleted 7y ago
[deleted]

ineedasername 7y ago

It doesn't matter if demand is artifial if there's a filter in place to allocate resources on a need-basis. Not matter the demand from non-need customers, they won't get it, or get less of it. The point in a crisis isn't to let markets find a natural equilibrium, which could mean it stabilizes into a state that isn't optimal to public health. On a crisis, the point is to prioritize those usages that will deal with and help lessen the crisis.

AmericanChopper 7y ago
What mechanism do you plan to use to determine the severity of a need?
- ineedasername 7y ago
  I've laid out a basic structure for my stance already so let me turn the question back to you: Do you feel that traditional market forces, with hoarding, panic buying, and price gouging at the same time health care providers run out of PPE, ventilators and other equipment... Do you feel the market forces are working in a way that best serves resolving this crisis and helping those in medical peril?
  - AmericanChopper 7y ago
    The basic structure of your approach is a vague idea that falls over in all sorts of ways once you attempt to put it into practice. Your comment is also conflating many different issues together. Contrary to your claim, I don’t think the general public has been rushing out to panic buy ventilators, or other heavy duty medical equipment. The government assuming an elevated level of control over the supply chain for medical PPE is also a completely different proposition to allowing Microsoft to increase the costs of video conferencing to properly scale to demand. The phrase “panic buying” is really just a way to confound discussion about what’s really happening. There is a perfectly legitimate increase in demand, and a perfectly legitimate decrease in supply. If you wanted to stop people from hoarding, allowing market forces to respond to those changes would certainly shut it down. Any centrally enforces rationing policy is going to be far less efficient. The distinction between essential products and services, and non essential ones is also very real. You may choose that for any particular category of product or service, that the benefits in providing stability through rationing outweigh the costly efficiency trade offs. However that doesn’t obviously apply to every category of product or service under the sun. The trade offs in efficiency are two fold. Firstly, the rationing authority has no effective way to gauge the actual needs of any person or organisation. So they will unavoidably end up allocating too much to some and not enough to others. Secondly, the market will typically respond to increased prices by increasing production. By keeping prices artificially low, you completely remove that incentive, and if the costs of production have risen (as they have), then you end up trying to manage the shortage by applying downward pressure on supply. Finally, the issue of people not being able to afford the basic necessities of life is completely separate to that of supply and demand. There always have been and always will be people in that boat, regardless of whether there’s a global crisis taking place or not. In developed countries those people receive increased government assistance. I’ve never heard anybody seriously suggest that we should instead engage in mass price fixing to reduce the price of everything, rather than simply providing that assistance.