# Tag Info

31

Yes, customers who were exposed to day-ahead wholesale market prices were paid to use electricity. It is a combination of several different factors that make the day-ahead wholesale electricity market special. Firstly, very few electricity consumers participate in it directly. So the demand side is very illiquid, with very low short-run elasticity - and it ...

24

There are several explanations for this in the literature (the order does not necessarily reflect importance of each explanation). Different Price Levels: Non-trivial portion of the wage differential is due to different price levels/cost of living. Once you adjust for different price levels and compare real wages gap narrows. This is obvious but since you ...

20

I would add two more, and rather primitive, factors in @1muflon1 long list: Labor input is not perfectly mobile with respect to the wage. We should never forget that the concept of a utility function allows for arbitrary "goods" to be "utility enhancing". It follows that migrating in chase of a better wage does not always prevails when ...

18

Gary Becker's work on Social Demand probably has something to do with the phenonmena. Becker basically asked why some popular places consistently seemed to underprice their goods. For example, concerts often sell out very quickly and fancy restaurants in the middle of a busy suburb might be often crowded. These venues could raise their prices, but the basic ...

15

You sometimes find textbooks drawing the supply and demand curves as concave upwards, as such: The straight-line supply and demand curves can be thought of as a magnification of this graph, where the two intersect. Thus, the units on the axes would give you a clue as to how high up the graph is being drawn, or how far to the right (if the units start at a ...

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.

11

Though the Black Friday savings do exist, they are less significant than in some of the early years when the "Black Friday" sales were just starting to get really popular. Raising prices is one way that merchants could try to respond, but then they might exclude the deal-seekers whom they are targeting. Instead, merchants have been doing other things. ...

10

Consider the Slutsky equation, $$\frac{\partial x}{\partial p} = \frac{\partial x^c}{\partial p} - \frac{\partial x}{\partial I} x.$$ A giffen good is the case where the income effect $\frac{\partial x}{\partial I} x$ is negative and large (in magnitude) enough so that $\frac{\partial x}{\partial p} > 0$. From Wikipedia: There are three necessary ...

10

Black Friday is a marketing event that benefits from network effect . The more stores offer products for lower price and the more consumers know about them, the greater is the network effect. Normally when you put your product on sale at reduced price, you have several problems to deal with. Your target consumers need to be informed of your offer and they ...

9

There is rather low probability for demand of a good to exhibit the Giffen property at market level, where averaging over heterogeneous preferences, different income levels and consequent differentiated behavior, will usually offset Giffen phenomena. Looking at @jmbejara answer, goods that are likely to satisfy all three necessary conditions are drugs ...

9

Here's a "no maths" explanation (including the inferior goods case, because I think it helps to understand what's going on): Suppose we have a normal good, $x$, and we increase its price. Marshallian demand decreases thanks to two effects (i) consumers substitute away from $x$ towards cheaper alternatives; (ii) because prices are higher, consumers can ...

9

A price-taking firm takes prices as given, but that does not mean that the firm cannot influence prices; it just means that the firm ignores its own impact on prices. Now the question is how sensible it is to assume that firms take prices as given. The usual view is that it is a reasonable assumption when the impact of a firm on prices is small enough ...

9

The Iranian organ market It might be worth looking into the organ market in Iran. Unlike in other countries, it is legal to sell your kidney to patients who need a new one. The process is regulated and charities actively help pay for patients who cannot afford to pay the donor themselves. The result is that a kidney, which would cost more than $100.000 on ... 8 tl;dr: it's basic engineering: efficiencies improved between 1970 and 2010. Additionally, net USA imports increased from 0.75 trillion cubic feet in 1970 to 3.8 trillion cubic feet in 2007 I think there may be some misunderstandings. Firstly: the first chart shows domestic gas production. "Domestic" doesn't refer to residential-only use - it just means ... 8 In a sense, I think the right question is not "why do firms offer a discount" (or, as you put it, why do smart firms not "react by increasing all of their prices in response to demand?") Rather, the interesting question is why do firms ever not discount their prices? After all, if consumers can shop around for a good deal then one would expect that all but ... 8 The kinds of practices you describe are frequently controlled through competition/antitrust policy. For example: In the US conspiratorial agreements (such as price-fixing cartels, bidding cartels, or other agreements that restrict competition) or conspiring to abuse a position of dominance in a manner that harms competition is illegal under the terms of the ... 8 It is possible. We normally think demand and supply are more elastic in the long run because consumers/firms have more options in the long run. For example if gas becomes more expensive consumers can buy more more fuel efficient cars. So what if consumers or firms are more constrained in the long run? This could be the case when goods are storable. ... 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 Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay, That doesn't make any sense. If more people want to live in a particular place, rents will increase. And if rents increase, then obviously tenants are prepared to pay more. If they aren't willing to pay increased rents, then they don't really ... 7 When the USD is highly valued, it allows people from the home country, the United States in this case, to purchase goods relatively cheaply from abroad and put pressure on domestic firms to have low prices. From a consumption standpoint, this may be advantageous. A high value USD may also make goods from the United States more expensive relative to goods ... 7 We cannot obtain "demand" in the usual sense, because demand is a random variable. The "best" we can do is first, to obtain the Conditional Expectation of individual demand (conditional on the variables that determine the probability of whether the consumer will demand/buy). Let a situation where consumers decide to buy or not to buy a single (for simplicity)... 7 I believe that I have found the problem in this line: I don't understand why price has to increase if quantity increases. The concept is actually the other way around. Think of it in the same way as the Law of Demand. If you go to the grocery store and you see a food that you like selling for \$.25/lb, you would buy a whole lot of it before the price ...

7

Lack of supply of a network good - a good associated with a network effect - may result in lack of demand for that good. The greater the number of people who have or use such a good, the greater its value to any one person. Hence a lack of supply of such a good to some people will probably reduce demand from those to whom it is available. For example, if ...

6

The usual textbook example of a Giffen good (i.e. a good whose demand curve slopes upwards) is the Irish potato famine. The idea is that as potatoes (a staple food) became more expensive, people could no longer afford expensive foods such as meat and so ended up buying more potatoes! However, this example has come in for criticism, not least of all because a ...

6

The observation that "as stock prices rise people tend to buy more of it, so here the "law of demand" holds in reverse", is one of the more widespread misconceptions related to economic thinking. To expand on @StevenLandsburg comment, the "demand curve" (or "schedule") describes a static relation between the quantity of a good and its price. Its quality (...

6

Recall the following equivalent definitions for luxury goods and necessities: A good $x$ is considered a necessity if $e_{(x,I)}<1$. A good $x$ is considered a luxury good if $e_{(x,I)}>1$. As you can see, these definition do not encompass all possible scenarios, so any specific good does not have to be either a luxury or a necessity. In the case of ...

6

Not all (current and potential) production has the same costs. Some production has very low additional cost: maybe all the factories and workforce are already in place, they're close to where the product is sold, and it's very little effort to start production and get new product to market. Other production has higher costs. When the price is very low, ...

6

Partly your question relates to more general questions like "buy versus rent a house", or "buy versus lease a machine". Under neoclassical assumptions of competition, full information, etc, you can imagine that arbitrage would make these options equivalent for the average of the population (or the representative agent). In practice, ...

6

As many have stated before me, you can't just throw electricity away if you produce too much—it has to go somewhere. If you put more power into the system than the resistant (or consumption) in the system, it is like spinning your bike faster while you bike downhill, the generators start spinning faster, and the frequency increase above 50 Hz. The second ...

6

Here's a quick and dirty trick: DWL is the triangle that points (horizontally) towards the efficient quantity. If equilibrium quantity is lower than the efficient quantity, DWL should point rightward, and it represents the amount of unrealized gains from trade. If equilibrium quantity is higher than the efficient quantity, DWL should point leftward, ...

Only top voted, non community-wiki answers of a minimum length are eligible