Lecture 1 Ethics
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| No manipulation of price • Monopolies and Cartels can manipulate price (they set an artificially high market price) • Price fixing (ie, bread/superstore) Supply and Demand D > SP SD PD SP [market is in equilibrium] High prices typically mean big profits for the manufacturer/seller. These profits often manifest themselves inconspicuous consumption by the manufacturer, prompting others to begin manufacturing the demanded item as well. As more manufacturers make them, the supply increases. The suppliers begin competing with each other for customers. Assuming demand remains relatively constant, then suppliers have to begin having sales/promotions to entice customers (price of item drops. When the price of the item drops, the less efficient manufacturers (those with high costs of manufacturing low output relative to their inputs) are forced out of business. Assuming demand remains constant, then prices should start to rise again, because eventually demand will exceed supply. As the demand and supply shift, there will betimes when the two roughly equal one another. When this happens, price holds steady and the market is in equilibrium. This is called a “market clearing price” (Smith calls the “central price”) in the sense that there is no inventory overstock and no inventory back-ordered. In other words, any items manufactured will immediately clear through the market from the manufacturer to the customer. Natural Price: the cost of delivering the goods to the market (eg, raw materials, wages, including living needs)are covered by the price. [also called ordinary price Download 0.65 Mb. Share with your friends:
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