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Kind of putting the cart before the horse, here. Saying that something is “market price” doesn’t explain anything. Market price is driven by millions of factors
by klodolph 6y ago
Kind of putting the cart before the horse, here. Saying that something is “market price” doesn’t explain anything. Market price is driven by millions of factors including cost of living. “Market price” just means that it’s the price that people actually pay for something in the real world, it’s just a name for that price that doesn’t offer any explanatory power.
Cost of living does have explanatory power.
- username90 6y agoCost of living is determined by how much people living there are paid, not the other way around.
- klodolph 6y agoIt’s interconnected. You can’t claim that the relationship goes in one direction.
- dragonwriter 6y ago> Cost of living is determined by how much people living there are paid, not the other way around. Cost of living affects the supply side of labor pricing. Wages affect the demand side of cost of living. Neither is determined solely by the other, but each influences the other.
- bagacrap 6y agoBut cost of living is only one possible explanation. Desirability also affects it. For example, on the whole, people are willing to spend a greater percent of their income to live in LA vs Dallas. Desirability drives down the market price. Many things go into market price and you don't actually have to pretend to understand them all.
- klodolph 6y agoCost of living is only part of the explanation, but “market price” isn’t even an explanation at all.
- 6gvONxR4sf7o 6y agoMarket price connotes a two sided equilibrium, and in this case the point seemed to me to suggest the possibility of irrationality. It’s the same point being made in more plainly biased cases where equal pay for equal work is brought up. Sometimes a market price disparity for a group is driven by nothing but social expectations. Consider that the causal arrow might more strongly point the other direction on wages vs cost of living.
- dwaltrip 6y agoYou acknowledge there are a very large number of complex factors that determine a market price. There isn't a way to neatly summarize that. What kind of explanation could you possibly want?
- klodolph 6y ago> What kind of explanation could you possibly want? Something that isn’t a tautology. “Why do you pay $4 for a cappuccino?” “Because that is the market price for a cappuccino.” “What does ‘market price’ mean?” “It means the amount of money people pay in the given market.” You can see that nothing at all has been explained. So when someone says that people are paying a certain price in a certain market “because it is market price”, that is getting things backwards, and not explaining anything at all. It’s like the surly teenager whose parents ask “Where are you going?” and he says, “Out.”
- dwaltrip 6y agoI imagine anyone who could provide a very concise, comprehensive, and accurate explanation for such things would promptly receive a Nobel prize in economics. There are some rough approximations we know to look at (e.g. the "market price" of the inputs, existence of competing products, and so on). But as you clearly noted, there are an immense number of complex factors affecting this.
- bradleybuda 6y agoThere's a very concise explanation for why someone would pay $4 for a cappuccino, and it's the one they teach you in Econ 101: it was worth at least $4 to the buyer, and it couldn't be found more cheaply from a similar (location, quality, convenience) seller.
- dwaltrip 6y agoSure. But that still isn’t terribly satisfactory. Why is it the case that there aren’t buyers and sellers at other prices? I don’t think we can concisely and accurately answer that.