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Student Thought Forum: Unit II topics
Instructions: This is a place for you to express you opinions and idea about topics from class. In the space below, write freely about the issues we are learning in the current unit. Begin your entries with: "(Your name) says:"
Choose one of the categories in red below and read and contribute to the discussion, OR create a new category of a topic that interests you.
Exceptions to the Law of Demand:
Helen says: Okay so I have a question for you guys, can you think of any product that defies the law of demand? Like all the determinants of demand stay constant, is there a product that people will buy even more of if the price goes up? I guess the real estate and stock markets kind of work like that, but are there better examples?
Julie says: a thought on helens question: when a person has a low income and not much ability to purchase quality goods, they will buy things that are just about as much they could afford, however the goods they purchase at that lower price might not exactly be the satisfying product.when a person's income or financial status rises, they start to seek for better alternatives that are now in their price range, therefore better and more expensive products that can now satisfy their wants; they can now purchase normal goods, at a higher price that they would before.
Tim says: referring to Helen's comment, I'm not sure that stock markets and real estates are good examples of what you are trying to describe. My understanding is that as the prices increase on a stock or real estate, people will be more likely to sell that stock or real estate, not buy more. I guess some people may want to buy more if they are expecting a continued rise in the stock or real estate but thats not really a good example. Personally, i cant think of anything that defies that law.
Mr. Welker says:Tim, in response to your comment (and Helen's): You're right on one hand about stocks, as prices go up people want to sell their stocks, but what does that say? It also says that someone is willing to buy those stocks as prices are rising! So then Tim says people will want to buy more if they expect the future price to continue to rise. See, now we no longer have ceteris paribus. The same is true for real estate. The only reason rational people buy more real estate when prices are going up is because theyexpectprices to keep going up! Expectations of future prices is a determinant of Demand! Okay guys, I'll help answer Helen's VERY good question. Just click here to read about goods that DO defy the law of demand! VEBLEN GOODS and GIFFEN GOODS p.s you do NOT have to know these for your AP Econ exams!!
Kevin Yeh says: In terms of veblen goods, I don't understand the rationale of people for buying things for their price value's sake. I mean I'm sure some people are like connoiseurs of some weird random object and want to flaunt how much they paid for it but it still doesn't make sense to me. Even if i wanted something valuable i wouldn't demand it more just because it cost more.
Alex Goldman says: I'm not sure if this is an example of a Giffen Good, but it could hypothetically defy the law of demand. Imagine if there was a good that was distinctly identified with the poor. People in the upper and middle class would be reluctant to buy it because of the connotative value it holds. If the price of the good was to increase so that it would lose its status as an extremely inferior good (good advertising would also help), the quantity demanded would increase because people of higher socioeconomic status would be willing to buy it. This example is assuming that the middle class is larger than the lower class, and that the price increase wouldn't cause too great a loss of its old customers. And yes, I realize I am pushing it.
Mond says:I believe people purchase veblen goods for it is a representation of their status in society. These goods are not nesscary for any functions, but it is highly desired. For example, people like Donald Trump, would invest millions in a single boat. This boat helps to build his personal image; a weathly businessman. These people like to stand out from the crowd and they have thefinancial support to do so.
Serena:
I just read an article about the supply and demand for illegal goods, and what i find interesting is that most of time illegal goods are really expensive, I guess it because alot of people want them but there's not enough supply. I was thinking that what if the government didn't make some of those goods illegal, will those goods still have a high demand and short supply? Many when there's plenty of supply for some certain goods, then the demand will drop and thus the price will decrease also?
Julie Says: hi serena i also read that article and felt the same, i think that if the government did not make those goods illegal theywouldnt be so expensive, and i think that it will have less a high demand, but less shortage of supply? im not sure.
Kevin says: In response to what Mond said, I don't think that people buy veblen goods because it is highly desired, I think they buy them because they might be as what Kevin Yeh says, connoiseurs or something like that. I think Mond is right when he says that people buy it for personal image because people like attracting other people to what they have and if they have something that is very expensive, they'll get more attention.
Christina Hu says: I don't think there are any solid exceptions to the Law of Demand... hence the name, Law of Demand.
Elaine says: Well, I don't mean to argue semantics...but I will anyways. Paraphrasing Socrates, the things we desire are the things that we lack and we desire things that are good, and the reason we desire good things is because they will make us happy - and happiness is the greatest pursuit. If that's the case, Kevin, people would buy veblen goods because of their high desirability - that is, they're desirable in that they boost a person's image because of their high cost and instant recognition as an indicator of wealth, and in doing so, these products make the people happy (or at least that's what they think...)
The Morality of Markets:
Alice says: Okay, so I have a new question. In class and in our econ books, we keep learning about how the government shouldn't enforce price floors and price ceilings because then supply and demand aren't set at the equilibrium price and it results in deadweight loss to society. However, isn't it true that sometimes the morally RIGHT thing to do is for the government to employ price floors/ceilings? For example in some countries like china, there is a huge gap between the economically developed minority and the poverty-stricken masses. It may be true that the highest efficiency would come from an equilibrium price at which the city people are willing and able to purchase goods and services because they have the money and incentive from their lifestyle to do so; however what about the rest of the people who simply can't afford to pay this?should we sacrifice our moral consciences and let them flounder in poverty and need just for the sake of developing a more efficient economy?
Angel says: Referring to Alice's concern on the morality of economy, I don't think you should mix morality with a study like economy because economy is ONLY about achieving maximum benefit at the equilibrium point; morality is not a determinant in any situation. Similarly, if we are studying something on govenrment resonsibility/role, it would probably tell us that it's the government's responsibility to protect its people and ensure all goods are affordable to the general citizen. Then a price ceiling or floor is considered a necessary. In reality, governments do pose price floors for farmers and price ceilings to ensure a good's affordability, butin the view of economy, achieving the equilibrium price is the goal. That's why in reality there are critics against government interference but protest groups lobbying for legal protection. Combination of morality, principles, and reality make our society. I don't think there are many goods/services that are at its equilibrium, but they are certainly at a price where consumers and suppliers both profit but doesn't burden the society. When price gets out of control government will step in and place either a ceiling or floor, and withdraw restriction when situation is eased. Our textbook is strictly talking about how a pure economist would react to maximize profit.
Katherine says: I agree that economics should have very much to do with the study of economics, if one were to consider morality as well, then it could become very complicated. Businesses and governments can't always consider the entire population, only the majority. you try to please everyone, you'd end up pleasing no one.
About the equilibrium point of a product, I was wondering why sometimes it's too high for some consumers or too low for some firms, because isn't the equilibrium point the most efficient point for a market? So why is it that governments sometimes have to set price floors and price ceilings?
Mr. Welker says: Wow, great conversation guys! Excellent questions and views being shared here! I think I want to address Alice's question here. "isn't it true that sometimes the morally RIGHT thing to do is for the government to employ price floors/ceilings?"Great question Alice. Here's my view: Achieving a lower market price to help low income consumers can be achieved without such authoritarian controls such as price ceilings like in the case of Mugabe and Zimbabwe. Perhaps another option is for the government to subsidize the producers of goods it wants to provide greater access to. Remember, a subsidy is a determinant of Supply, so it should shift the supply curve out and lower themarket price of the good, allowing for equilibrium to emerge at a greater quantity and a lower price. This is amarket based approachto correcting amarket failure,which in this case is an underallocation of resources to a particular desirable good or service.
I also think your discussion about the morals of markets is a very interesting one. I'd be interested to hear what others have to say about this. I found Katherine's statement compelling: "Businesses and governments can't always consider the entire population, only the majority. you try to please everyone, you'd end up pleasing no one."This is an interesting statement, what do others think about the morality of markets? Are the fundamentally immoral, since they're driven by the self-interests of businesses and individuals? Should it be the government's job to make markets more moral or good in some way?
Kevin Chiu says:
The morality of the market, in my opinion, should be geared towards serving the general public because, as Katherine states, you cannot please everyone. For instance, in the era of the Great Depression, President Franklin Delano Roosevelt had to implement legislatures that would only benefit the vast majority of the public that was suffering, in other words the white-Americans, because if he attempted to please every single individual in the U.S., the Southern-Congressmen would have felt displeasure, as the already limited supply would be used to also help blacks, therefore disapprove of FDR's legislations and end up helping no one. I think that is a prime, but extreme, example from history of why I think the government should be aiming to achieve satisfaction from the vast public, rather than every person.
Yun Qi Mok says:
If the government were to make markets more moral or good and beneficial to "everyone," then the communist system should be perfect since everyone is equal and receives equal amounts of everything. If that were the case, Orwell's Animal Farm and other satires wouldn't make fun of such a system so much. People are fundamentally selfish and concerned only with the progress of oneself. These two undesirable qualities are turned desirable in a harmonized society and economy. It is BECAUSE everyone wants to advance themselves that there is progress; if everyone improves, then society as a whole improves. The government's moral duty is not to manipulate the economy and the markets to fit the less fortune, but instead help them through other means such as provided free education so that they can better their own lives. Humanism and individualism guys, learn from Erasmus (?) and help the people to help the economy.
Calvin Lu: Well my thought is, if you think that setting price ceiling is moral, try standing on the point of view of a firm. When a price ceiling is established and is lower than the money the firms spend on their input, they will be force to stop their production since it is losing money, and thus there will be a shortage on the market. So what if the price is cheaper? There wouldn't be enough good for the consumers. And if this is a necessity like food, people will suffer even more. Moreover, some company may be force to shut down as they cannot survive with such low price, causing people to lose jobs. Is this moral?
Kai Lin Fu: I agree with Calvin. Setting a price floor or ceiling will cause either the producers or consumers problems, they won't do any good. Alice you forget, even though it may seem like setting a price ceiling is the morally right thing to do, in reality it's just the opposite. Say a price ceiling is placed on the price of meat. With a lower price producers will supply at a lower quantity however, the consumers, such as the "poverty-stricken masses", will demand a larger quantity, thus a shortage is created. Only the lucky ones who are able to purchase first will obtain it. Well then what will happen to the other poor people? They starve. Now do you think that allowing thousands of people to starve to death is moral?
Christina Hu says: I think making morally sound decisions in economic cases is close to impossible. The government will have to consider what they see as morally right, and who their decisions are going to favor: producers, consumers, peasent, merchants, teens, children, adults, disabled people, etc. There are just so many factors involved, you can't consider one particular group's predicament when making economic decisions. Governments can, at best, consider the needs of the majority of their citizens. For example, if price ceilings were employed in China to help the poverty-stricken masses, imagine what would happen to the producers who fell victim to the ceiling. Pretty soon, they themselves would fall into poverty, and, according to the Law of Supply, they would produce less goods, which would harm society as a whole. Even though the goods are more affordable, there is much less to go around. Price ceilings and floors are not the only way to "help" those in poverty; to solve the problem without throwing the economy into disequilibrium, governments could provide subsidies and reduce taxes, or allow more imports or certain staple products.
Howard says: Totally Moral is hard to be seen on a market, because people always have to earn money right? Although, as the economists say that it's a win win situation of a trade, I still think that some people are loosing. Many things are immoral in the market. For example the advertisements. They make the product looks really high class and long lasting, to trick the consumers into buying it, but in real life, it might just break in the next second. I think Price ceilings and Price floor are necessary because it makes people better off, doesn't matter the consumer or producer.
Robert Wang says: Regarding this question of morality vs. market efficiency, I think it's just one of those issues where you have to strive to find the balance. If you base all your decisions on morals, yes, you'll have a state of happy people, but eventually, your economy will plummet, which will ultimately make everyone unhappy. If you base all decisions to go towards optimum market efficiency, the government will eventually find themselves with a lot more enemies than supporters. Additionally, price ceilings and price floors are not the only methods in which a government can take to help those in need. Instead of implementing a price ceiling/floor, the government can offer free medical care or medical care at a lower price. Stuff like that. The one downside is that if a government is offering anything for free, more likely than not, the government will raise the taxes, in which that burden will be placed on the wealthy, making them unhappy. When it comes down to it, it's all in the balance between the two. Governments that are able to find that balance will do well. =)
Dana Yeon says: The irony lies in the fact that even if governments tried to enforce rules that would supposedly reduce inequality between the rich and the poor, it would fail to work as proven time and again in history via the downfall of idealistic principles such as that of socialism andcommunism. In the end, the "invisible hand" always sorted out the allocative and productive efficiencies. Furthermore, not only is bridging the gap between the rich and the poor an infeasible goal to accomplish, one should always keep in mind that equilibrium prices and equilibrium quantities do not just arise as mere coincedences. Equilibrium prices and quantities are set values after much fluctuation and waverings that indicate where the most efficient economy can take place. Thus, I disagree with one's perspective that the society is sacrificingour moral consciences in order to achieve economic efficiency. Finally, economy is not designed to make everyone happy; like all things on earth, there are both positive and negative aspects in economy as well.
Cassy says:
It's not moral to buy fake DVDs...but we all do it, because it's cheaper than real versions, and there is little the DVD industry can do, other than lowering its price to match...so would fake DVDs be considered a substitute to real, copyrighted DVDs?
Elaine says:
Fake DVDs? Morality? Whaa? For me, personally, fake DVDs are considered a substitute because, yes, they're cheaper and usually an okay quality. But then it seems that on some level, DVDs can also be thought of as a Veblen good, of sorts. Let me elaborate. Some people will only buy real Gucci or insert brand name here bags because of their exclusitivity and their perceived value as a status-booster. Along the same lines, I would think that some people would only buy real DVDs because: 1. it shows they can afford it, 2. they want to support the actual movie industry. A person like me, without moral scruples, would definitely consider fake DVDs a substitute good, however.
Exceptions to the Law of Diminishing Utility
Charlie Gao says: Aite nubs, I was just wondering, is money an exception to this "Law of Diminishing Utility"? I mean, as people get more and more money, each additional dollar doesn't lose it's utility; in fact, the consumer satisfaction increases for each additional dollar. However, is this Law of Diminishing Utility only pertaining to products or can it be more?
Kevin: Of course it applies to more, pretty much all economic laws pertain to products and services and this is one of them. If you had 5 massages in a row, each one would get less satisfying, right? Thats an example of law of diminishing Utility in something other than products.
Kevin Ma says: Hey Gao, "Law of Diminishing Utility" means as a consumer increases consumption of a GOOD or SERVICE, the marginal utility obtained from each additional unit of the good or service decreases. So i don't think money has to do with law, it is goods and services. And to answer your second question, the Law of Diminishing Utility also pertains to services.
Nicole Wong says: Actually, although Kevin is right in that the law refers to goods and services, I think Charlie has a point there. A dollar to Bill Gates probably isn't worth as much as it would to an unfortunate family in Ethiopia. The satisfaction he gets from each additional dollar (despite what he says) probably decreased as he got richer, as he already has a huge foundation of money to keep him satisfied.
Timothy Sun says: Expanding on Nicole's point, if we look back on one of the first things we learned in this class, scarcer anything has greater value. For example, when the Confederates issued paper money, it had little value as there was so much of it printed; the Union's specie was of greater value. Also, think about the mathematics behind why this is true. Each additional dollar for a rich person creates a smaller percent change, while for a poorer person, it has a larger percent change in income.
Kristie Chung says: I agree with all of you that even though money may not fall under the law of diminishing utility because this law pertains to goods and services, the satisfaction gained from money differs between people. A person with a lot of money would probably not gain much satisfaction from just one additional dollar, but for a poorer person, each dollar would give him greater satisfaction than it would give a rich person.
Jeewon Oh says: I agree that the satisfaction gained from each additional dollar is different for rich and poor people. However, as Kevin said, we learned that the law of diminishing marginal utility applies when satisfaction declines as a consumer acquires additional units of a given product. Also, who wouldn't (even Bill Gates) want an additional dollar? We assume that the consumer is a rational person who wants to maximize their total utility. If a person has more money, there would be less budget constraint, which would allow him or her to choose a good that satisfies them more. When you buy an ice cream, the first scoop tastes good, yet you wouldn't want four scoops, because you would rather spend additional dollars on products that provide more utility, not less. Money is different though, since an additional dollar provides more or equal utility.
Jack Lo says: Money would not be an exception to the law of diminishing marginal utility. When you have more money, the value of the one unit of currency isn't worth as much. If you only had one dollar, then that one dollar would mean a lot to you. But suppose you're very wealthy like Bill Gates (or Richard Tu), then the extra one dollar doesn't have a very great value to you. However, since money is simply a means of exchange, there will never be a negative utility for money. In a rational world, people will never PAY you to have more money. So as Jeewon said, an additional unit of money yields more or equal ultility.
James Tsao says: Other than money, I think a product that is an exception to the law of diminishing marginal utility would be drugs. Due to its addictive nature, you will still get the same amount of marginal utility for each additional amount of it. In fact,drugs might even have an increasing marginal utility attached to them because as you get more addicted to the drug, you want it even more and thus will acquire a greater marginal utility with the additional unit of it. Normally, you are willing to buy more scoops of icecream only when its at a lower price. Drug addicts, on the other hand, can pay MORE for additional units of drugs even if they already consumed a large amount of them.
Jacques Zhang says: In terms of money, it really depends on how you look at it. As many of you mentioned, one extra dollar to Bill Gates doesn't really matter, because he's got so many of them. To us, it may mean a lot more to earn 10 kuai to buy something you really want. It is true that the more money you have, the utility each individual dollar provodies you is diminished. However, this is solely based on YOUR utility for that money. If you look at money through ANYONE'S view, determining the utility of a dollar really comes down to how much the money is worth and how much utility it provides IN THE MARKET, regardless of the utility the dollar has for you. So in a sense, the utility of money really depends on how you look at it.
Drew Venkatraman says: No good is an exception to the law of dimishing marginal utility. Even free goods have a price, which is time. I, for example cannot go and get a massage right now becaue its not practical because I must do my wiki and study for my test. Even if the massage is free I pay a price in failing my wiki assignment, meaning every free good can eventually lose its "happiness." Even money applies to this rule because although you get excess happiness for each dollar put into the bank, there is a decreasing rate. You just dont feel the decresasing rate until you have millions in the bank.
Jonathan Lau says: Yea, I agree with all of you. Techinically, money isn't considered in the law of diminishing utility as it only pertains to goods and services, but the utility/satisfacation gained from money differs between people. People with less money in their bank accounts will probably feel a greater satisfaction from an additional dollar than someone whose bank account is stacked with money. But then again, a wealthy person who has earned his or her own income through hardwork might value each dollar he has in his bank account.
Tae Rim Kim says: To Charlie's question, yes, i guess in some way the money could be considered a 'utility', but is not considered into the Law of Diminishing Utility as Kevin pointed out. Now that i think of it, there is no 'marginal utility' or 'total utility' for money, is there? For example you have a bulk of money in your bank, considered as your total utility. Then, as you add more and more money in, your utility (happiness) would diminish? I know, as everyone else has mentioned, that different amounts of money means different things to different people (rich and poor), but their happiness would not exactly reduce because of extra money.
Producers and Prices in Different Parts of the World
Emily Yeh says: So I understand the whole, the greater the price, the lower the demand. But how come producers charge such different prices in Europe for luxury goods such as LV and Prada and in Asia? Like for instance, in Paris, the LV store was practically like your average traditional market except where a lot of well dressed people are clamoring around running for those bags, whereas in Japan, you walk into the store and it's this solemn rich place, but the demand doesn't seem to be much lower in Asia, where the bags may be like 5 times the price it would be in Europe. The numbers of shops keep increasing because the market demands it.
Jessica Ng says: Well, I think producers charge higher prices in Asia because these products are made in Europe. Products produced domestically do not require fees from shipping, nor tax. That's why buying American candy in Shanghai is so much more expensive than buying it in America. As the example LV and Prada are made in Europe in general, they are cheaper there. I remember reading an article about the opening of a Burberry producing factory in China. This will drastically decrease the price of Burberry bags in China as there will no longer be the need for shipping fees, and the labor costs are also less than those in Europe. However, referring to the point about even the greater the price, the lower the demand, my explanation would be that perhaps these consumers in Asia are not the typical rational consumers. Perhaps their utility of consuming these goods are huge enough to make it a worthwhile purchase for these consumers.
Chan Min says:I think when we talk about the greater the price, the lower the demand, it has to be within the country and not world wide. If those brands raised their prices here in Asia, then the demand surely will drop. If in Europe, they raised the prices of those brands, demand for them will drop too. As Jessica mentioned, the shipping and the tax, etc i think plays a big role in this. A price of a BMW in Korea is like twice the price of BMW's in China, but people still buy them. Consumers probably know that in order to purchase this certain good, producers wont just charge higher for no reason but charge higher prices because the outputs are also great.
Kathie lee: yay don't we love this industry. Yes, it is true that the products from these certain luxury brands are more expensive here in Asia as opposed to the United States because of shipping and import duty. The price difference varies depending on each specific product. However, I do not believe that if the prices of these brands increased, the demand and desire for these products will decrease. Isn't that the beauty of this industry? The target audience for these brands are for the ridiculously wealthy. They will purchase them anyway in order to feel superior and label a certain status on themselves. A dollar to them is nothing compared to a dollar to a less fortunate.
But brands that are less common in the country, the prices will rise. And the demand for it probably wouldn't change.
Well as a last resort, there is always duty free at airports.
Jo Lo says: I agree with all three of you about why products are so much expensive here in China than where they are originally from. This is why many producers in Asia, especially here in China make fake products. This benefits the consumers because they won't have to pay as much for usually a product of just as good quality, at least from the outside. The sellers are benefited because consumers are drawn to the cheapness of the fake product and so will cease buying the real thing which is many times more expensive. That's why it's kind of nice to live in China right now because so many things are still made fake and easily accessible before the government seriously cracks down on the counterfeit goods. Probably the product that most of us teenagers buy are the fake DVDs, which can be bought at the equivalent of $1, but is $25-$30 back in the US. The only downside would be the US customs are now cofiscating and fining anybody with fake DVDs, which would make bringing them back very difficult, which is why people are now leaving them behind. In other countries I don't think this is much of an issue, but probably in the future, especially if trade becomes an issue.
Karen says: Although it's possibly true that those brands are so expensive here in Asia due to import taxes and shipping fees, but I think it's mostly just because it's the brand name. Everyone wants to look good with a LV bag or Prada jacket so they're willing to pay such high prices. The utility they gain from the admiring glances from people on the streets undoubtedly surpasses the cost of buying such expensive products, or else they wouldn't have bought it in the first place. However, there are people that are more attracted to the fake products, as Jo Lo stated. They may feel that the cost of a Gucci bag does not outweigh the benefit but they still really want a "brand" bag so they think buying a fake Adidas shirt is worth the money.
Hansen says: With so many fake products here, is the utility of buying a genuine brand-name bag really that high? I can't tell the difference between a fake and a real one...which might lead me to believe that maybe most of what I see may actually be fake. As for why prices are so high: I think it has a lot to do with government choices to tax imports and subsidize domestic industries. Although China has a comparative advantage over many other countries in producing things like bags and textiles, other countries don't enjoy this benefit. Thus, they need taxes and subsidies to protect their own domestic markets.
Jenny says: First of all, I find this topic very interesting to discuss. Just like what everyone mentioned, the different prices of the luxury items in different parts of the world is due to many factors, including brand name, shipping and producing fees. Also, I think a country's level of income also affects the difference in the price. Countries in Europe have greater per capita income than the people in China, thus only limited number of people can afford luxury goods in China whereas in Europe, more people can afford. To emphasize that brands such as Gucci, LV, and Prada are for the rich people who can afford them in China, and that they are special, and rare, prices are higher than what they are in Europe than in China.
Rebecca says: I agree with Karen. It's all about the brand name. There will always be people who are willing to buy those highly priced brand items in any country; maybe because they don't have the time to go to the places that manufacture Gucci, Prada, LV, etc. Some people find that the price that they pay in their country for the Prada bag and the immediate admiring glances that they recieve gives them more satisfaction than having to pay to fly to the particular country that produces the bags (which is quite a lot of money), buy the bag there for a cheaper price, and use more time to fly back to their own country. Time is scarce too. I feel that admiration for the designer bags is decreasing though in places where fakes are widely available like in China; even the real ones are sometimes viewed as fake.
Soyeon says: Well, I should say that people who buy those goods are LIMITED. Since they are luxury items, and are incredibly expensive, only the rich people will continue to buy them. In other words, the money spent on LV or Gucci or Prada occupies little proportion of their incomes, making them willing and able to pay for another one. Therefore, the size of the market is not very flexible, so the demand and the supply will not vary easily, making the product inelastic. In addition, the prices of those goods are high, but they are not changing largely. The people who buy them are usually "addicted" to brand goods, so they are willing to pay for those expensive brand goods they want.
Jessica C. says: I agree with what everyone said. Brands such as Gucci and Prada are more expensive in Asia because of taxes and shipping. Also, Asians might be more willing to pay for the bags at a higher price because in Asia, Gucci and Prada are the topmost, expensive bags. Because they are European brands, they are considered "superior" and only "high-class" people can afford them, whereas in Europe, it is more common. Also, in Europe, bags, plates, paintings with Chinese designs are MUCH more expensive than bags with Chinese designs when you buy them in China. So, perhaps items are more expensive in countries or areas where they are considered superior, rare, or exotic.
I was in Europe this summer, and EVERYTHING was expensive. For example, a bottle of water cost about 1 euro, which is around 10 kuai. How can the same item cost so much more in one country than another? Is it because people in Europe just generally have a larger income? Or are there other reasons?
Conrad Liu says: Jessica, regarding your question as to why Europe labels the same items China has at a higher price, I think it's because like you said, the prices and costs are meant to fit for society's economic status. Since many citizens all over Europe have a decent income rate,producers specifically target members in Europe, the society of Europe. Again, many Europeans are probably better off than other Chinese residents, and so, you have your price difference. Additionally, I think such "expensive" brands in China such as Gucci and Prada are nevertheless not as expensive in Europe because they were originally made there. Import and export costs will obviously also play a role in that, and yeah, I suppose good considered superior or rare will also affect the outcome of the price of a product.
Trevor Sun says: I agree with everything thats been said. The tastes and preferences in different countries are somewhat expected to be different which is why people in Europe are willing to pay so much for a bag. But are all bags actually imported from Europe? The price difference could also be due to the producers. It is probably cheaper to produce a good here in China as compared to if the same product was produced in Europe. Therefore, the good could be sold for less here but still be able to make a profit.
Sharon Li says: I agree that the price differences of European luxury brands between Europe and China do relate to consumers' preferences and proportion of income. Only a small portion of the Chinese population can afford these luxury items and since they are valued more as a rare luxury in China, then consumers would be willing to pay a higher price. Could this also have to do with China's recent economic explosion? With more foreigners flying into China and the expanding expat population, maybe this would have some sort of effect.
Taka Ono says: Hey Sharon I'm not too sure about that one comment you said how Chinese consumers will be willing to pay a higher price due to the fact that it is considered a luxury item. It really depends on the consumer and their willingness to spend a certain amount of money on a particular product. Some will buy it for they will be willing to pay a higher price, some will not even buy it at all. Going back to the actual topic, one of the many reasons why certain products cost more could be due to imports. Imported goods cost more than domestic goods for the obvious reasons of tax and the costs of that particular good being transferred over seas. Another reason will be what everyone was talking about earlier, markets are divided into regions or sections where consumer's incomes vary. Europe being far more developed than China may have a higher average income thus markets over there can charge a higher price without affecting demand as much (elasticity). Talking about famous brand names, imagine what fake goods could do to the market hmm.... Any thoughts?
Judy Chen: I agree with what Jessica said that producers charge higher prices in Asia, because these products are made in Europe. So there are extra fee such as shipping. Plus, most of every products are all made in China now, so it sounds like there's better quanlity if they are made in Europe. I think LV, and Prada are like the top brands in the world, so rich Asians are willing to buy them to show they are rich. And it's only the small proportion of their income, so maybe buying those brands are same as buying the necessaries
Claire Moon: Well, already a lot of opinions about this question came out, but not many people disagreed with the higher price in Asia. I also will not argue with this, but I'll say this is more about the scarce resource I guess, meaning that since the expensive brands such as LV, and Pradas are from the European countries, the Asian countries would think it as a more exotic and hard to get product, so therefore they would tend to buy more. However, in the European countries, since the products are made from their own hometown, they wouldn't think it as a really superior good and would tend to buy less.
Annie Sung says: I agree that expensive designer brands are more expensive in Asia due to their high demand as a sign of status. And of course, there are import taxes to be considered. However, this demand is caused by the need to feel superior to other people around them. Since more of these luxury brands are not based in Asia, and often times made in European countries like Italy (Prada), supply would be limited in Asia, and not all designs will be available. Also, the European and N. American population is generally more well-off than the average Chinese; thus, there is less quantity demanded, because only a select few, the elite, will be able to afford these European imports. With less quantity demanded than Europe, and less suppliers in Asia in comparison with Europe, I suppose the price would naturally rise.
Jennifer Choi says: Once I read this article comparing the prices of goods between Korea and Japan. It said, about twenty years ago a lot of Japanese people used to come to visit Korea to buy the products they want at much lower price that they would in Japan. But this article said, Korean people were traveling to Japan to buy brand goods like Gucci and Burberry because they could buy what they want for up to $480 cheaper in Japan than in Korea. I think this is due to a recent inflation in Korea.
Allocative Efficiency
Angel says: In class we always talk about the equilibrium. We learned that it is the point where demand and supply intercept, and it represents allocative efficiencny; furthermore, it shows consumer and producer surpluses. But is there any good in this world that is in equilibrium? Most goods/services are taxed or under government regulation, such as pork in China and corn in the US. So a good/service in equilibrium, if it exists, will be something that is not taxed and highly competitive...?
Andy Xu says: Hi all. Constant changes of supply and demand in the real world market means that the price is always changing and trying to adjust to equilibrium, but does not stabilizes at that price. What we learned in class about price equilibrium is only an economic model to help us understand the mechanism of the market. So prices are almost never at the equilibrium of supply and demand.
Regarding to taxes and subsidies, firms usually account theses into the cost of production, directing influencing the supply curve.
Michael Chow says: I agree with Andy's point on the "constant changes of supply and demand in the real world market". Because goods and services need to constantly be adapted to the changes in price the equilibrium of an item is frequently changing. And on the point of a good or service within equilibrium (where demand and supply intercept) is extremely hard to determine because of the "Price Elasticity of Demand" in which the responsiveness of consumers change in price. Since prices are always shifting higher or lower, the sensitivity of the consumers in demanding the good will change as well. One of the closest examples to equilibrium would have to be if a product is unit elastic.
Margaret Liu says: ohh good points. But do the prices really shift that much? Part of me thinks big companies keep their prices until they absolutely MUST change them because they usually have a whole hoard of loyal customers that don't really recheck the price of other, say toilet paper brands before they buy what they always buy, Charmin. And we know that grocery stores don't go around changing the prices of this and that everyday to match what the equilibrium has become....So is there a threshold for each product for a price change? Like, how much does the equilibrium need to fluctuate before the price of that product or service is changed?
Mina Song says : Margaret, I am not sure but I think the price change is depend on the producer, if a producer is producing many products with low price to sell more, than when the price of the resources increase, than the producer must increase the price of the product unless the producer won't have any profit. and I also think that even though there's small change in the price it could fluctuate the equilibrium. becuase there's some change on the graph. May be this is just answer from the theory ^^
Michael Daily says: The obvious ultimate goal of suppliers and producers is to maximize their total revenue. This means that the amount of money they gain from the goods or services they sell exceeds by the amount those goods or services cost by the greatest possible amount. This is what gives the market its efficiency- producers are producing goods in the least-cost method. Since price and amount sold are the two things that effect total revenue, suppliers want to find the perfect balance between the two to optimally allocate society's resource. This point is when marginal benefits equal marginal costs and where the supply and demand curves intersect on a graph. The equilibrium quantity, is thus crucial in determining a market's efficiency.
Richard Tu says: I agree that price ceilings and price floors do nothing but destroy the efficiency of a market. However, I do believe that if the government does not interfere with the market and place a ceiling on a product whose price is rising, then the general public would not be very happy and I guarantee you that the government would not stay for a long time. But then, if they do place a price ceiling on some product such as pork in China, then it would result in a shortage of pork, since firms are now less willing to produce pork to be sold at a lower price.
Caleb Liao: What messed me up the most in doing the work in class was learning that Marginal Utility like doesnt just keep going down. It can go up and then down and then back up.
Cassy says:
It's not moral to buy fake DVDs...but we all do it, because it's cheaper than real versions, and there is little the DVD industry can do, other than lowering its price to match...so would fake DVDs be considered a substitute to real, copyrighted DVDs?
Elaine says:
Fake DVDs? Morality? Whaa? For me, personally, fake DVDs are considered a substitute because, yes, they're cheaper and usually an okay quality. But then it seems that on some level, DVDs can also be thought of as a Veblen good, of sorts. Let me elaborate. Some people will only buy real Gucci or insert brand name here bags because of their exclusitivity and their perceived value as a status-booster. Along the same lines, I would think that some people would only buy real DVDs because: 1. it shows they can afford it, 2. they want to support the actual movie industry. A person like me, without moral scruples, would definitely consider fake DVDs a substitute good, however.
Exceptions to the Law of Diminishing Utility
Charlie Gao says: Aite nubs, I was just wondering, is money an exception to this "Law of Diminishing Utility"? I mean, as people get more and more money, each additional dollar doesn't lose it's utility; in fact, the consumer satisfaction increases for each additional dollar. However, is this Law of Diminishing Utility only pertaining to products or can it be more?
Kevin: Of course it applies to more, pretty much all economic laws pertain to products and services and this is one of them. If you had 5 massages in a row, each one would get less satisfying, right? Thats an example of law of diminishing Utility in something other than products.
Kevin Ma says: Hey Gao, "Law of Diminishing Utility" means as a consumer increases consumption of a GOOD or SERVICE, the marginal utility obtained from each additional unit of the good or service decreases. So i don't think money has to do with law, it is goods and services. And to answer your second question, the Law of Diminishing Utility also pertains to services.
Nicole Wong says: Actually, although Kevin is right in that the law refers to goods and services, I think Charlie has a point there. A dollar to Bill Gates probably isn't worth as much as it would to an unfortunate family in Ethiopia. The satisfaction he gets from each additional dollar (despite what he says) probably decreased as he got richer, as he already has a huge foundation of money to keep him satisfied.
Timothy Sun says: Expanding on Nicole's point, if we look back on one of the first things we learned in this class, scarcer anything has greater value. For example, when the Confederates issued paper money, it had little value as there was so much of it printed; the Union's specie was of greater value. Also, think about the mathematics behind why this is true. Each additional dollar for a rich person creates a smaller percent change, while for a poorer person, it has a larger percent change in income.
Kristie Chung says: I agree with all of you that even though money may not fall under the law of diminishing utility because this law pertains to goods and services, the satisfaction gained from money differs between people. A person with a lot of money would probably not gain much satisfaction from just one additional dollar, but for a poorer person, each dollar would give him greater satisfaction than it would give a rich person.
Jeewon Oh says: I agree that the satisfaction gained from each additional dollar is different for rich and poor people. However, as Kevin said, we learned that the law of diminishing marginal utility applies when satisfaction declines as a consumer acquires additional units of a given product. Also, who wouldn't (even Bill Gates) want an additional dollar? We assume that the consumer is a rational person who wants to maximize their total utility. If a person has more money, there would be less budget constraint, which would allow him or her to choose a good that satisfies them more. When you buy an ice cream, the first scoop tastes good, yet you wouldn't want four scoops, because you would rather spend additional dollars on products that provide more utility, not less. Money is different though, since an additional dollar provides more or equal utility.
Jack Lo says: Money would not be an exception to the law of diminishing marginal utility. When you have more money, the value of the one unit of currency isn't worth as much. If you only had one dollar, then that one dollar would mean a lot to you. But suppose you're very wealthy like Bill Gates (or Richard Tu), then the extra one dollar doesn't have a very great value to you. However, since money is simply a means of exchange, there will never be a negative utility for money. In a rational world, people will never PAY you to have more money. So as Jeewon said, an additional unit of money yields more or equal ultility.
James Tsao says: Other than money, I think a product that is an exception to the law of diminishing marginal utility would be drugs. Due to its addictive nature, you will still get the same amount of marginal utility for each additional amount of it. In fact,drugs might even have an increasing marginal utility attached to them because as you get more addicted to the drug, you want it even more and thus will acquire a greater marginal utility with the additional unit of it. Normally, you are willing to buy more scoops of icecream only when its at a lower price. Drug addicts, on the other hand, can pay MORE for additional units of drugs even if they already consumed a large amount of them.
Jacques Zhang says: In terms of money, it really depends on how you look at it. As many of you mentioned, one extra dollar to Bill Gates doesn't really matter, because he's got so many of them. To us, it may mean a lot more to earn 10 kuai to buy something you really want. It is true that the more money you have, the utility each individual dollar provodies you is diminished. However, this is solely based on YOUR utility for that money. If you look at money through ANYONE'S view, determining the utility of a dollar really comes down to how much the money is worth and how much utility it provides IN THE MARKET, regardless of the utility the dollar has for you. So in a sense, the utility of money really depends on how you look at it.
Drew Venkatraman says: No good is an exception to the law of dimishing marginal utility. Even free goods have a price, which is time. I, for example cannot go and get a massage right now becaue its not practical because I must do my wiki and study for my test. Even if the massage is free I pay a price in failing my wiki assignment, meaning every free good can eventually lose its "happiness." Even money applies to this rule because although you get excess happiness for each dollar put into the bank, there is a decreasing rate. You just dont feel the decresasing rate until you have millions in the bank.
Jonathan Lau says: Yea, I agree with all of you. Techinically, money isn't considered in the law of diminishing utility as it only pertains to goods and services, but the utility/satisfacation gained from money differs between people. People with less money in their bank accounts will probably feel a greater satisfaction from an additional dollar than someone whose bank account is stacked with money. But then again, a wealthy person who has earned his or her own income through hardwork might value each dollar he has in his bank account.
Tae Rim Kim says: To Charlie's question, yes, i guess in some way the money could be considered a 'utility', but is not considered into the Law of Diminishing Utility as Kevin pointed out. Now that i think of it, there is no 'marginal utility' or 'total utility' for money, is there? For example you have a bulk of money in your bank, considered as your total utility. Then, as you add more and more money in, your utility (happiness) would diminish? I know, as everyone else has mentioned, that different amounts of money means different things to different people (rich and poor), but their happiness would not exactly reduce because of extra money.
Producers and Prices in Different Parts of the World
Emily Yeh says: So I understand the whole, the greater the price, the lower the demand. But how come producers charge such different prices in Europe for luxury goods such as LV and Prada and in Asia? Like for instance, in Paris, the LV store was practically like your average traditional market except where a lot of well dressed people are clamoring around running for those bags, whereas in Japan, you walk into the store and it's this solemn rich place, but the demand doesn't seem to be much lower in Asia, where the bags may be like 5 times the price it would be in Europe. The numbers of shops keep increasing because the market demands it.
Jessica Ng says: Well, I think producers charge higher prices in Asia because these products are made in Europe. Products produced domestically do not require fees from shipping, nor tax. That's why buying American candy in Shanghai is so much more expensive than buying it in America. As the example LV and Prada are made in Europe in general, they are cheaper there. I remember reading an article about the opening of a Burberry producing factory in China. This will drastically decrease the price of Burberry bags in China as there will no longer be the need for shipping fees, and the labor costs are also less than those in Europe. However, referring to the point about even the greater the price, the lower the demand, my explanation would be that perhaps these consumers in Asia are not the typical rational consumers. Perhaps their utility of consuming these goods are huge enough to make it a worthwhile purchase for these consumers.
Chan Min says:I think when we talk about the greater the price, the lower the demand, it has to be within the country and not world wide. If those brands raised their prices here in Asia, then the demand surely will drop. If in Europe, they raised the prices of those brands, demand for them will drop too. As Jessica mentioned, the shipping and the tax, etc i think plays a big role in this. A price of a BMW in Korea is like twice the price of BMW's in China, but people still buy them. Consumers probably know that in order to purchase this certain good, producers wont just charge higher for no reason but charge higher prices because the outputs are also great.
Kathie lee: yay don't we love this industry. Yes, it is true that the products from these certain luxury brands are more expensive here in Asia as opposed to the United States because of shipping and import duty. The price difference varies depending on each specific product. However, I do not believe that if the prices of these brands increased, the demand and desire for these products will decrease. Isn't that the beauty of this industry? The target audience for these brands are for the ridiculously wealthy. They will purchase them anyway in order to feel superior and label a certain status on themselves. A dollar to them is nothing compared to a dollar to a less fortunate.
But brands that are less common in the country, the prices will rise. And the demand for it probably wouldn't change.
Well as a last resort, there is always duty free at airports.
Jo Lo says: I agree with all three of you about why products are so much expensive here in China than where they are originally from. This is why many producers in Asia, especially here in China make fake products. This benefits the consumers because they won't have to pay as much for usually a product of just as good quality, at least from the outside. The sellers are benefited because consumers are drawn to the cheapness of the fake product and so will cease buying the real thing which is many times more expensive. That's why it's kind of nice to live in China right now because so many things are still made fake and easily accessible before the government seriously cracks down on the counterfeit goods. Probably the product that most of us teenagers buy are the fake DVDs, which can be bought at the equivalent of $1, but is $25-$30 back in the US. The only downside would be the US customs are now cofiscating and fining anybody with fake DVDs, which would make bringing them back very difficult, which is why people are now leaving them behind. In other countries I don't think this is much of an issue, but probably in the future, especially if trade becomes an issue.
Karen says: Although it's possibly true that those brands are so expensive here in Asia due to import taxes and shipping fees, but I think it's mostly just because it's the brand name. Everyone wants to look good with a LV bag or Prada jacket so they're willing to pay such high prices. The utility they gain from the admiring glances from people on the streets undoubtedly surpasses the cost of buying such expensive products, or else they wouldn't have bought it in the first place. However, there are people that are more attracted to the fake products, as Jo Lo stated. They may feel that the cost of a Gucci bag does not outweigh the benefit but they still really want a "brand" bag so they think buying a fake Adidas shirt is worth the money.
Hansen says: With so many fake products here, is the utility of buying a genuine brand-name bag really that high? I can't tell the difference between a fake and a real one...which might lead me to believe that maybe most of what I see may actually be fake. As for why prices are so high: I think it has a lot to do with government choices to tax imports and subsidize domestic industries. Although China has a comparative advantage over many other countries in producing things like bags and textiles, other countries don't enjoy this benefit. Thus, they need taxes and subsidies to protect their own domestic markets.
Jenny says: First of all, I find this topic very interesting to discuss. Just like what everyone mentioned, the different prices of the luxury items in different parts of the world is due to many factors, including brand name, shipping and producing fees. Also, I think a country's level of income also affects the difference in the price. Countries in Europe have greater per capita income than the people in China, thus only limited number of people can afford luxury goods in China whereas in Europe, more people can afford. To emphasize that brands such as Gucci, LV, and Prada are for the rich people who can afford them in China, and that they are special, and rare, prices are higher than what they are in Europe than in China.
Rebecca says: I agree with Karen. It's all about the brand name. There will always be people who are willing to buy those highly priced brand items in any country; maybe because they don't have the time to go to the places that manufacture Gucci, Prada, LV, etc. Some people find that the price that they pay in their country for the Prada bag and the immediate admiring glances that they recieve gives them more satisfaction than having to pay to fly to the particular country that produces the bags (which is quite a lot of money), buy the bag there for a cheaper price, and use more time to fly back to their own country. Time is scarce too. I feel that admiration for the designer bags is decreasing though in places where fakes are widely available like in China; even the real ones are sometimes viewed as fake.
Soyeon says: Well, I should say that people who buy those goods are LIMITED. Since they are luxury items, and are incredibly expensive, only the rich people will continue to buy them. In other words, the money spent on LV or Gucci or Prada occupies little proportion of their incomes, making them willing and able to pay for another one. Therefore, the size of the market is not very flexible, so the demand and the supply will not vary easily, making the product inelastic. In addition, the prices of those goods are high, but they are not changing largely. The people who buy them are usually "addicted" to brand goods, so they are willing to pay for those expensive brand goods they want.
Jessica C. says: I agree with what everyone said. Brands such as Gucci and Prada are more expensive in Asia because of taxes and shipping. Also, Asians might be more willing to pay for the bags at a higher price because in Asia, Gucci and Prada are the topmost, expensive bags. Because they are European brands, they are considered "superior" and only "high-class" people can afford them, whereas in Europe, it is more common. Also, in Europe, bags, plates, paintings with Chinese designs are MUCH more expensive than bags with Chinese designs when you buy them in China. So, perhaps items are more expensive in countries or areas where they are considered superior, rare, or exotic.
I was in Europe this summer, and EVERYTHING was expensive. For example, a bottle of water cost about 1 euro, which is around 10 kuai. How can the same item cost so much more in one country than another? Is it because people in Europe just generally have a larger income? Or are there other reasons?
Conrad Liu says: Jessica, regarding your question as to why Europe labels the same items China has at a higher price, I think it's because like you said, the prices and costs are meant to fit for society's economic status. Since many citizens all over Europe have a decent income rate,producers specifically target members in Europe, the society of Europe. Again, many Europeans are probably better off than other Chinese residents, and so, you have your price difference. Additionally, I think such "expensive" brands in China such as Gucci and Prada are nevertheless not as expensive in Europe because they were originally made there. Import and export costs will obviously also play a role in that, and yeah, I suppose good considered superior or rare will also affect the outcome of the price of a product.
Trevor Sun says: I agree with everything thats been said. The tastes and preferences in different countries are somewhat expected to be different which is why people in Europe are willing to pay so much for a bag. But are all bags actually imported from Europe? The price difference could also be due to the producers. It is probably cheaper to produce a good here in China as compared to if the same product was produced in Europe. Therefore, the good could be sold for less here but still be able to make a profit.
Sharon Li says: I agree that the price differences of European luxury brands between Europe and China do relate to consumers' preferences and proportion of income. Only a small portion of the Chinese population can afford these luxury items and since they are valued more as a rare luxury in China, then consumers would be willing to pay a higher price. Could this also have to do with China's recent economic explosion? With more foreigners flying into China and the expanding expat population, maybe this would have some sort of effect.
Taka Ono says: Hey Sharon I'm not too sure about that one comment you said how Chinese consumers will be willing to pay a higher price due to the fact that it is considered a luxury item. It really depends on the consumer and their willingness to spend a certain amount of money on a particular product. Some will buy it for they will be willing to pay a higher price, some will not even buy it at all. Going back to the actual topic, one of the many reasons why certain products cost more could be due to imports. Imported goods cost more than domestic goods for the obvious reasons of tax and the costs of that particular good being transferred over seas. Another reason will be what everyone was talking about earlier, markets are divided into regions or sections where consumer's incomes vary. Europe being far more developed than China may have a higher average income thus markets over there can charge a higher price without affecting demand as much (elasticity). Talking about famous brand names, imagine what fake goods could do to the market hmm.... Any thoughts?
Judy Chen: I agree with what Jessica said that producers charge higher prices in Asia, because these products are made in Europe. So there are extra fee such as shipping. Plus, most of every products are all made in China now, so it sounds like there's better quanlity if they are made in Europe. I think LV, and Prada are like the top brands in the world, so rich Asians are willing to buy them to show they are rich. And it's only the small proportion of their income, so maybe buying those brands are same as buying the necessaries
Claire Moon: Well, already a lot of opinions about this question came out, but not many people disagreed with the higher price in Asia. I also will not argue with this, but I'll say this is more about the scarce resource I guess, meaning that since the expensive brands such as LV, and Pradas are from the European countries, the Asian countries would think it as a more exotic and hard to get product, so therefore they would tend to buy more. However, in the European countries, since the products are made from their own hometown, they wouldn't think it as a really superior good and would tend to buy less.
Annie Sung says: I agree that expensive designer brands are more expensive in Asia due to their high demand as a sign of status. And of course, there are import taxes to be considered. However, this demand is caused by the need to feel superior to other people around them. Since more of these luxury brands are not based in Asia, and often times made in European countries like Italy (Prada), supply would be limited in Asia, and not all designs will be available. Also, the European and N. American population is generally more well-off than the average Chinese; thus, there is less quantity demanded, because only a select few, the elite, will be able to afford these European imports. With less quantity demanded than Europe, and less suppliers in Asia in comparison with Europe, I suppose the price would naturally rise.
Jennifer Choi says: Once I read this article comparing the prices of goods between Korea and Japan. It said, about twenty years ago a lot of Japanese people used to come to visit Korea to buy the products they want at much lower price that they would in Japan. But this article said, Korean people were traveling to Japan to buy brand goods like Gucci and Burberry because they could buy what they want for up to $480 cheaper in Japan than in Korea. I think this is due to a recent inflation in Korea.
Allocative Efficiency
Angel says: In class we always talk about the equilibrium. We learned that it is the point where demand and supply intercept, and it represents allocative efficiencny; furthermore, it shows consumer and producer surpluses. But is there any good in this world that is in equilibrium? Most goods/services are taxed or under government regulation, such as pork in China and corn in the US. So a good/service in equilibrium, if it exists, will be something that is not taxed and highly competitive...?
Andy Xu says: Hi all. Constant changes of supply and demand in the real world market means that the price is always changing and trying to adjust to equilibrium, but does not stabilizes at that price. What we learned in class about price equilibrium is only an economic model to help us understand the mechanism of the market. So prices are almost never at the equilibrium of supply and demand.
Regarding to taxes and subsidies, firms usually account theses into the cost of production, directing influencing the supply curve.
Michael Chow says: I agree with Andy's point on the "constant changes of supply and demand in the real world market". Because goods and services need to constantly be adapted to the changes in price the equilibrium of an item is frequently changing. And on the point of a good or service within equilibrium (where demand and supply intercept) is extremely hard to determine because of the "Price Elasticity of Demand" in which the responsiveness of consumers change in price. Since prices are always shifting higher or lower, the sensitivity of the consumers in demanding the good will change as well. One of the closest examples to equilibrium would have to be if a product is unit elastic.
Margaret Liu says: ohh good points. But do the prices really shift that much? Part of me thinks big companies keep their prices until they absolutely MUST change them because they usually have a whole hoard of loyal customers that don't really recheck the price of other, say toilet paper brands before they buy what they always buy, Charmin. And we know that grocery stores don't go around changing the prices of this and that everyday to match what the equilibrium has become....So is there a threshold for each product for a price change? Like, how much does the equilibrium need to fluctuate before the price of that product or service is changed?
Mina Song says : Margaret, I am not sure but I think the price change is depend on the producer, if a producer is producing many products with low price to sell more, than when the price of the resources increase, than the producer must increase the price of the product unless the producer won't have any profit. and I also think that even though there's small change in the price it could fluctuate the equilibrium. becuase there's some change on the graph. May be this is just answer from the theory ^^
Michael Daily says: The obvious ultimate goal of suppliers and producers is to maximize their total revenue. This means that the amount of money they gain from the goods or services they sell exceeds by the amount those goods or services cost by the greatest possible amount. This is what gives the market its efficiency- producers are producing goods in the least-cost method. Since price and amount sold are the two things that effect total revenue, suppliers want to find the perfect balance between the two to optimally allocate society's resource. This point is when marginal benefits equal marginal costs and where the supply and demand curves intersect on a graph. The equilibrium quantity, is thus crucial in determining a market's efficiency.
Richard Tu says: I agree that price ceilings and price floors do nothing but destroy the efficiency of a market. However, I do believe that if the government does not interfere with the market and place a ceiling on a product whose price is rising, then the general public would not be very happy and I guarantee you that the government would not stay for a long time. But then, if they do place a price ceiling on some product such as pork in China, then it would result in a shortage of pork, since firms are now less willing to produce pork to be sold at a lower price.
Caleb Liao: What messed me up the most in doing the work in class was learning that Marginal Utility like doesnt just keep going down. It can go up and then down and then back up.
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