Re: [APD] Hydroponics

[Jerry Baker <jerry at bakerweb_biz>]

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.

-- 
Jerry Baker
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