5 ms·

I think the point he was making is that change in supply doesn't necessarily lead to a change in price. I don't know if that's what they teach in basic economic

I think the point he was making is that change in supply doesn't necessarily lead to a change in price. I don't know if that's what they teach in basic economic s, but it's certainly true.

Kranar 5y ago
The post I replied to doesn't mention supply either directly or indirectly, rather it states the following: "[prices are] driven only by how much people are willing to pay." Emphasis theirs. That statement is false, prices are a function of both supply and demand and supply is a function of manufacturing costs. The cheaper something is to produce, the more of it one can produce and hence the greater the supply.
- OJFord 5y ago
  I think that quote is fine if you read 'how much people are willing to pay' as meaning the whole order book (as it were) - i.e. how many people are willing to pay how much. The price is usually (an attempt at) optimising profit, where that may mean selling for more dollars to fewer people. Ceteris paribus a reduction in the cost of supply doesn't change that calculation. (Though, as the economist in my family says, 'ceteris never bloody is paribus'!)
  - Dylan16807 5y ago
    > I think that quote is fine if you read 'how much people are willing to pay' as meaning the whole order book (as it were) - i.e. how many people are willing to pay how much. It's really not though. If I give you the full detailed order book of a secret product and ask you to set the price we should use as a company, you won't be able to do it. You need at least a rough idea of the production cost first. If people will buy 10x as much at $100 compared to $200, then we should probably price at $100 if our cost is $40, and we should definitely not price at $100 if our cost is $120. If you want to set a price off of one data lump, you need to replace the revenue numbers in that order book with margin per unit.
    - OJFord 5y ago
      Yes, true, I suppose I'm assuming a pre-existing/otherwise somehow known wide margin. The optimisation I describe is on profit, not revenue, and (as you say) you need to know the fixed and variable (marginal unit) costs to do that.
- ncmncm 5y ago
  If people don't need it, they may simply choose not to buy.
- jjeaff 5y ago
  A more accurate statement might be: prices are upper bounded by what people are willing to pay.
- drugstorecowboy 5y ago
  The cheaper something is to produce, the more of it one can produce and hence the greater the supply. This only affects the price if there are competitors. If I want a widget, the total supply of widgets is irrelevant. For example Insulin, the fact that you have tons more of it won't make the price go down, you have it and I need it. You can sell it for whatever I am willing to pay irrespective of supply or production costs.
- pyrale 5y ago
  > The post I replied to doesn't mention supply either directly or indirectly The post you replied to doesn't mention demand either. It only talks about price. There is a difference between demand and price, and there is no generic function from price to demand. Even such basic assumptions as "demand falls as price goes up" fail in some situations.
bko 5y ago
All else being equal, a change in supply will change the price, except in perfectly elastic demand, in which case less would just be sold at the same price. Sure not everything is always equal, but the relationship is clear

I think the point he was making is that change in supply doesn't necessarily lead to a change in price. I don't know if that's what they teach in basic economic s, but it's certainly true.

Kranar 5y ago

The post I replied to doesn't mention supply either directly or indirectly, rather it states the following: "[prices are] driven only by how much people are willing to pay." Emphasis theirs. That statement is false, prices are a function of both supply and demand and supply is a function of manufacturing costs. The cheaper something is to produce, the more of it one can produce and hence the greater the supply.

OJFord 5y ago
I think that quote is fine if you read 'how much people are willing to pay' as meaning the whole order book (as it were) - i.e. how many people are willing to pay how much. The price is usually (an attempt at) optimising profit, where that may mean selling for more dollars to fewer people. Ceteris paribus a reduction in the cost of supply doesn't change that calculation. (Though, as the economist in my family says, 'ceteris never bloody is paribus'!)
- Dylan16807 5y ago
  > I think that quote is fine if you read 'how much people are willing to pay' as meaning the whole order book (as it were) - i.e. how many people are willing to pay how much. It's really not though. If I give you the full detailed order book of a secret product and ask you to set the price we should use as a company, you won't be able to do it. You need at least a rough idea of the production cost first. If people will buy 10x as much at $100 compared to $200, then we should probably price at $100 if our cost is $40, and we should definitely not price at $100 if our cost is $120. If you want to set a price off of one data lump, you need to replace the revenue numbers in that order book with margin per unit.
  - OJFord 5y ago
    Yes, true, I suppose I'm assuming a pre-existing/otherwise somehow known wide margin. The optimisation I describe is on profit, not revenue, and (as you say) you need to know the fixed and variable (marginal unit) costs to do that.
ncmncm 5y ago
If people don't need it, they may simply choose not to buy.
jjeaff 5y ago
A more accurate statement might be: prices are upper bounded by what people are willing to pay.
drugstorecowboy 5y ago
The cheaper something is to produce, the more of it one can produce and hence the greater the supply. This only affects the price if there are competitors. If I want a widget, the total supply of widgets is irrelevant. For example Insulin, the fact that you have tons more of it won't make the price go down, you have it and I need it. You can sell it for whatever I am willing to pay irrespective of supply or production costs.
pyrale 5y ago
> The post I replied to doesn't mention supply either directly or indirectly The post you replied to doesn't mention demand either. It only talks about price. There is a difference between demand and price, and there is no generic function from price to demand. Even such basic assumptions as "demand falls as price goes up" fail in some situations.

bko 5y ago

All else being equal, a change in supply will change the price, except in perfectly elastic demand, in which case less would just be sold at the same price. Sure not everything is always equal, but the relationship is clear