Showing posts with label supply and demand. Show all posts
Showing posts with label supply and demand. Show all posts
Wednesday, April 6, 2011
Monday, September 6, 2010
Wednesday, August 25, 2010
Wednesday, May 5, 2010
Boston's Water Shortage
THERE WASN’T much Martha Coakley could do about the massive pipe break that left dozens of Greater Boston towns without clean drinking water over the weekend. So she kept herself busy instead lecturing vendors not to increase the price of the bottled water that tens of thousands of consumers were suddenly in a frenzy to buy...
It never fails. No sooner does some calamity trigger an urgent need for basic resources than self-righteous voices are raised to denounce the amazingly efficient system that stimulates suppliers to speed those resources to the people who need them. That system is the free market’s price mechanism — the fluctuation of prices because of changes in supply and demand...
Letting prices rise freely isn’t the only possible response to a sudden shortage. Government rationing is an option, and so are price controls — assuming you don’t object to the inevitable corruption, long lines, and black market. Better by far to let prices rise and fall freely. That isn’t “gouging,’’ but plain good sense — and the best method yet devised for allocating goods and services among free men and women.
read the essay
It never fails. No sooner does some calamity trigger an urgent need for basic resources than self-righteous voices are raised to denounce the amazingly efficient system that stimulates suppliers to speed those resources to the people who need them. That system is the free market’s price mechanism — the fluctuation of prices because of changes in supply and demand...
Letting prices rise freely isn’t the only possible response to a sudden shortage. Government rationing is an option, and so are price controls — assuming you don’t object to the inevitable corruption, long lines, and black market. Better by far to let prices rise and fall freely. That isn’t “gouging,’’ but plain good sense — and the best method yet devised for allocating goods and services among free men and women.
read the essay
Sunday, June 21, 2009
Einstein Picture Sells for $74,000
An iconic photograph of Albert Einstein was sold by a New Hampshire auction company Friday for $74,324, making it the most expensive Einstein photograph ever sold at auction, according to the auctioneers.The photograph was taken in 1951 while Einstein was celebrating his birthday at Princeton University. Photographer Arthur Sasse tried to convince Einstein to pose with a smile for the photo, but Einstein instead stuck out his tongue, producing one of the most recognizable images of the irreverent physicist.
source
Thursday, March 26, 2009
Friday, September 12, 2008
Hurricanes, Gas Prices, and Sunk Costs
There is no rational reason why retail gas prices at the local pump should skyrocket before a hurricane or immediately after a natural disaster, since the retail gasoline at the pump was purchased in a previous period and at a lower wholesale cost. That retail gas prices do rise during such events is merely more evidence of price gouging and exploitation. Fiction.
Here is another common misconception about gasoline prices that desperately needs dispelling. As before, our good friends supply and demand may be able to help, along with an understanding of how expectations influence markets.
First, the supply-side component. As mentioned above, cost does not justify prices, and the retail price of gasoline is not determined by the price of wholesale gasoline at the time it was purchased and pumped into the tanks at the local gas station. Instead, the retail price of gasoline at the pump is based upon expected replacement costs relative to current demand. In technical terms, the cost of the wholesale gasoline already in the reservoir at the local pump is a "sunk cost" (literally and figuratively), while parting with it by selling it to retail gasoline consumers is an "opportunity cost." In economics and in business, opportunity costs matter more than sunk costs.
Gasoline companies, knowing that Gulf Coast hurricanes can destroy oil rigs, damage underwater pipelines, and disrupt oil refining capacity, will expect that a hurricane-induced oil and gasoline shortage will push up the wholesale cost of gasoline. Expecting an increase in the future price of gasoline, local gas stations will logically pass some of that anticipated increase on to current retail petrol consumers. And, the opportunity cost of selling that gasoline will be reflected in the demand and willingness to pay for it among competing buyers, along with the anticipated cost of replacing it with higher-priced wholesale supplies.
Think about it this way: If you are a homeowner looking to relocate, would you sell your current home for the exact amount of money you paid for it, plus repair and improvement expenses incurred during the time of ownership? If the cost of something in one market determines the price at which it is sold in another market, then yes, you would. But, that is not the case, as the example should make clear.
The price you paid for your home does not typically even enter into the resale price decision because it is a sunk cost; it is historical, in the past, based upon market conditions that were different at the time of purchase. The price you ask for it when you want to sell it is based upon new market conditions, new developments, changes in supply and demand in the housing market that have occurred since you purchased the home, meaning that you might sell the home for much more or for much less than you paid at the time you bought it.
The same goes for the petrol in the tanks at gas stations, and the analogy to home sales is appropriate even when we recognize that the time duration between the purchase and resale of a home is usually much longer than between the purchase and resale of gasoline. Market price is based upon the (opportunity) cost of replacing that wholesale gasoline, plus the changes in the demand conditions that have occurred since the wholesale gasoline was pumped into the retailer's tanks. If that opportunity cost is expected to rise, the retail price will rise immediately to reflect that expectation.
Additionally, there is a demand-side component that is even more important. It, too, is related to expectations. Consumers, knowing that Gulf Coast hurricanes can retard oil and gas production and restrict supplies by knocking out refining capacity, will also expect prices to rise. On the basis of these expectations, and even before a hurricane makes landfall, consumers will increase their demand for gasoline immediately, hoping to buy some gasoline and top off their tanks before prices rise.
However, when all consumers act in tandem based upon similar expectations of rising prices, overall market demand will increase. And, because the supply of gasoline at the retail pump is fixed, at least momentarily, the increase in market demand based upon expectations of a future price hike leads to a self-fulfilling prophecy: prices rise immediately, even before the hurricane has had a chance to damage the supply chain, simply because demanders are more intensely bidding for the scarce supply of petrol at the local gas pump. This rise in price is an unmitigated good from the perspective of the market as a whole. It is precisely this rise in price that forestalls or prevents a shortage of gasoline and forces consumers to economize on its consumption, ensuring that there is enough gasoline to go around.
So, there certainly are rational reasons why the price at the pump jumps immediately when some change occurs in the global oil and gas markets, and the laws of supply and demand do a good job of explaining this connection. Now, admittedly, we may not like this fact, and we may complain loudly about the higher gasoline prices that result. But, we should at least take some comfort in understanding why.
read the entire essay
Here is another common misconception about gasoline prices that desperately needs dispelling. As before, our good friends supply and demand may be able to help, along with an understanding of how expectations influence markets.
First, the supply-side component. As mentioned above, cost does not justify prices, and the retail price of gasoline is not determined by the price of wholesale gasoline at the time it was purchased and pumped into the tanks at the local gas station. Instead, the retail price of gasoline at the pump is based upon expected replacement costs relative to current demand. In technical terms, the cost of the wholesale gasoline already in the reservoir at the local pump is a "sunk cost" (literally and figuratively), while parting with it by selling it to retail gasoline consumers is an "opportunity cost." In economics and in business, opportunity costs matter more than sunk costs.
Gasoline companies, knowing that Gulf Coast hurricanes can destroy oil rigs, damage underwater pipelines, and disrupt oil refining capacity, will expect that a hurricane-induced oil and gasoline shortage will push up the wholesale cost of gasoline. Expecting an increase in the future price of gasoline, local gas stations will logically pass some of that anticipated increase on to current retail petrol consumers. And, the opportunity cost of selling that gasoline will be reflected in the demand and willingness to pay for it among competing buyers, along with the anticipated cost of replacing it with higher-priced wholesale supplies.
Think about it this way: If you are a homeowner looking to relocate, would you sell your current home for the exact amount of money you paid for it, plus repair and improvement expenses incurred during the time of ownership? If the cost of something in one market determines the price at which it is sold in another market, then yes, you would. But, that is not the case, as the example should make clear.
The price you paid for your home does not typically even enter into the resale price decision because it is a sunk cost; it is historical, in the past, based upon market conditions that were different at the time of purchase. The price you ask for it when you want to sell it is based upon new market conditions, new developments, changes in supply and demand in the housing market that have occurred since you purchased the home, meaning that you might sell the home for much more or for much less than you paid at the time you bought it.
The same goes for the petrol in the tanks at gas stations, and the analogy to home sales is appropriate even when we recognize that the time duration between the purchase and resale of a home is usually much longer than between the purchase and resale of gasoline. Market price is based upon the (opportunity) cost of replacing that wholesale gasoline, plus the changes in the demand conditions that have occurred since the wholesale gasoline was pumped into the retailer's tanks. If that opportunity cost is expected to rise, the retail price will rise immediately to reflect that expectation.
Additionally, there is a demand-side component that is even more important. It, too, is related to expectations. Consumers, knowing that Gulf Coast hurricanes can retard oil and gas production and restrict supplies by knocking out refining capacity, will also expect prices to rise. On the basis of these expectations, and even before a hurricane makes landfall, consumers will increase their demand for gasoline immediately, hoping to buy some gasoline and top off their tanks before prices rise.
However, when all consumers act in tandem based upon similar expectations of rising prices, overall market demand will increase. And, because the supply of gasoline at the retail pump is fixed, at least momentarily, the increase in market demand based upon expectations of a future price hike leads to a self-fulfilling prophecy: prices rise immediately, even before the hurricane has had a chance to damage the supply chain, simply because demanders are more intensely bidding for the scarce supply of petrol at the local gas pump. This rise in price is an unmitigated good from the perspective of the market as a whole. It is precisely this rise in price that forestalls or prevents a shortage of gasoline and forces consumers to economize on its consumption, ensuring that there is enough gasoline to go around.
So, there certainly are rational reasons why the price at the pump jumps immediately when some change occurs in the global oil and gas markets, and the laws of supply and demand do a good job of explaining this connection. Now, admittedly, we may not like this fact, and we may complain loudly about the higher gasoline prices that result. But, we should at least take some comfort in understanding why.
read the entire essay
Wednesday, May 28, 2008
Tuesday, May 20, 2008
Gas Insanity: Suing OPEC
The House of Representatives overwhelmingly approved legislation on Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude prices, but the White House threatened to veto the measure.The bill would subject OPEC oil producers, including Saudi Arabia, Iran and Venezuela, to the same antitrust laws that U.S. companies must follow.
The measure passed in a 324-84 vote, a big enough margin to override a presidential veto.
The legislation also creates a Justice Department task force to aggressively investigate gasoline price gouging and energy market manipulation.
"This bill guarantees that oil prices will reflect supply and demand economic rules, instead of wildly speculative and perhaps illegal activities," said Democratic Rep. Steve Kagen of Wisconsin, who sponsored the legislation.
The lawmaker said Americans "are at the mercy" of OPEC for how much they pay for gasoline, which this week hit a record average of $3.79 a gallon.
read the article
My Thoughts: I hope this is parody.
Monday, May 19, 2008
Friday, April 4, 2008
Wednesday, November 21, 2007
Cranberries Becoming More Expensive
A combination of poor weather conditions and rising demand for the tart red fruit from health-conscious consumers may lead to shortages by Christmas, industry and retail officials say. Canned sauce, bottled juice and dried cranberry snacks will be available, but prices are expected to rise in coming weeks and months...Thanks to new product innovations and efforts to promote the health benefits of the fruit by industry leader Ocean Spray Cranberries Inc. and others, cranberries no longer are relegated to a Thanksgiving side dish. They can now be found in more than 2,000 products from muffin mix to soap....
Cranberries prefer cold winters and plenty of rain. So last year's unusually warm winter and a summer drought in many parts of the U.S. and Canada hurt the crop now being harvested. Peter Beaton, who grows cranberries in Wareham, Mass., says his overall crop is down about 30% this year from a year ago because of the weather. But he expects higher prices to help offset the shortfall, resulting in a profit decline of only 10% to 15%...
Cranberry industry officials estimate this year's smaller yield is expected to bring growers $45 to $50 for a 100-pound barrel, up from $37 last year, and more than triple the $16 a barrel about seven years ago. Farmers generally need between $18 to $24 a barrel to break even...
Chris Phillips, a spokesman for the Lakeville, Mass.-based Ocean Spray, says the 800-member farming cooperative also plans to increase its prices on its cranberry products in 2008. He called the increases "modest" and declined to elaborate. With annual sales of $1.68 billion and a 70% market share, Ocean Spray is far and away the cranberry market leader, selling its products in many parts of Europe and in Asia. "We could be selling cranberries right now in countries like Turkey, Saudi Arabia and the Philippines, but we can't enter those markets just yet because of supply constraints," says Ocean Spray Chief Executive Randy C. Papadellis.
from the Wall Street Journal
Sunday, September 2, 2007
Gas Prices are Controlled by Supply and Demand
The horror. The horror.
Big Oil did not manipulate U.S. gasoline prices: FTC
for further reading: Gas Prices and Price Controls
for further (advanced) reading: The Use of Knowledge in Society by F.A. Hayek
Big Oil did not manipulate U.S. gasoline prices: FTC
WASHINGTON (Reuters) - Big oil companies did not conspire to raise
The Federal Trade Commission said that about 75 percent of the rise in gasoline prices was due to a seasonal increase in summer driving, higher oil costs and more expensive ethanol that was blended into gasoline. (Demand)
The other 25 percent of the price increase stemmed from lower gasoline production as refiners moved to using ethanol as the main clean-burning fuel additive and lingering damage from hurricanes Katrina and Rita that reduced refining capacity. (Supply)
"Our targeted examination of major refinery outages revealed no evidence that refiners conspired to restrict supply or otherwise violated antitrust laws," the FTC said. "We therefore conclude that further investigation of the nationwide 2006 gasoline price spike is not warranted at this time."
Many lawmakers at the time had accused oil companies, which were raking in billions of dollars in record profits, of overcharging
The FTC said its investigation found the increases in motor fuel prices "were caused by a confluence of factors reflecting the normal operation of the market."
Supply and Demand
The law of supply and the law of demand are simple, fundamental, and basic principles that serve as the cornerstones of economics. Yet, the politicians, bureaucrats, and various other economic illiterates can’t seem to comprehend them.
Central Planning can't work and will never work. The U.S. Congress will certainly be among the last groups of people to ever recognize this fact.
for further reading: Gas Prices and Price Controls
for further (advanced) reading: The Use of Knowledge in Society by F.A. Hayek
Thursday, July 12, 2007
Supply and Demand: New York City Parking
"Spaces are in such demand that there are waiting lists of buyers. Eight people are hoping for the chance to buy one of five private parking spaces for $225,000 in the basement of 246 West 17th Street, a 34-unit condo development scheduled for completion next January....
Although spaces in prime sections of Manhattan are the most expensive, even those in open lots and in garages in Brooklyn, Queens, Riverdale and Harlem are close to $50,000, although at least one new Brooklyn development is asking $125,000...
According to Miller Samuel, the average parking space costs $165,019, or $1,100 per square foot, close to the average apartment price of $1,107 per square foot."
entire article
Although spaces in prime sections of Manhattan are the most expensive, even those in open lots and in garages in Brooklyn, Queens, Riverdale and Harlem are close to $50,000, although at least one new Brooklyn development is asking $125,000...
According to Miller Samuel, the average parking space costs $165,019, or $1,100 per square foot, close to the average apartment price of $1,107 per square foot."
entire article
Tuesday, July 3, 2007
Supply and Demand: Machetes
“The price of machetes has halved in parts of
”Machetes are primarily used as a tool for farming in
”European election monitors estimated that at least 200 people were killed in politically motivated violence during months of campaigning ahead of the April polls."
Price of machetes drops in Nigeria after elections
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