Why prices go up during supply shortage


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”

In: 0

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.

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.

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.

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.