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> What many people seem to not even know, is that the theory only holds true under competitive free market conditions and falls apart under captive/uncompetitiv

> What many people seem to not even know, is that the theory only holds true under competitive free market conditions and falls apart under captive/uncompetitive markets. Why would the law of supply and demand fall apart under captive/uncompetitive markets? A captive or uncompetitive market may impact the quantity of a good or service available and/or the quantity of a good or service willing to be purchased at a given point in time, but that doesn't change the law. > Many also assume trade volume is necessarily representative of a supply shortage, when that isn't always the case, as "supply" and "supply for sale" are two different things. Huh? Supply is characterized by being "for sale". Of course, a shortage occurs when price is prevented from rising. Housing certainly doesn't have that problem. The so-called "housing shortage" is really an issue of latent demand – people desire homeownership but can't afford it.

Rury 2y ago
> Why would the law of supply and demand fall apart under captive/uncompetitive markets? For the law to hold perfectly and describe prices, everyone in the market (both buyers and sellers) must be a "price taker". That is, the amount anyone supplies(sells)/demands(buys) is entirely a function of the going market price of whats being traded, and no one believes they will influence prices. (If anyone isn't a "price taker", then supply/demand of the good being traded are no longer the only variables in the function of price). So, typically under competitive market conditions (that is there are many buyers/sellers), as prices rise demand from buyers will drop and selling increases from sellers, whereas the opposite happens when prices fall. However, in captive markets such as one consisting of a monopoly seller, the seller can test demand to find the most profitable price for them specifically. At which point the seller is no longer operating as a "price taker", as they will reduce selling as prices rise to find that optimal price point for themselves (as they have input costs which have their own price curves that buyers don't know or care about). Remember, a "price taker" cannot influence the price, but must take or leave it depending on price. Thus price is no longer determined purely by the market supply/demand of the good, but also profit margin of the monopolist. > Huh? Supply is characterized by being "for sale". It often is, and there is nothing wrong with it being defined that way. But the idea which is being expressed here is what is important. For hyperbole, if I hoarded all of the worlds water, but only listed 2 liters of it for sale (much less than the population needs), would that indicate the world has a water shortage? One would argue yes, if you defined supply as "for sale", but no if differentiated in the way I did.
- randomdata 2y ago
  > Thus price is no longer determined purely by the market supply/demand of the good, but also profit margin of the monopolist. In fact, the price is "purely determined" by supply/demand in the scenario you gave. The monopolist is using their monopoly position to create artificial scarcity, thus driving up prices. This is consistent with the law of supply and demand. > would that indicate the world has a water shortage? Impossible to say without more information. What is happening around the 2L for sale? Are you rejecting the sale based on price (i.e. preventing price from rising), instead selecting who gets it using some non-priced-based mechanism, such as a lottery or first-come, first-served? If yes, then that indicates that there is a shortage. If it is sold using a price-based mechanism, then clearly not. That is a "normally functioning" market. Once the water is all used up and there is no remaining water supply, where no amount of money can buy more (i.e. preventing from rising), then perhaps you might say that there is a shortage. However, in the real world, absent of some other factor (e.g. price gouging laws), price will keep rising until you are compelled to make more of that water available, so that still wouldn't be a shortage situation.
  - Rury 2y ago
    > In fact, the price is "purely determined" by supply/demand in the scenario you gave. The monopolist is using their monopoly position to create artificial scarcity, thus driving up prices. This is consistent with the law of supply and demand. Yes, if you look at it from the perspective of only the "supply for sale", then everyone still is a "price taker", so what I said is in full agreement. But if you draw your boundaries to include that additional supply that's hoarded and not for sale, the theory no longer holds. Do you see what I mean now? In other words, this is entirely a matter of how we define things, and draw our boundaries. How we do that isn't what's important. What is important is that everyone holds the same axioms. For example, we can define 3 means 3 and 3 + 3 = 6, or we can define 3 means 27, and 3 + 3 = 54. But if you think 3 means 3, and someone else thinks 3 means 71, it's hard to have a fruitful conversation as people will be in disagreement. This is why I made the distinction of "supply" and "supply for sale". So when it comes to building more housing supply, it will never help housing prices no matter how much we build, if that supply which gets built is never for sale. You need to address the issue of what's for sale. Now you might think this is a silly distinction to make, but it isn't. If the data provided in the top post is any accurate, then there are quite a few more vacant properties than what's listed for sale in many markets, suggesting that needing more supply isn't the core of the problem, but obviously needing more supply for sale is. And IMO, as the top post had earlier mentioned, cheap credit is largely to blame. > Impossible to say without more information. What is happening around the 2L for sale? It was just hyperbole to demonstrate a concept. You can of course disagree depending on the circumstances and the axioms you choose, but hopefully you understand the point I was trying to make.

Rury 2y ago

> Why would the law of supply and demand fall apart under captive/uncompetitive markets? For the law to hold perfectly and describe prices, everyone in the market (both buyers and sellers) must be a "price taker". That is, the amount anyone supplies(sells)/demands(buys) is entirely a function of the going market price of whats being traded, and no one believes they will influence prices. (If anyone isn't a "price taker", then supply/demand of the good being traded are no longer the only variables in the function of price). So, typically under competitive market conditions (that is there are many buyers/sellers), as prices rise demand from buyers will drop and selling increases from sellers, whereas the opposite happens when prices fall. However, in captive markets such as one consisting of a monopoly seller, the seller can test demand to find the most profitable price for them specifically. At which point the seller is no longer operating as a "price taker", as they will reduce selling as prices rise to find that optimal price point for themselves (as they have input costs which have their own price curves that buyers don't know or care about). Remember, a "price taker" cannot influence the price, but must take or leave it depending on price. Thus price is no longer determined purely by the market supply/demand of the good, but also profit margin of the monopolist. > Huh? Supply is characterized by being "for sale". It often is, and there is nothing wrong with it being defined that way. But the idea which is being expressed here is what is important. For hyperbole, if I hoarded all of the worlds water, but only listed 2 liters of it for sale (much less than the population needs), would that indicate the world has a water shortage? One would argue yes, if you defined supply as "for sale", but no if differentiated in the way I did.

randomdata 2y ago
> Thus price is no longer determined purely by the market supply/demand of the good, but also profit margin of the monopolist. In fact, the price is "purely determined" by supply/demand in the scenario you gave. The monopolist is using their monopoly position to create artificial scarcity, thus driving up prices. This is consistent with the law of supply and demand. > would that indicate the world has a water shortage? Impossible to say without more information. What is happening around the 2L for sale? Are you rejecting the sale based on price (i.e. preventing price from rising), instead selecting who gets it using some non-priced-based mechanism, such as a lottery or first-come, first-served? If yes, then that indicates that there is a shortage. If it is sold using a price-based mechanism, then clearly not. That is a "normally functioning" market. Once the water is all used up and there is no remaining water supply, where no amount of money can buy more (i.e. preventing from rising), then perhaps you might say that there is a shortage. However, in the real world, absent of some other factor (e.g. price gouging laws), price will keep rising until you are compelled to make more of that water available, so that still wouldn't be a shortage situation.
- Rury 2y ago
  > In fact, the price is "purely determined" by supply/demand in the scenario you gave. The monopolist is using their monopoly position to create artificial scarcity, thus driving up prices. This is consistent with the law of supply and demand. Yes, if you look at it from the perspective of only the "supply for sale", then everyone still is a "price taker", so what I said is in full agreement. But if you draw your boundaries to include that additional supply that's hoarded and not for sale, the theory no longer holds. Do you see what I mean now? In other words, this is entirely a matter of how we define things, and draw our boundaries. How we do that isn't what's important. What is important is that everyone holds the same axioms. For example, we can define 3 means 3 and 3 + 3 = 6, or we can define 3 means 27, and 3 + 3 = 54. But if you think 3 means 3, and someone else thinks 3 means 71, it's hard to have a fruitful conversation as people will be in disagreement. This is why I made the distinction of "supply" and "supply for sale". So when it comes to building more housing supply, it will never help housing prices no matter how much we build, if that supply which gets built is never for sale. You need to address the issue of what's for sale. Now you might think this is a silly distinction to make, but it isn't. If the data provided in the top post is any accurate, then there are quite a few more vacant properties than what's listed for sale in many markets, suggesting that needing more supply isn't the core of the problem, but obviously needing more supply for sale is. And IMO, as the top post had earlier mentioned, cheap credit is largely to blame. > Impossible to say without more information. What is happening around the 2L for sale? It was just hyperbole to demonstrate a concept. You can of course disagree depending on the circumstances and the axioms you choose, but hopefully you understand the point I was trying to make.