Tag Archive for: prices

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What Holds Up Prices?

Price formation often seems steeped in mystery.  “Seeing what the market will bear” is a mantra for many, but why would we want to leave prices to chance if we could avoid it?

What supported the prices for 2013 electric cars?  As shown below, we could make a statistically significant (9.3E-09) estimate of prices using a surface running through the 18 electric car models (as green spheres) that made up the market that year.  That surface reflects that after buyers paid about $6,500 to enter the market, the Price went up $102 for every horsepower and $172 for every added mile of range (P-Values, 0.00038, 4.19E-07, respectively).  Models priced above the surface may be overpriced, those below may be under-priced, or some other significant Features may be at work.

The diagram & the market math behind it demonstrates the first 2 adages of the Law of Value and Demand, which are:

  1. Product Features (as horsepower, range) determine Value
  2. Value determines Price

The green region is Value Space.  How does it relate to Demand?  Read the next post for an answer.

#prices#value

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The Demand For Money

Well, that’s an odd title, I’ll grant you that.

Really, what we’re addressing here is the demand for fiat currency.

Recall in previous posts we found Demand Frontiers for multiple markets. Sometimes these curves have breaks. Such is the case for fiat currencies. As shown in the diagram, this market has an Upper Demand Frontier and an Outer Demand Frontier.

Upper Demand Frontiers emphasize the price-limiting boundary for a market, while Outer Demand Frontiers focus on the quantity-limiting ability of a market to absorb the product. These boundaries help countries’ central banks to figure out how many currency units to issue.

What maintains the price of any currency? Please look at the next post for the first of two answers.

#demand #prices #currency #demandforecasting

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A Change Of Perspective

Modern economics gets inspiration from thermodynamics, constantly looking for the equilibriums such systems demonstrate.

Multidimensional Economics has a different point of origin.

Consider the maps below and the three questions that follow.

Which two countries are these?

Where do they touch?

Why does it matter?

Look to the next post for the answers.

#demandforecasting #prices

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Demand Frontiers Change – But Some Not By Much

Markets change.  Demand Frontiers depict the limits of markets to absorb products based on their prices to the quantities purchased.  While some markets change rapidly (cell phones, flatscreen televisions, computers, etc.), others, especially at their limits, are slow to respond.

The market for fighters and bombers is such a market.

At its Demand Frontier, this market has changed little in 20 years.  The constant over that period changed less than 2.5%, and the slope less than 1.0%.  (Note: The F-35A, shown in a previous post, once corrected for its revised 2016 values, fell off of the Frontier).

If a market’s Demand Frontier is stable over decades, what are the chances of vastly exceeding it?  Tune in to the next post for the answer.

#demand #demandforecasting #prices

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Costs And Prices Both Move Down Over Time

In most markets outside of refining and mining, costs and prices move in the same direction – generally downward.

In the case of the Model T, this happened for nearly two decades. When prices exceed costs, we say the product is in Sustainable Disequilibrium.  When costs rise to and exceed prices, producers end the product line (Source, Abernathy, Product Dilemma, 1978, ISBN ISBN-13: 978-0801820816)

#prices #costs #sustainable #sustainable #disequilibrium

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What was once $300, Now Costs $9.55

Product deflations are the opposite of upward-sloping supply curves. They are nowhere more obvious than in the market for flat-screen televisions.

Here are the equivalent buying powers for televisions over time, beginning at $300 in 2000. (Source: https://lnkd.in/gk97rVM) Processes improve, and people learn.

#supply #prices #learningcurve

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Where Are All The Upward-Sloping Supply Curves?

In every current economics textbook, authors envision upward-sloping supply curves, where suppliers’ prices go up with increasing quantities.  I found an example of one here: (https://lnkd.in/ehA3aez), where the increasing costs from left to right by mine form such a curve.

Has anyone found such curves outside of mining and refining?

If so, please let me know.

Thanks,

#mining #refining #prices #supply #supplycurve