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29 votes

Does a store suffering increased theft generally cause higher prices?

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, ...
  • 27.2k
22 votes

Car prices haven't changed in 20 years, no inflation?

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 ...
  • 8,052
21 votes

Why is the oil future price negative?

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 ...
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19 votes

Does a store suffering increased theft generally cause higher prices?

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 ...
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17 votes
Accepted

Why do low-budget films charge the same amount at the box office as super-high budget films?

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 ...
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15 votes
Accepted

Why isn't the cost of shoes affected by their size?

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 ...
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14 votes

The supply and demand of Virtual Products

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 ...
  • 16k
14 votes

Car prices haven't changed in 20 years, no inflation?

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 ...
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9 votes

Why is the oil future price negative?

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 ...
  • 325
9 votes

Does a store suffering increased theft generally cause higher prices?

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 ...
  • 488
8 votes

The supply and demand of Virtual Products

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 ...
  • 16.6k
8 votes

Car prices haven't changed in 20 years, no inflation?

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 ...
8 votes
Accepted

What is the mechanism that triggers a stock price change?

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 ...
6 votes
Accepted

Including (demand) price elasticity in a price regression model

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 ...
  • 7,880
6 votes

What's a "correct price" really? Does it exist?

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 ...
  • 45.1k
6 votes

What is the mechanism that triggers a stock price change?

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....
  • 45.1k
5 votes
Accepted

Simple model to predict oil prices

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 ...
  • 8,487
5 votes

What Creates the Price in the First Place

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 ...
  • 5,509
5 votes

Why is the oil future price negative?

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. ...
  • 214
5 votes
Accepted

Elasticity of demand

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, ...
  • 45.1k
5 votes
Accepted

What does price embody ? Do we constantly undervalue some type of products?

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 ...
  • 4,844
5 votes
Accepted

About the 9 tests on Index number theory to evaluate the efficency of the different types of price indexes

Are this test used nowadays? Is there a more recent paper about it? As far as I know, (theoretical) index number theory is not so popular anymore nowadays. The feeling is probably that we know most ...
  • 8,652
5 votes
Accepted

Why do grains cost so much more than flour?

The following is a partial explanation. There are valuable by-products from the milling of wheat: bran and wheat germ (see here). These by-products typically sell for a much higher price per weight ...
  • 7,434
4 votes

What are examples of inversely (negatively) correlated stock prices in economics?

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 ...
  • 27.2k
4 votes

What Creates the Price in the First Place

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 ...
  • 8,052
4 votes
Accepted

Proof that utility is nonincreasing in prices

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(...
4 votes

Why do companies launch products at much higher prices, only to reduce the price drastically after a few months?

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 ...
4 votes

Why do companies launch products at much higher prices, only to reduce the price drastically after a few months?

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 ...
  • 3,768
4 votes

Why do companies launch products at much higher prices, only to reduce the price drastically after a few months?

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 ...
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