# Tag Info

29

prices should have already been set to maximize the trade off between profit-per-sale and volume sold But profit-per-sale depends on costs, which depends on the theft numbers, so if theft increases, the equation changes.

22

Inflation is measured against a basket of goods. It's a symptom of what's going on in markets. Some products go up in price over time. Some go down in time. Some stay the same price, but change their specification. So it's looking down the wrong end of the microscope, to ask why inflation hasn't affected car prices. Car prices are part of inflation. Changes ...

21

This isn't the "oil price" that's going negative; it's the price of WTI Oil Futures contracts for May. WTI Futures contracts mean taking physical delivery in Cushing, Oklahoma (the hub of the US pipeline network). Many, many contracts was signed some time back, for the seller (at a future date, hence futures) to deliver X barrels of oil to Cushing and for ...

19

What you're describing is retail shrink. It is taken into consideration when setting prices. A business will typically have consultants come in, measure their shrink to be X percent, and prices will be adjusted accordingly. Back when I worked in retail, there was a big printout in the break room informing everyone on shrink. The 5 kinds of shrink outlined on ...

16

Opportunity Cost of the Seats Once the movie is made the cost of production is sunk and irrelevant to the proper pricing of tickets. Only the marginal costs of serving an additional customer and the opportunity cost of showing a different film would enter into ticket pricing. Since cinemas should be setting the number of screens for each movie so that the ...

15

Most of the price of creating a shoe is the cost of labour to make it and the cost to ship it to the store. The cost of the materials needed to make the shoe is negligible. So, they can ignore the difference in material costs without losing too much money. But why would they want to lose any money at all? Logistics. Keeping track of the different prices per ...

14

The book Information Rules by Google Chief Economist Hal Varian (with Carl Shapiro) deals with many issues raised by the particular features of the digital economy. In general, he finds you don't need new models, and that things are well approximated by high fixed and low or zero marginal cost of production.

14

You also didn't look at car prices in general but rather just the Toyota Camry. For example a 2001 BMW M3 was ~\$46,000 while a 2018 BMW M3 is ~\$66,000. Most cars have increased in price over the last 20 years, but some manufacturers will always have a cheap car in their lineup .

9

The oil spot price didn't go negative, this was future contract price. Basically the future contract expires at a certain date and they have to take delivery. The futures owners were dumping because the price of storage if they had to take delivery would have been very high, or even impossible. The people buying back the future contracts (at negative ...

9

Price is set by the competition In general, the prices are set by the supply and demand for the whole market. If a merchant sells the same goods for a higher price than competitors without a corresponding advantage (location, better service, convenience) then people won't buy these goods and the merchant will earn less profit as the decrease in volume will ...

9

I won’t discuss the fundamental reasons why stock prices change (discussed in another answer), but the mechanics (roughly) work like this. (Real world is more complex, since there are multiple exchanges, and high frequency trading.) An exchange matches orders from buyers and sellers. The sensible way of making an order is to put a limit price on it. So you ...

8

Your broad idea is right. Since the marginal cost of reproducing digital goods is essentially zero, there is a sense in which is appears optimal to give the good to any consumer who has a positive value for it. In this sense, such goods are superficially non-scarce. However, there are some important caveats to this line of reasoning that results in the goods ...

8

Specifically treating car prices, well, the prices are determined globally and not necessarily in dollars In the last 20 years: Car manufacturers move factories across borders to save costs, China and India have become major market player both as major manufacturers and as a major consumers As a result of these causes, an additional major impact was added,...

6

The incorporation of a price elasticity in your regression requires that your dependent variable, quantity, be logged as well. Take an example of a basic demand side equation including two independent variables $$Q_d=\beta_0+\beta_1 P+\beta_2 S+\mu$$ where $Q_d$ is quantity demanded, $P$ is the price of the good in question and $S$ is the price of a ...

6

In stock market price is determined directly by supply and demand interacting in a way that is somewhat similar to haggling in traditional physical markets. Buyers will offer their bids for a stock (i.e. they will state for which price they are willing to buy a stock). At the same time sellers will have their ask price (i.e. they will state the price for ...

5

This is indeed a bit confusing. Supply and demand functions depend on potential prices. That is, the agents think "if the price were a given level, what would I want to supply or demand?". So supply and demand depend on a whole range of (hypothetical) prices. However, the equilibrium price (which is a certain price and different from the range of potential ...

5

News say it is because sellers cannot sell it. But, why don't they just hoard it until the coronavirus crisis is off? They can't because their oil storage facilities have a limited capacity. According to this German article from Spiegel Online, there is currently less demand for oil than there is production. Oil wells are pumping oil which they can not sell ...

5

tl;dr as KennyLJ correctly points out the concept of correct price is meaningless and it does not exist or rather you could say any price is the correct price (but again this just makes the whole concept meaningless because if every price is correct then thats just a price - a concept of 'correctness' makes only sense if there are some incorrect instances). ...

5

When people talk about 'elasticity of demand' without further qualification they normally mean 'price elasticity of demand': $$\text{E}_p=\frac{\partial Q_t}{\partial P_t}\frac{P_t}{Q_t}$$ However, note your calculations are not entirely correct as in this case the elasticity should be: \text{E}_p=-\frac{1}{\gamma}\frac{P_t}{(X_t-P_t)/ \gamma} = - \frac{...

5

People have different tastes, needs, and budgets. So it doesn't make much sense to speak of the willingness to pay (WTP) of "the consumers". Each consumer has his or her own WTP for, let's say, a cup of coffee. If Alice' WTP is 1€ and the price is 2€ she will not buy. If Bob's WTP is 5€ then he will buy and enjoy the surplus. From Bob's ...

4

Have you tried Google? By copying a part of your question into Google I was able to find several examples. The best one may be this site which lists 20 positively and negatively correlated stocks for any stock you pick: http://www.market-topology.com/correlation/

4

The most comprehensive survey of estimating oil prices is here. There you fund from very complicated models to very simple ones. As the article shows, the ultimate answer depends on whether you are estimating nominal or real price, and short-term or long-term prices. Some simple models to estimate price of oil might be: no-change forecast: if changes in ...

4

It depends on the market. In most markets - in particular, most retail markets - the supplier first sets the price, by offering their goods/service at an advertised price. In other markets - in particular, many auctions - the purchasers between them first set the price. In some markets - for example, some openly-traded financial instruments, and some ...

4

That follows $v(p_1,y)$ being the highest utility one can get from a bundle affordable given prices $p_1$ and income $y$. Let $x_1$ be such a utility maximizing bundle. Then $p_1\cdot x_1\le y$ and $u(x_1)\ge u(x)$ for all $x$ such that $p_1\cdot x\le y$. In particular, $u(x_1)\ge u(x_0)$ since $p_1\cdot x_0\le y$ (this is what the argument you have shows.) ...

4

Two very general reasons are: 1) High prices at the beginning target "early adopters" - people that have a higher "willingness to pay" for a new product just to have it first. Early adopters know that they pay more, and they 're ok with it. 2) As regards consumer reaction, it is much better to reduce prices than to increase prices. So sometimes prices are ...

4

In addition to (intertemporal) price discrimination, there's a parallel process of ramping up production. Especially with tech products, they can have bugs at the beginning, even with all the precautions during design/prototyping. So a massive launch at high production volume is more risky. (Lower production volume also implies higher unit price; see ...

4

I want to flesh out the answers from Alecos Papadopoulos and Bill Clark to make sure it's clear why a firm might want to reduce prices over time—known as intertemporal price discrimination. Suppose there are two groups of potential customers: enthusiasts (who love the product) and laymen (who aren't very interested in the product). Enthusiasts are willing ...

4

Yes an example of such study is this Sheppard, S., & Udell, A. (2016). Do Airbnb properties affect house prices. Williams College Department of Economics Working Papers, 3. This is their conclusion: We find that in New York City, the impacts appear to be that an increase in localized Airbnb availability is associated with an increase in property ...

4

Actually economics does not even officially use term price gouging. Your analysis is right, actually economists dislike anti-price gauging legislation for this reason. For example, when the IGM panel of top policy economists were asked about one piece of price gouging legislation in the US, vast majority disagreed with it: However, an important caveat to ...

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