Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Austrian Economics, a lens on everyday reality -- Ignore unavailable to you. Want to Upgrade?

To: Don Lloyd who wrote (260)	11/8/2003 2:08:41 AM
From: Wildstar	Read Replies (1) \| Respond to of 445

Don, From the above we see that when used for headache relief, Tylenol is a first order good consumer good, and will be produced in high volume and sold at a relatively low market price. Is the fact that Tylenol is produced in high volume related to its relatively low market price? Or is this coincidence? OTOH, when Tylenol is used in KDP, it is a non-specific production factor, adding only a small amount of unit demand for Tylenol, and not significantly changing its market price. So the use of Tylenol as a factor of production would minimally push it to the right on its 'Laffer Curve', slightly below max revenues, but not having a significant impact on its overall revenues due to its high volume sales as a consumer good? (Also, I assume that it's Laffer Curve represents all revenues to the company that manufactures it, regardless of whether it is used as a consumer good or a factor of production. In this case, the company would adjust sales to buyers, whether they be those who intend to use it as a consumer good or factor of production, to 're-maximize' revenues.) KDP is a relatively low volume, highly valued and priced consumer product. These characteristics are transmitted directly to its specific production factor, Lytenol. The market price of Lytenol cannot be higher than the market price of KDP minus the market price of Tylenol without impacting either profits or volume. This was the part I initially had the most trouble understanding, but I think I have a grasp of it now. The last three words refer to the profits or volume of Lytenol, not KDP, right? The general conclusion that I think you are reaching for is that the price of a specific factor of production which yields maximal revenues is mostly determined by the price of the consumer good it produces. However, the price of a non-specific factor of production which yields maximal revenues is much more variable.

To: Don Lloyd who wrote (260)	11/10/2003 5:59:30 PM
From: gpowell	Read Replies (2) \| Respond to of 445

An individual decision to acquire a good is a demand for that good. An individual decision to sell a good is a supply of a good. An exchange occurs when the buyer and seller agree on a transaction consideration, or price. In aggregate, price is a function of the demands made by all buyers and the supply provided by all suppliers. In a free market, the price will be determined by marginal demand and marginal supply, i.e. price adjusts until marginal demand equilibrates with marginal supply. The benefits of exchange are maximized where marginal supply equilibrates with marginal demand. Consider that if a condition existed where someone could benefit from an exchange without lowering someone else’s welfare, then the exchange will likely occur. If it does not then this market is said to be inefficient. The condition whereby no one person’s welfare can be improved except by lowering another person’s welfare is known as Perato efficiency. Markets where transactions occur freely are perato efficient.