tag:blogger.com,1999:blog-6245381193993153721.post4341209705547909349..comments2024-03-28T17:08:15.784-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: Imagine if the Price of Haircuts was Determined by Supply and DemandLord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-6245381193993153721.post-3299595772627094212022-01-18T12:25:50.319-08:002022-01-18T12:25:50.319-08:00No, they're not. OPEC has lots of influence bu...No, they're not. OPEC has lots of influence but it doesn't set oil prices anymore. BZhttps://www.blogger.com/profile/02639095987526290064noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-9673021002310154832014-05-06T05:30:04.709-07:002014-05-06T05:30:04.709-07:00"Doesn't mark-up and marginal cost pricin..."Doesn't mark-up and marginal cost pricing achieve the same result for profit maximizing firms?"<br /><br />Depends on what "result" you're looking for. Why do model-oriented economists not understand this? They seem to assume that there is only one question that needs to be answered.Philip Pilkingtonhttp://fixingtheeconomists.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-28125568085717645882014-05-05T17:15:35.317-07:002014-05-05T17:15:35.317-07:00Doesn't mark-up and marginal cost pricing achi...Doesn't mark-up and marginal cost pricing achieve the same result for profit maximizing firms? I did some calculations with a simple example for a monopoly, using P = AC(Q)*(1+M), and got the same result. This, of course, assumes that firms have all the required information or can obtain it costlessly (which they don't and can't).<br /><br />You are also criticizing models outside their scope of analysis. For instance, you say:<br /><br />"And who would want to live in a world in which you could never be sure what the price of a haircut would be every time you wanted to get one?"<br /><br />Have in mind that the model you're criticizing here assumes full information, so consumers would never be unsure about prices. Yes, this assumption is completely unrealistic and this model is as limited as its assumptions are implausible. However, that's a different issue. If you start assuming, for example, that changing prices implies costs both for firms and consumers, you'll get completely different results.mimimiihttps://www.blogger.com/profile/13856381939523805668noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-34483852022174599112014-05-05T07:02:26.405-07:002014-05-05T07:02:26.405-07:00"My local gas station posts prices. If there ..."My local gas station posts prices. If there is a queue the price dies not rise while I sit there, if the plaza is empty the price does not tick ever downward. Yet supply and demand curves are a good model for gas prices in the whole market."<br /><br />Um... oil prices are set by the OPEC cartel...Philip Pilkingtonhttp://fixingtheeconomists.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-67488636749148073602014-05-04T13:33:35.433-07:002014-05-04T13:33:35.433-07:00LK,
Of course prices are sticky and few are direct...LK,<br />Of course prices are sticky and few are directly set by auctions. That does not mean SD curves cannot apply. If I were wicked I'd call that an Austrian argument! (It is.) it does have implications on time scales of course, which will vary by circumstance. Ken Bhttps://www.blogger.com/profile/12976919713907046171noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-89677158865071650232014-05-04T10:01:00.558-07:002014-05-04T10:01:00.558-07:00Although in point (2) I stress that in any real wo...Although in point (2) I stress that in any real world experiment obviously there might be factors other than price causing demand changes too, since in the real world you can't possibly hold everything apart from price equal (as in ceteris paribus).<br /><br />Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-35990974796835792292014-05-04T09:45:31.983-07:002014-05-04T09:45:31.983-07:00Ken B, I think this is just a failure of communica...Ken B, I think this is just a failure of communication. <br /><br />Let me clarify:<br /><br />(1) I am not saying that supply and demand for hairdressing services do not exist!: of course there is a market in this sense.<br /><br />(2) if a barber did a real world experiment and lowered his prices from a high price and constructed a graph with discrete points on it showing how quantity demanded each month was associated with a given price, then, yes, you may very well find it looks like curve (or you might not: it is indeed an empirical question). <br /><br />(3) the point above is about <i>price setting</i>: the price of hairdressing services is usually a mark-up price and relatively inflexible. <br /><br />The way people set prices here -- as in other markets -- is conventional and deeply ingrained: we probably don't think twice about the fact it is not how price would be set by strict supply and demand dynamics.<br />The other point I made above is: can you find any people who think that waiting your turn for a haircut is some disastrous failure of production and an economic shortage that needs to be rectified by auctioning hair cuts?Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-67344110918130136202014-05-04T09:31:50.612-07:002014-05-04T09:31:50.612-07:00"Philip PilkingtonMay 4, 2014 at 8:09 AM
In t..."Philip PilkingtonMay 4, 2014 at 8:09 AM<br />In this case the firms do have to behave in the way that the curves describe otherwise the curves are meaningless."<br />Perhaps. You have to show it though. I do not deny you can, I only assert you need to. <br /><br />Your comment is an acknowledgement that LK did commit the fallacy of composition.<br /><br />We are not going to turn into Murphy's here and construe questioning logic as making a substantive claim are we? Ken Bhttps://www.blogger.com/profile/12976919713907046171noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-48121504260790506632014-05-04T09:26:40.264-07:002014-05-04T09:26:40.264-07:00You are plainly inferring that since no barber fol...You are plainly inferring that since no barber follows a curve the market in barbering does not. Composition. <br />My local gas station posts prices. If there is a queue the price dies not rise while I sit there, if the plaza is empty the price does not tick ever downward. Yet supply and demand curves are a good model for gas prices in the whole market. <br />As MF would doubtless say, it is an empirical question. You need to look at the behavior of the market. :)Ken Bhttps://www.blogger.com/profile/12976919713907046171noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-31882087900190515652014-05-04T08:13:01.854-07:002014-05-04T08:13:01.854-07:00Yes, indeed. The queuing in the barber (or in the ...Yes, indeed. The queuing in the barber (or in the dentist or even in the shop to pay for goods) should be seen in terms of supply and demand arguments as a shortage or rationing condition.<br /><br />If the barber responded to supply and demand he would raise the price until all but one customer left. Obviously that would be absurd.<br /><br />I don't think that there is even a good case to make that barbers compete with one another. I live in a wealthy area of London. If I go to the local village a haircut costs about £20. If I go down to the poorer area near the underground station I can get one for £8. I don't think that the £12 difference is accounted for by quality at all.Philip Pilkingtonhttp://fixingtheeconomists.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-7093834399120370372014-05-04T08:09:59.783-07:002014-05-04T08:09:59.783-07:00In this case the firms do have to behave in the wa...In this case the firms do have to behave in the way that the curves describe otherwise the curves are meaningless.Philip Pilkingtonhttp://fixingtheeconomists.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-10804523888571405072014-05-04T08:08:34.961-07:002014-05-04T08:08:34.961-07:00Well, even if demand curves were well behaved for ...Well, even if demand curves were well behaved for all product markets, then what I say above would still be true.<br /><br />I am just pointing to the empirical reality of one type of price setting in one sector.<br /><br />Also, the "fallacy of composition arises when one infers that something is true of the whole from the fact that it is true of some part of the whole".<br /><br />But I am not concluding from one product market or even some that all or most behave this way.<br /><br />Not sure how I am committing the "fallacy of composition" here, Ken B.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-39196933420175456272014-05-04T08:02:53.064-07:002014-05-04T08:02:53.064-07:00Fallacy of composition. The contention is that cur...Fallacy of composition. The contention is that curves are abstractions which capture an overall aspect of behavior. It is not required that each market participant exhibit curve like behavior. Ken Bhttps://www.blogger.com/profile/12976919713907046171noreply@blogger.com