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23

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 ...


15

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

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 .


14

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 ...


12

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.


9

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,...


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 ...


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 ...


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 ...


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 ...


3

To answer this I have to make some guesses because this is not an area of research for me, but having a spouse from there and having spent time there, I think I could make a somewhat educated guess. Especially because it uses a market system rather than a rate setting system for generation. First, Massachusettes has the third highest population density of ...


3

The concept of a free lunch is a philosophical/political phrase (not an axiom or law in economics). It was popularized by Nobel Prize winning economist Milton Friendman The concept depends too largely on how you define free to make a general statement about the concept. For example, while Oxygen is readily available for your consumption from the atmosphere ...


3

lower production costs translate into lower sales costs Not as such, because you're looking at the total budget for making a movie and all the copies of it needed to distribute and show it many, many times. "The latest iPhone" cost a lot more in total to research, design and manufacture all the units, than my house did. But my house is a lot more expensive ...


3

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/


3

The cross elasticity of demand $E_{XY}^D$ is defined as the percent change in quantity demanded for X divided by the percent change in price of Y, holding the price of X fixed. The problem with your calculation is that you did not use the quantity change when the price is fixed. Therefore, you need additional data to calculate the cross elasticities. ...


3

There is a school of thought that says that people unconsciously use cost-benefit analyses in their relationships with other people. In this idea, people show kindness only because they anticipate getting rewarded for those acts, so it is in their own self-interest to do so. Monetizing small tasks takes time, and then collecting money for tasks done takes ...


3

The answer by @EconJohn covers the case of a constant price elasticity of demand. To model a varying price elasticity of demand you employ the semi-log specification, $$\ln(Q_d)=\beta_0-\beta_1 P+\beta_2 S+\mu$$ $$\implies Q_d = \exp \{\beta_0-\beta_1 P+\beta_2 S+\mu\}$$ Here, the price elasticity of demand is (use "marginal over average") $$\eta = -\...


3

Someone still has to build the app or ebook. In other words, these products are characterized by large fixed costs of production and low variable costs. The marginal cost is positive because there exists a small distribution cost (such as internet bandwidth or maintenance of a website).


3

Airlines typically have a "good" contract for fuel with some supplier for their base airports (they buy a LOT of fuel and hence, they are able to negotiate higher discount). When a plane flies to a small(er) airport (e.g. where the airline goes 2-3 times a week), there they won't have a discount, so they would have to pay more. Therefore, it might be a case ...


2

A market economy is useful when we have different players with different goals. i.e the firms objective is profit maximisation and the the consumer's goal is utility maximisation. Each player must make a decision optimising against the others decision. In this sense each player faces the constraint placed by the other player. When there is freedom to ...


2

I'll try to fit this in an answer. I think you are confusing nominal and relative value. Inflation means that the 'value' of your money depreciates relative to other things. For example, in the year 2000 I could buy a bread for 1 USD. In the year 2015 I can buy a bread for 2 USD. This means that the dollar lost half of it's value relative to bread. But ...


2

Autocorrelated is the opposite of independent, which is a term easier to understand (and explain). If you throw one die, the probability of getting the number any number is 1/6. If you throw it again, the probability of guessing the result number is 1/6. If you do it again and again and again the probability of getting it right is always 1/6 (provided that ...


2

In standard proofs of the existence of Walrasian equilibrium, after one applies the appropriate fixed point theorem (typically Kakutani's, but sometimes Brouwer's), one then shows that the given fixed point is, in fact, a Walrasian equilibrium. Depending on the exact construction of the proof, sometimes the fixed point will only give you the equilibrium ...


2

I think there might be an issue with this as currently constructed: $\delta(p)= \infty$, $\forall P \in \mathbb{R_+}$ and $P_e = \infty =\dot{p},$ $\forall P \in \mathbb{R_+}$ This is because $\delta_0 = \infty $. Further, $\sigma(p) = S_\sigma p+\sigma_0= S_\sigma p$ since $ \sigma_0 = 0$. In words - there should be infinite demand for any normal good ...


2

If the price ceiling is above equilibrium price, then the market would just settle for the equilibrium price, and the price ceiling would have no effect. Same thing for price floors: if the price floor is below equilibrium, then it'd have no effect.


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