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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This is probably going to be deleted by the weak mods here for being so short….but it’s a really simple answer.
You have one loaf of bread left in your store. 10 people need that loaf of bread to feed their families. Because I NEED it, I offer you double the asking price in order to convince you to sell it to ME. the other 9 people that also need it offer more.
Which would you rather have $100 or $200?
Obviously if given the chance you would want $200.
The store owner has the same preference.
Given the choice he would like to charge you $200.
Thing is, if there are enough TVs to go around, the store next door might be selling for $100.
If he charged $200, you’d just go to the other store, so he charges $100 so you go to his store.
But if the store next door has no TVs, he can just charge you $200 and you’d still buy from him, because you don’t have a choice.
It’s not how much the TV costs, it’s how much he can get away with charging you.
Because there are people willing and able to buy a larger number products than the number of products that are available, the products have to be rationed.
A way to ration the products is to increase the price, then fewer products are sold as you raise the price. If the price is too high, than there are many of the products left on the shelf. If the price is too low, than all the products are sold out or there are very long lines where the products are available at the low price.
Another reason prices go up is panic buying. Sometimes people will panic and stock up on something in fear that the product may not be available in the future. Increasing the price may discourage panic buying.
> 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”
Yes. Welcome to capitalism.
What it comes down to is businesses are there to make money, full stop. Their entire being is because they want to make money.
So if they are selling a product, and there is a shortage of said product, consumers are more willing to pay more for said product because they want/need it. So they charge more, until they reach a price people aren’t willing to pay.
Last week tonight did a really good episode on inflation and it goes into why prices go up when demand goes up.
>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”
True. However, trying to force prices to stay low is not necessarily a good solution either. E.g. if bread is suddenly $10 per loaf, the government could step in and say “no, you must sell it at a maximum price of $5”. But if the baker pays more than $5 in ingredients, you’ll either have to compensate them or they’ll just stop selling bread. So one way or another, you still end up paying a high price for bread. If the government pays, then the cost comes from taxes which are spread over the population (and often higher on people with higher incomes). That’s a legitimate decision, but even then you have to ask yourself: is it more effective to try to keep bread prices low, or more effective to give more money to poor people directly so they can better afford food?
Which brings me to my next point: choice. If bread becomes expensive, people can choose to buy other food instead (even if you gave them more money to buy food). Or if they do buy bread, then they’ll be more careful not to waste it. This naturally drives down the demand for bread to a point that is maybe more sustainable, so that there won’t be full-on shortages. If you artificially keep bread prices low, then this doesn’t happen: people will try to buy as much bread as before, only now they’ll be faced with empty shelves. So in some cases, it’s arguably better to say “look, if you really want bread, this is how much it costs”, and then let people decide for themselves.
Of course, this only works if other foods are still affordable. If supply is low and prices high across the board, then people are forced to buy at high prices and that can lead to real crises where people simply can’t afford essential food purchases any more.
You are confused because you think that the price of an item is determined by the cost of that item to produce, it’s not. Prices are and always have been determined by the rules of supply and demand.
The quantity of goods available for sale (supply) and the number of customers out there for those goods (demand) that’s what determines prices. If the price determined by supply and demand is less than the cost to produce the item, it’s not profitable and no one will make it. If it is profitable then people will make it.
The key here is that cost to produce sets the minimum price, but there’s no maximum imposed by cost. If I can make something for $1 and someone else is willing to pay $100 that’s just good for me.
Prices are set by supply and demand. During a supply shortage prices will increase even if the underlying costs don’t increase.
john oliver has a free youtube video that does a pretty good job, and has some pretty good jokes:
[https://www.youtube.com/watch?v=MBo4GViDxzc](https://www.youtube.com/watch?v=MBo4GViDxzc)
He covers a bunch of topics, such as inflation, supply chain issues, and supply and demand.
As simple as I can put it supply wise, if there are fewer of a thing, and people want it, like bread for instance, then people are willing to pay more (or conversely, not buy it). On consumables, you would be surprised how much lettuce and stuff is eaten everyday. Price increases on other things, like lawn chairs, things already manufactured, will keep supply high, and thus “organically” solve the issues of price increase, while at the same time, (i dont buy the lawn chair I have more money) free up access to things that maybe more important and more expensive.
John’s got it covered really and he is way more funny, but I will say I dont think it’s just because of greed.
A few reasons:
– People are willing to pay more and businesses want to maximize profits. Also, better to reduce number of unhappy customers who can’t get what they want by allowing them to self-select. Maybe demand is for 50 TV’s at $500 and you’ll have 40 unhappy customers. Raise the price to $700, you sell the 10 you have and only turn away 5 unhappy customers, while the other 35 decided on their own to hold off upgrading their TV right now.
– While the store has inventory, they’ll have to pay more to buy replacement inventory. There may be a mix of older and newer inventory on the shelf, but you’re not going to mark 3 TVs from an older shipment lower than 7 newer ones if they’re all the same model.
– When shortages reduce number of units a store gets, they need to make more per unit to cover their fixed costs — whether a store has 10 TV’s to sell or 50 TV’s, the store’s rent, utilities, insurance, labor, etc. are the same. But when they have less inventory to sell, each unit has to cover more of those fixed costs.
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