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Supply And Demand - So If I Demand Then Price  
User currently offlinefca767 From United Kingdom, joined Nov 2006, 1745 posts, RR: 1
Posted (3 years 8 months 5 days 3 hours ago) and read 2787 times:

...Goes up or down...I've been looking at "The Apprentice" today, and he said if people buy more of this pomegranite alcohol drink then it might bring pomegranite down because of the demand.
I think like it's the same when people first made laptops, they were expensive at first but when lot's of people started buying them, they've become cheap.
So why doesn't this happen with things like sunflower oil, I remember someone saying if we use it in cars, we'll bring the price of the sunflower oil up.
Is it because you can make tons of laptops but with sunflower oil, there is only a limited supply.
But then again a salesman would just put prices up of anything and everything, so how come some things go one way in price and others the other.

10 replies: All unread, jump to last
 
User currently offlineFly2HMO From , joined Dec 1969, posts, RR:
Reply 1, posted (3 years 8 months 5 days 2 hours ago) and read 2698 times:

Quoting fca767 (Thread starter):
...Goes up or down...I've been looking at "The Apprentice" today, and he said if people buy more of this pomegranite alcohol drink then it might bring pomegranite down because of the demand.
I think like it's the same when people first made laptops, they were expensive at first but when lot's of people started buying them, they've become cheap.
So why doesn't this happen with things like sunflower oil, I remember someone saying if we use it in cars, we'll bring the price of the sunflower oil up.
Is it because you can make tons of laptops but with sunflower oil, there is only a limited supply.
But then again a salesman would just put prices up of anything and everything, so how come some things go one way in price and others the other.
Quoting fca767 (Thread starter):
they've become cheap.

Then please explain to me using your flawed logic why macs are so overpriced even with their ridiculous demand.

http://i.imgur.com/Gdq61.jpg


User currently onlinefr8mech From United States of America, joined Sep 2005, 5385 posts, RR: 14
Reply 2, posted (3 years 8 months 5 days 2 hours ago) and read 2673 times:

Quoting fca767 (Thread starter):
I think like it's the same when people first made laptops, they were expensive at first but when lot's of people started buying them, they've become cheap.


They became cheaper when lots of people started making them, not buying them.

Quoting fca767 (Thread starter):
So why doesn't this happen with things like sunflower oil, I remember someone saying if we use it in cars, we'll bring the price of the sunflower oil up.


Much like corn ethanol, you will now be competing with the food market. If you start making fuels from food, without a corresponding increase in the production of the raw material (in your case, sunflower oil, or really, sunflowers) the price will go up.



When seconds count...the police are minutes away.
User currently offlineflanker From United States of America, joined Aug 2005, 1633 posts, RR: 2
Reply 3, posted (3 years 8 months 5 days 2 hours ago) and read 2659 times:

Quoting fr8mech (Reply 3):
They became cheaper when lots of people started making them, not buying them.

As well as the cost of making them with newer technological innovations. ( ex lithium ion battery for cellphones and laptops)

Production cost is a biggie, although it can go both ways. look at the iphone..lmao...



Calling an illegal alien an 'undocumented immigrant' is like calling a drug dealer an unlicensed pharmacist
User currently offlinenighthawk From UK - Scotland, joined Sep 2001, 5134 posts, RR: 33
Reply 4, posted (3 years 8 months 4 days 16 hours ago) and read 2567 times:

To put it simply -

if demand increases but supply doesnt, the price increases. Sunflower oil is a good example of this, if everyone started using it for powering their cars, demand would far outstrip supply, forcing the price up.

if demand increases, but supply also increases to match, then price will either remain the same or drop - if you can produce things in mass, your cost per unit drops, allowing you to drop the price too. Laptops would be an example of this.

The mac example is different, as Apple have a monopoly on the production of Macs. As such they can fix the price, and counter market forces. (although the price will need to drift to closely match thecost of an average laptop)



That'll teach you
User currently offlinefca767 From United Kingdom, joined Nov 2006, 1745 posts, RR: 1
Reply 5, posted (3 years 8 months 4 days 16 hours ago) and read 2551 times:

Quoting nighthawk (Reply 5):
if demand increases but supply doesnt, the price increases. Sunflower oil is a good example of this, if everyone started using it for powering their cars, demand would far outstrip supply, forcing the price up.

Oh I see, because I thought Supply was at the till, like I'm supplying 1000 so it's good news, but it's supply from the actual place where you're getting it from and if there's not much possibility for sunflowers, then it goes up.


User currently offlineSevernaya From Russia, joined Jan 2009, 1402 posts, RR: 1
Reply 6, posted (3 years 8 months 4 days 15 hours ago) and read 2540 times:

Quoting fca767 (Thread starter):
I think like it's the same when people first made laptops, they were expensive at first but when lot's of people started buying them, they've become cheap.
Quoting fca767 (Thread starter):
So why doesn't this happen with things like sunflower oil, I remember someone saying if we use it in cars, we'll bring the price of the sunflower oil up.

Disregard attitude opinions of certain people here please.

It has to do partly with demand and supply, and that in return depends very much on elasticities, such as the income elasticity of demand.

You basically can't really compare sunflower oil (inferior/normal good) to laptops (luxury good).

Just have a look here for example or google a bit around: http://en.wikipedia.org/wiki/Income_elasticity_of_demand



Всяк глядит, да не всяк видит.
User currently offlinenighthawk From UK - Scotland, joined Sep 2001, 5134 posts, RR: 33
Reply 7, posted (3 years 8 months 4 days 15 hours ago) and read 2527 times:

Quoting fca767 (Reply 6):
Oh I see, because I thought Supply was at the till, like I'm supplying 1000 so it's good news, but it's supply from the actual place where you're getting it from and if there's not much possibility for sunflowers, then it goes up.

Its more to do with the original supplier - ie whoever grows the sunflowers. The more people wanting Sunflowers to make oil from, the more they can charge for them (to a certain point, of course). After this, the price is fairly static, it will just be marked up to cover costs and generate a profit. (although those costs will vary of course)

Economics is an entire subject, its hard to describe in just a few posts. I suggest reading some of the links posted for a better understanding, however to fully udnerstand the entire subject and all possible factors that effect pricing would take a couple of years study at university.



That'll teach you
User currently offlineYellowstone From United States of America, joined Aug 2006, 3071 posts, RR: 4
Reply 8, posted (3 years 8 months 4 days 13 hours ago) and read 2501 times:

Alright, here's supply and demand 101...

Laws of Supply and Demand

The basic law of demand is that the higher the price of a good, the fewer people are willing to buy it. If we made a graph with price on the vertical axis and number of buyers on the horizontal axis, we'd have a downward-sloping line, called a demand curve. The basic law of supply is that the higher the price of the good, the more people are willing to sell it. If we made a graph with price on the vertical axis and number of sellers on the horizontal axis, we'd get an upward-sloping line, called a supply curve. If we plot those two graphs on the same axes, we find that they cross at the point corresponding to the price where there are an equal number of buyers and sellers. This is the price of the good (and the amount traded, generally called quantity) at equilibrium.

Shifts in Supply and Demand Curves

Supply and demand curves are not fixed - factors other than price can affect how much people want to buy or sell a good. Suppose that something happens that reduces demand - for example, new research that shows that the good causes cancer. Now, at each price, fewer people want to buy the good than before. This makes the demand curve shift to the left. (The supply curve stays where it is.) The intersection between the supply and demand curves now occurs at a lower price and a lower quantity than before. Conversely, we can suppose that something happens that increases demand - let's say that tax cuts result in everyone having more money to spend. At each price, more people are willing to buy the good than before, so the demand curve moves to the right. Now the intersection point is at a higher price, and a higher quantity, than before.

Now for the supply side. Suppose that improvements in technology allow for cheaper production of a good, thus increasing supply. More people are willing to sell the good at each price, so the supply curve moves to the right. This time, demand stays stationary, so the intersection occurs at a lower price, but a higher quantity, than before. On the other hand, if supply were to decrease - suppose that a war destroys some of the infrastructure used to make the product - then fewer people are willing to sell the good at each price, and the supply curve moves to the left. The intersection now occurs at higher price and lower quantity.

Elasticity of Supply and Demand

The above analysis leaves unanswered the question of how much the price and quantity are affected by a shift in the supply or demand curve. This depends on how steep the supply and demand curves are. A steep curve is inelastic - changing the price has only a small effect on the buyers' willingness to buy or the sellers' willingness to sell. A shallow curve is elastic - changing the price has a large effect on the buyers' and sellers' willingness to do business. For instance, if supply is inelastic (suppose it's a crop with only a limited area where it can grow), then an increase in demand will result in a large increase in price, but only a small increase in quantity sold. As a second example, if demand is elastic (suppose it's a luxury good that people can easily do without), then a decrease in supply results in a small increase in price, but a large drop in quantity sold.

It's also possible for a curve to have different elasticities over different time periods, generally moving from inelastic to elastic over time. Suppose that Tesla's electric roadster becomes wildly popular. At first, the supply curve will be inelastic - Tesla only owns one or two factories, and they can't just open up new ones immediately. Hence the price will shoot up, but they won't sell many more cars. Over time, though, Tesla can open up new factories, thus making the supply curve more elastic. Tesla will make more cars, at a lower price.

Case Studies

All of which brings us back to your initial examples, each of which is an application of the above concepts. First, the laptop example. When laptops were first developed, they were in high demand but very limited supply. Hence they had a very high price. As time went by, investments in specialized factories and research and development allowed companies to produce laptops more cheaply. This increased supply, which as we learned above causes an increase in quantity and a decrease in price.

In the case of pomegranates, the guy on The Apprentice is being a bit misleading. If demand for pomegranates increases (say, due to this new beverage), the price of pomegranates will increase (as will the quantity), all other things being equal. However, the supply of pomegranates is inelastic in the short term but elastic in the long term, since pomegranate trees take a while to grow. Hence, it's quite likely that the increase in demand will at first cause a large increase in price but a small increase in quantity, which will convert over time to a small increase in price but a large increase in quantity. The only way for the price to actually drop, however, would be to increase supply as well. One possible way this could happen is if pomegranate growers use their increased income to do research which discovers a cheaper way to grow pomegranates.

As for sunflower oil, the supply is already about as elastic as it can get, and it's unlikely that we'll develop new, cheaper means of growing sunflowers. Hence an increase in demand will have the simple effect of increasing price and quantity.



Hydrogen is an odorless, colorless gas which, given enough time, turns into people.
User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 36
Reply 9, posted (3 years 8 months 4 days 12 hours ago) and read 2471 times:

Excellent post, Yellowstone.

Quoting fca767 (Thread starter):
I've been looking at "The Apprentice" today, and he said if people buy more of this pomegranite alcohol drink then it might bring pomegranite down because of the demand.

fca767, very much agree with Severnaya - you've every right to ask questions, especially about economics. The old joke about economists was that you could lay a hundred economists end-to-end along the ground and they STILL wouldn't reach a conclusion........  

But that guy you spoke to just got it 100% wrong:-

Quoting fca767 (Thread starter):
he said if people buy more of this pomegranite alcohol drink then it might bring pomegranite down because of the demand.

As I expect you've already gathered from earlier posts, the opposite is true - increased demand results in higher prices, not lower ones. And, further, increased demand for pomegranates would push the price of those, and therefore also production costs, up as well - particularly because they are no doubt a seasonal crop, and production cannot be increased much in (a favourite phrase in economics  ) the 'short term.'

But then the issue of 'substitutes' comes into play. If, because of increased demand and limited supply, the price of one particular drink rises sharply, sooner or later consumers will start giving up on it because it costs too much.

The magic word is 'equilibrium.' Eventually, with whatever product you care to name, there may be frenzied activity at first (in this case, as I understand it, increased demand combined with limited supply causing steep price rises) but eventually either supply will increase to meet demand, or higher prices will eventually reduce demand as consumers turn to cheaper alternatives.

Quoting fca767 (Thread starter):
But then again a salesman would just put prices up of anything and everything

Have to 'enter a plea' on that one  . The guys who handle the marketing - I used to be one of them, though not in the drinks field - most often find themselves beseeching management NOT to raise prices to the skies in pursuit of quick profits. Because, if they do, they'll very soon find themselves 'walking the plank' as the consumers they depend on start saving a few cents by buying another drink that they find is just as satisfying, but cheaper......

[Edited 2010-12-20 05:10:44]


"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently onlinefr8mech From United States of America, joined Sep 2005, 5385 posts, RR: 14
Reply 10, posted (3 years 8 months 4 days 4 hours ago) and read 2386 times:

Quoting fca767 (Thread starter):
But then again a salesman would just put prices up of anything and everything,


Nothing prevents a salesman (or retailer) from arbitrarily raising the price on any good. But, unless he is operating in a monopoly, he will need to deal with competition. If he raises his prices in the absence of some external force (increase cost, decrease supply, increase demand, etc.) it is likely that his competitors will not raise prices. That will drive the consumer away from the retailer that raised his price.

Quoting fca767 (Reply 6):
Oh I see, because I thought Supply was at the till,


An all to common failing of people who think things just show up at the store.

Not a criticism of you, per se, but of the various education systems. There was a thread about what should be taught in school. Several others and myself advocated some level of economics.



When seconds count...the police are minutes away.
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