- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
Economic question: If a low supply means a higher price, why mass produce?
Posted on 9/22/14 at 2:10 pm
Posted on 9/22/14 at 2:10 pm
If I'm a farmer, it seems like it is in my best interest to buy up all the land I can, and only use a portion of it to grow a certain crop. The rest of the land I bought won't be used, but it prevents other farmers from entering the market.
I can charge decent prices for the low supply of crops I offer. Selling ten Bushels at $30/bushel is batter than selling twenty at $5/bushel.
I can charge decent prices for the low supply of crops I offer. Selling ten Bushels at $30/bushel is batter than selling twenty at $5/bushel.
19
Posted on 9/22/14 at 2:13 pm to HailHailtoMichigan!
What is the total amount of land that can grow said crop in the US, in the world? How much land do you own (percent wise)? How muck money do you have to buy more land...
Posted on 9/22/14 at 2:13 pm to HailHailtoMichigan!
Because it's about the demand for those goods?
Posted on 9/22/14 at 2:14 pm to HailHailtoMichigan!
If you own all of the land (supply) and there aren't any alternatives than in theory you are correct.
However in a normal market, competition will happily sell a large supply at that high price until it meets it's breakeven point.
However in a normal market, competition will happily sell a large supply at that high price until it meets it's breakeven point.
Posted on 9/22/14 at 2:16 pm to HailHailtoMichigan!
quote:
If I'm a farmer, it seems like it is in my best interest to buy up all the land I can, and only use a portion of it to grow a certain crop. The rest of the land I bought won't be used, but it prevents other farmers from entering the market.
There's a lot of land out there, you gonna buy it all up?
Posted on 9/22/14 at 2:17 pm to HailHailtoMichigan!
quote:
Economic question: If a low supply means a higher price, why mass produce?
A low supply locally doesn't necessarily mean a lower supply nationally or internationally.
Reduced output to produce distributors means that those distributors will look elsewhere for supply, allowing competition greater opportunity to penetrate the market.
Low supply does mean higher price, which incentivizes increased production. In the end, everything tends to balance out unles...
Government subsidies and price controls often make such a scenario unattractive. However, we actually subsidize this behavior much of the time.
Short version: all things eventually even out over time and government is stupid.
Posted on 9/22/14 at 2:19 pm to HailHailtoMichigan!
Reducing supply to create a higher price may well reduce demand. Demand may be directly tied to the lower prices.
Posted on 9/22/14 at 3:21 pm to HailHailtoMichigan!
Are you asking if it is better for a supplier of a good to be a monopolist or a competitor in that market? Cause it seems like you should already know the answer to that.
But the way you set up the question, it sure seems unnaturally easy to become a monopolist in this world.
This said, even if we look past the immediate results of your question, I think the answer you are more looking for has to do with elasticity. If you generalize your question to ask to ask whether or not producers can be better off by artificially raising prices above the market equilibrium level, the answer is yes, they can. If you recall your freshman economics class, suppliers working in cooperation can increase their profits by raising the market price so long as the price elasticity of demand is inelastic.
But if you allow competition in the market, which surely occurs in virtually all agricultural goods, this is not something consumers need to be concerned with. The invisible hand will protect you; no worries.
But the way you set up the question, it sure seems unnaturally easy to become a monopolist in this world.
This said, even if we look past the immediate results of your question, I think the answer you are more looking for has to do with elasticity. If you generalize your question to ask to ask whether or not producers can be better off by artificially raising prices above the market equilibrium level, the answer is yes, they can. If you recall your freshman economics class, suppliers working in cooperation can increase their profits by raising the market price so long as the price elasticity of demand is inelastic.
But if you allow competition in the market, which surely occurs in virtually all agricultural goods, this is not something consumers need to be concerned with. The invisible hand will protect you; no worries.
Posted on 9/22/14 at 3:24 pm to HailHailtoMichigan!
What about the land taxes on said unused land? You're essentially paying for something that is netting you nothing.
Posted on 9/22/14 at 3:26 pm to HailHailtoMichigan!
Unless you get a monopoly (or close to it) you are just subsiding other farmers who get the benefit of the higher prices, but without the cost of the extra land.
Posted on 9/22/14 at 3:30 pm to idlewatcher
quote:Well, in his situation, this just isn't true. The land set to the side (and potentially costing him taxes) is actually netting him a great deal; it's netting him an increased price on the other goods that he actually is selling (ie, that land is netting him a decreased supply allowing for increased revenue).
You're essentially paying for something that is netting you nothing.
It's kind of a silly world that he proposes, but this is not the best counterargument against it.
Posted on 9/22/14 at 3:41 pm to HailHailtoMichigan!
2*10=20
10*2.1=21
10*2.1=21
Posted on 9/22/14 at 3:44 pm to HailHailtoMichigan!
your goal is to maximize net revenue, not price per unit.
Posted on 9/22/14 at 3:47 pm to HailHailtoMichigan!
quote:
Economic question: If a low supply means a higher price, why mass produce?If I'm a farmer, it seems like it is in my best interest to buy up all the land I can, and only use a portion of it to grow a certain crop. The rest of the land I bought won't be used, but it prevents other farmers from entering the market.
Yes, but will you net enough to maintain your unimproved land and to pay your taxes on the unimproved land.
Would your cash be better spent buying less land and cultivating it and meeting the demand of your customers and thus making less per bushel but harvesting more bushels?
And how did you realize the money to buy the extra land. If you did it by growing crops, wouldn't there be other farmers already growing crops? Wouldn't these other farmers make more money as you bought out other competitors of theirs and left their land untilled?
Wouldn't these guys realize their land is more valuable and not sell it to you unless they raised their prices and thus costing you more? How would that work?
Posted on 9/22/14 at 3:49 pm to HailHailtoMichigan!
Because of lifetime limits that's why
Posted on 9/22/14 at 3:57 pm to HailHailtoMichigan!
quote:You're talking all the farmland in the US?
If I'm a farmer, it seems like it is in my best interest to buy up all the land I can, and only use a portion of it to grow a certain crop. The rest of the land I bought won't be used, but it prevents other farmers from entering the market.
Couple of things. (1) At some point your land hoarding will drive up property value to the point a sale would be irresistible. (2) In real terms the market is national and even international. You will be undersold.
Posted on 9/22/14 at 5:07 pm to HailHailtoMichigan!
Because your land doesn't affect the price of anything. You are discussing monopoly theory.
Posted on 9/22/14 at 6:16 pm to Holden Caulfield
quote:
Reducing supply to create a higher price may well reduce demand. Demand may be directly tied to the lower prices.
Yep. Substitution effect.
Unless you're big enough to dictate the terms, you have to live with the law of supply and demand.
Posted on 9/22/14 at 10:22 pm to HailHailtoMichigan!
quote:
If I'm a farmer, it seems like it is in my best interest to buy up all the land I can, and only use a portion of it to grow a certain crop. The rest of the land I bought won't be used, but it prevents other farmers from entering the market.
I can charge decent prices for the low supply of crops I offer. Selling ten Bushels at $30/bushel is batter than selling twenty at $5/bushel.
You didn't think this too deeply before posting, did you? ;)
Posted on 9/22/14 at 10:25 pm to HailHailtoMichigan!
quote:
If I'm a farmer, it seems like it is in my best interest to buy up all the land I can, and only use a portion of it to grow a certain crop. The rest of the land I bought won't be used, but it prevents other farmers from entering the market.
The problem is you alone can't control the market
If it makes more sense to grow and sell you do so. You're not going to turn the market on its ear by yourself. That plan would be self defeating.
Page 1 of 2
Popular
Back to top
Follow TigerDroppings for LSU Football News