It used to be that every kid in the block had several pairs; nowadays me and my friends can barely afford two pairs. The technology today allows for a much higher supply, as well as an increase in demand due to increase in population (especially in cities). Not to talk about recycling technology…
The same question goes to Coke and its past awesome gifts/campaigns.
In: Economics
Supply and demand set prices.
You are right, demand is up so there’s two ways a company can address that. They could also increase supply and maintain the price level, this means they would sell more shoes.
Or the company could increase price, and keep production the same. Lets look at these two examples.
A shoe costs $10 to manufacture, and the old selling price was $25. $15 profit per pair. At the beginning of this example they are selling 1,000 pairs a year for a total profit of $15,000 per year.
Now these shoes get super popular. The sales people do a lot of forecasts and they figure that at $25 per pair we can actually sell 10,000 pairs per year. Alternatively we could increase the price to $100 per pair and we would only sell 1,000 per year.
So in scenario one, we sell 10,000 pairs at $15 profit per pair for a total profit of $150,000. In scenario two we only sell 1,000 pairs but we sell them for $200 each. After removing the cost to make the shoes profit is now $190 per pair. We still only sell 1,000 pairs and total profit for the company is now $190,000.
So given those two choices, we would chose to raise our price and sell the 1,000 shoes for $200 each since that makes us the most overall profit.
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