Supply Versus Demand - Not Always

[Excei]

Can someone explain to me why the price of some products constantly rises? It isn't always about supply versus demand. I thought this was the basic theory behind the science of economics.

[Buffy]

Oh gosh, supply and demand curves throw everyone off because they look so simple. Basic issues you have to deal with are which curves are shifting, how steep they are where, and realizing that when you get to the endpoints of those curves, all bets are off.

 

We have so many Oligopolies today--and one of my frequent rants is all about how any market with only 3-5 entrants acts as a pure monopoly--that it's easy to see effects like this, but if you look for long enough, virtually every price backs off at some point. My favorite example is gasoline/petrol: there's enough competition at the wholesale level still to cause the price of oil to fluctuate a lot, but when it comes to the price at the pump, it always goes up instantly when oil goes up (way before the oil that costs more actually makes it's way from the well to your tank), and then takes forever to drift down after oil prices drift lower. Uncompetitive markets do this because it's in everyone's interest not to rock the boat and simply price the same as your "competition."

 

At the macroeconomic level though, "prices always rise" because of inflation, which is on the healthy side a measure of the increase in economic output. Inflation is the grease that keeps economies growing, and don't believe the quacks who insist that it's an evil plot that should be eliminated by going back on the gold standard: if an economy doesn't have inflation it's a sign that everyone is getting poorer in real terms. Now inflation that over time is greater than the growth of economic output is definitely bad, but a little is basically a good way to allow shifts in supply and demand to stabilize smoothly. And while inflation erodes assets and nominal wages, it also eases debt, so for progressives it's an equitable way to ensure that the asset class is kept in check politically.

 

This topic is a little hard to talk about in the abstract, so if you have specific examples you're interested in, jump right in and we can talk about them.

 

 

The importance of money flows from it being a link between the present and the future, :phones:

Buffy

[Racoon]

I love you Buffy ..

[Racoon]

But I will, and have to  fight your uber Liberal Politics..

The Future of America depends upon it

[Buffy]

Well the point of the discussion above is that in moderation inflation is a good thing for folks who make their money working for a wage (even the ones who make a big wage) because a major component of it is often increasing wages or at least in the ability of the system to more rapidly adjust wages due to other shifts in prices, and hurts the really rich slightly more because assets just sit there, but even they know it's not that bad no matter how much they whinge about it being "taxation without legislation."

 

I'm sorry to hear your incredibly rich uncle died. My condolences, Racoon.

 

 

When people begin anticipating inflation, it doesn't do you any good anymore, because any benefit of inflation comes from the fact that you do better than you thought you were going to do, :phones:

Buffy

[arissa]

I read recently that we have changed the way we compute inflation and unemployment stats. Can anyone shed some light on this? I know it plays into the prices and the balacing act between supply & demend but I can not remember the specifics right now. I honestly don't think we will ever get the balance in check, we have too many chefs in the kitchen so to speak that love seeing certain prices (like gas) go up. If they change the price we still pay, until we can pay no more.