What i don’t understand that why the price goes up for finished products, it is already made, raw materials used and manufacturing is paid.
If the store already has 10 TVs in the store, why the price go up?
If you have a given amount of packaged bread already in the store why the price goes up?
Edit1: Lightbulb from many: Restock… You need to restock on current price, if you don’t follow the price you gonna lose money
However the “willing to pay” argument is kind of maddening, because with basic necessities like food “willing to pay” is reversed, controlled by seller and transformed to “have to pay and going to do so”
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You have 10 TVs….you sell 3 so you order 3 to have 10 in your inventory. But the store down the street sold 8 tvs. So they order 8. Well the manufacturer is having trouble keeping up with send the stores the amount they need to keep their inventory at a certain amount. So if a store can’t keep 10 in stock they up the price
There are 10 TVs in the store and 10 Customers willing to buy them. Great! That will be $100 each, everybody gets a TV everybody’s happy.
But what happens if there are only 8 TVs and 10 Customers willing to buy them? Well, maybe Customer 9 has a little more money than Customer 8 and offers to pay $120 for the TV, the shopkeeper agrees and those that pay the most will buy the TVs.
Only in the real world the shops know when the demand exceeds the supply and pre-emptively raise the price.
A store wants to sell *exactly all of its stock* at the highest possible price.
If more people want your stock, you can charge more and sell the same amount, so you raise prices to continue *just barely* selling out.
1) Price Competition. If there are more (willing) buyers than the suppliers, the suppliers can charge more and still sell all they have. As a seller, they’re running a business to maximize profits and should attempt to sell their finished goods at the highest price that would clear their inventory.
2) Ongoing business consideration. As a business, the price sold today has to cover the cost of repurchasing raw materials TODAY. It doesn’t matter if the existing finished goods were produced using lower cost materials, if the business doesn’t obtain revenue sufficient to repurchase new raw materials, then it goes out of business.
Bottom line: businesses don’t sell goods at the lowest price possible.
Because it will sell for that higher price.
That’s really it.
Like let’s say those 10 TVs are currently selling for $100 each. and because of shortages the store WILL sell all of those. That means they can make $1000 and after than they are done, they can’t get more TV’s if anyone else comes by they have to go “sorry, we don’t have any TV’s” Running out of stock you *could* have sold is basically the worst thing that can happen to a retail company.
But they could raise the price to $120 and STILL sell all of them maybe a few people that would only pay $100 don’t buy but there’s more than 10 people willing to spend $120 on a TV. Now they made $1200 before running out of TVs and having to turn people away.
Not raising the price by $20 basically means they would lose out on $200. That is not a very good business decision.
Because a store can’t just sell 10 TVs, or 100 loaves of bread and call it good. If they want to stay in business, they need to buy new inventory to replace the stuff they sold.
Let’s say a grocery store buys bread at $0.95 a loaf and sells it at $1. From that $1, they’re going to spend $0.95 to buy another loaf and keep the extra $0.05. This might not sound like a lot, but they sell a lot of loaves so it adds up.
Now, let’s say there’s a natural disaster or a war, and the supply of grain shrinks. The bread makers still need the same amount of grain to make their bread, so they start out-bidding each other to get the available grain. This is an increase in cost that they’re going to pass on to the grocery stores.
Cut back to our grocery store owner/manager, who sees the price of grain going up. They know that this is going to increase the cost of bread to them. Since most of the money they earn from a loaf goes to pay for the next loaf, they must increase their price now so that they will have enough money to buy the more expensive loaves they know are coming.
> If the store already has 10 TVs in the store, why the price go up?
Because *the demand is higher* than the supply. If a dozen people go to that store, each wanting to buy a TV, some of them will be willing to pay a higher price to make sure they don’t end up among those two who don’t get a TV.
What happens at an auction when two or more people bid on the same item? Its price goes up until there’s only a single person willing to pay that much for it.
Supply and demand are the determining factors. It’s not about the costs of the product or service but about how the amount available relates to the amount needed. Demand exceeding supply makes prices go up. Supply exceeding demand makes prices go down.
Imagine you bought 100 tvs expecting to sell over christmas. But there’s less money, everybody is going on sale, and you have to sell for less than you expected.
You eat the loss. You can’t say “I bought it expensive, you guys gotta pay my price.” nobody will care about your loss.
Same happens in reverse if there’s a sudden lack of stuff, but you have it, and everywhere else the price went up. You raise your own prices and gain more. And if somebody goes “but you bought it cheaper”, well, why should you care? Would they if it was your loss?
Taking the risk to have a stock means being open to losses as well as gains, and you take what you can get.
So let’s talk extremes. If a store doesn’t have stock they won’t be able to sell it. And if they don’t have space in the warehouse for new stock, they can’t buy anything to place there.
So the price you pay isn’t strictly based on what the store paid to stock the warehouse. It’s based on a risk assessment of how much they predict they need to stock to sell to customers. If they predict more people buy than they are able to sell, the warehouse stacks up and they can’t buy new product to store at all – this is a surplus, and price gets cut often below the original wholesale price. You see this today with coffee grinders, printers, bread makers, etc. all the stuff that they had a surge of demand in a year ago and they placed new orders for, and now they have too much.
The opposite is true. If they predicted too little sales, they will need to pay more for new orders to supply the current demand. So they need to raise prices of existing stock to cover the additional unexpected cost of of new orders.
And in a supply shortage, the wholesalers charge more money, and factories charge more to the wholesalers for orders. So when the supply chain dips
Bad predictions over sales cause something called the “bullwhip effect” in supply chains. Prices will rapidly swing up and down as stores, wholesalers, and factories mispredict how much to make or stock of particular goods. That’s generally what we’re seeing today in the pricing of consumer electronics.
Additionally there’s the fact that people are willing to pay more when they need things and there are fewer available. That’s just supply and demand. Sellers exploit that to raise prices up and down the supply chain – if one store wants to sell TVs but there aren’t enough for every store, they will pay more than the next store for the same TVs and sell at a higher price. Because you the consumer buys from the store that has the TV you want, not the store that will get one in several months.
The suppliers know that the price *will* rise, so if they have an idea of how high, they can go to that price immediately with the confidence that someone will be willing to pay that much eventually.
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