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It's not so simple though since there's indirect effects that immediately follow. 1. Everyone consume less. Even rich people have to buy less of something else
by JamesianP 4y ago
It's not so simple though since there's indirect effects that immediately follow.
1. Everyone consume less. Even rich people have to buy less of something else to pay for the higher-priced gas. So demand goes down elsewhere driving down other prices.
2. If margins or salaries increase then it increases the incentive for competition to enter the market and compete on price.
- tsimionescu 4y ago1. Rich people already have much more income than they consume, they would likely only reduce investments/savings. 2. It takes a very long time to create a new manufacturing business, and it's hard to know how gas prices will evolve in 2-5 years time (which is a decent conservative estimate on when you would be able to start selling your products if you start today).
- WalterBright 4y agoReducing investment/savings reduces demand, as they are the source of funds for businesses to spend. Reduced demand reduces prices. Any economic theory that denies the Law of Supply & Demand is false.
- tsimionescu 4y agoAgain, reducing demand only reduces prices if there is enough supply. If the demand already exceeded supply, then changes in demand don't do anything to price unless and until demand once again drops below supply. Not to mention, if you think companies use all their funds every year, you're again using a very bizarre economic model. Companies often accrue money as cash savings to be used at later dates, taking it out of the economy until then.
- magicalhippo 4y ago> So demand goes down elsewhere driving down other prices. Right, but given that those other things were non-essentials, it surely don't matter as much? I mean, you need food. You don't need a lap dance. So you stop spending money on lap dances, using it on food instead. Prices on lap dances go down. But you still need food, not lap dances, so the reduction in price for a lap dance doesn't make you suddenly start buying lap dances.
- JamesianP 4y agoStrippers need to eat too though. Maybe I missing your argument. Isn't the point of lowering one's lap dance prices to get more customers to buy them?
- tsimionescu 4y agoThat's the hope, but it doesn't mean it will happen. There is no law that says you'll find a price point that keeps your business afloat: changing economic conditions can just tank your business; the less critical the good or service is, the more likely it is to happen.
- JamesianP 4y agoOk. Now the stripper can't afford to buy food and there's less demand for essentials after all. I'm still not getting how this helps?
- tsimionescu 4y agoJust because the stripper can no longer afford food doesn't mean that food sellers will be able to lower their price. Supply issues can't be solved by price changes. Taken to the extreme, people will die of starvation until the population adjusts, so still in the long run demand and supply will meet at the price point.
- JamesianP 4y agoBut the people who were pocketing those higher profits and salaries back when gas prices went down, now do have room to cut prices though and still make money. It can't go both ways. Anyway starving people still have labor to sell, which they will sell as cheaply as they have to, driving everyone's costs down and allowing them to cut prices after all.
- tsimionescu 4y ago