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Re: [APD] Hydroponics
Bill D wrote:
> Jerry B. said,
> <<Not always. The market bears a higher price for organics, <<so that's
> where the demand-price equilibrium is.
> A market price is determined by the relationship between demand and supply.
> In the short term, when demand increases and supply remains constant, the
> price increases; when supply increases and demand remains constant, the
> price decreases. That's basic economics. Right now the demand for organics
> exceeds the supply, while the demand for non-organics is generally in
> equilibrium with the supply. Hence the difference.
In the real world prices are set so that profit is maximized ceteris
paribus (as they say in the dismal science). This has the natural
consequence that if people are willing to pay more for a product, then
it will cost more regardless of demand. It's the natural result for a
product that doesn't have a large elasticity of demand. Enron exploited
this phenomenon to great success in the electricity market a few years
ago to reap huge profits. If they hadn't wasted all their money on other
shady stuff, the market manipulation alone would have kept it one of the
most successful companies in American history.
This is all off-topic of course, but the point is that elasticity of
demand is a as strong an influence on price as is the actual demand
itself. People choosing organic foods view it as an important choice,
and therefor are willing to pay more. That means the price will be more
regardless of demand.
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