If the elasticity of demand is elastic, then a reduction in price will be made up for by the increased quantity that people buy. Use the total revenue test.
Ask an Economist (Post #1005 and counting)
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If the elasticity of demand is elastic, then a reduction in price will be made up for by the increased quantity that people buy. Use the total revenue test.
Well yes, demand curves are downward sloping, and if demand is elastic at a given point, quantity demanded, revenues, and profits increase by lowering the price. But we're talking about supply curves, not demand curves.
Since people buy more, you're willing to supply more. Price is not a determinant of anything. So you're confusing a shift in supply with a shift in quantity supplied.
Homie
Anti-Lefty
Prices are definately determinents, they are everything. If the market price is higher, more will be supplied.
To JerichoHill:
Why would it be a problem to return to the gold standard? Or some standard, as long as the money is backed by something tangible. It would restore the US currency to the most reliable and trustworthy in the world. Sure, it would tie up some physical resources (gold, if that is the backing), but isn't that a small price to pay? Imagine a world where 1$ is the same today as it will be a 100 years from now.
Homie
Anti-Lefty
Oh, and what do you think of getting rid of the Federal Reserve? We would still have some department that printed money (to replace destroyed and worn-out money), but it was limited to that. It wouldn't tinker with interest rates and money supply like it does now.
Japanrocks12
tired of being a man
yeah, but the actual supply schedule(aka, where the supply curve is located) is not determined by price. A change in price does not mean a change in the supply schedule but only a change in the quantity supplied on the same supply curve.
Price is not a determinant of either supply or demand.
The determinants of demand are: related goods (prices of compliments and substitutes), expectations, income, number of potential buyers, and preferences.
The determinants of supply are: the number of sellers, expectations, technology, prices of relevant resources, prices of other goods, and taxes/subsidies.
Price is not a determinant! Determinants of supply and demand shift supply and demand; the price is the amount that people pay for a given quantity demanded. You can't confuse demand with quantity demanded.
When governments set a price floor below equilibrium, that changes the price but does not change demand! It might change supply though, since it is essentially a subsidy, but the number of people who are now in the market is already depicted given the surplus of goods created on the graph.
Go back to your high school economics class. ;D
The determinants of demand are: related goods (prices of compliments and substitutes), expectations, income, number of potential buyers, and preferences.
The determinants of supply are: the number of sellers, expectations, technology, prices of relevant resources, prices of other goods, and taxes/subsidies.
Price is not a determinant! Determinants of supply and demand shift supply and demand; the price is the amount that people pay for a given quantity demanded. You can't confuse demand with quantity demanded.
When governments set a price floor below equilibrium, that changes the price but does not change demand! It might change supply though, since it is essentially a subsidy, but the number of people who are now in the market is already depicted given the surplus of goods created on the graph.
Go back to your high school economics class. ;D
Why would that same dollar be perfectly stable for a hundred years if it wasn't perfectly stable during the gold standard (and Bretton Woods) years?
Homie
Anti-Lefty
Absolutely, I couldn't agree more.
So that clearly shows that price is not a determinant. Your argument has fallen right apart.
And darn you Japanrocks12, you stole my thunder! Erase your post immediately! My post does a far better job of clarifying. =P
Homie
Anti-Lefty
I agree. I read the post I replied to at first to mean "prices don't matter", which they certainly do. They signal what and how much to supply. I know that prices don't shift the supply curves, I didn't think I had to spell it out for you. Btw, get off your high horse. And I won't return your sarcastic wink.
Homie
Anti-Lefty
Actually it doesn't, his post was concise and to the point, no more explanation was necessary.
You said that prices did shift supply curves!
Determinants of demand and supply determine the actual demand and supply. Thus a change in determinant changes demand and supply. Price is just the price; it's not the determinant of anything! You said, in effect, that prices shifted supply curves, so don't just say "Japan is right, I agree with him completely; with you however I will object to how you posted your rebuttal!"
I was making sure you knew what the actual determinants were! It was a friendly service.
Homie
Anti-Lefty
Homie
Anti-Lefty
No, I didn't. I said this:Lightfang said:
which is correct.Homie said:
You assumed too much in your response. I didn't spell out "quantity supplied" even though that was what I meant, I didn't mean "supply curve" which you read into my post. Usually when people say supply they mean "quantity supplied", it is just an intuitive, linguistical thing.
I thought it was
As I said previously, new gold supply can't keep up with economic growth (and trade growth). Therefore, to keep up, you'd have to revalue the dollar compared to an ounce of gold frequently.
This would be especially true if the United States continued with huge trade deficits.
LuvToBuild
Prince
For the reasons alluded to by The Yankee. A gold standard by itself isn't going to fix anything so long as you allow for frauds in the system such as fractional reserve banking. This is the sort of thing that led to Nixon removing us from the gold standard and thus ending the Bretton Woods agreement. If you print more dollars than gold to back it up, you've done nothing essentially different than print fiat dollars like we do today. In either case, inflation becomes a problem. You might be interested to learn more about the proposed Monetary Reform Act. If it could be coupled somehow to backing our money with something of intrinsic value without creating a disastrous contraction of the money supply, then I'd favor backing our money with something of value. Perhaps there is more gold and silver in the world than I think but it's hard to imagine that we could back every single dollar currently in circulation throughout the world with gold and silver. This is largely why we went off the gold standard.
By saying that price is a determinant of anything, you're saying that it changes supply and demand, and not that it changes quantity supplied or quantity demanded. I didn't read anything into anything; that's the definition of a determinant. A determinant determines stuff! In this case, the determinants of supply or demand change supply or demand.
And even if it's a intuitive, linguistics thing, if you're going to talk about the determinants of supply and demand like an economist, you'd better talk like one. Or learn. You can't be sloppy in economics. =P
Of course, I'm being incredibly simple and I don't even know all the details of the events that led to the collapse of the Bretton Woods agreement in the late '60s and early '70s, but in general, the world's moving too fast for gold.
Integral
Can't you hear it?
Basically, yes. Especially since the US has been growing at 3% per year for the past two decades or so.
Jericho, congratulations on the second Economist thread! And apparently you got married a short while ago. Congratulations there too!
[Question]
Will the Slutsky equation ever be useful after Intermediate Micro? Because I get it, I understand what it does (break up a change in demand into income and substitution effects), but I'm not sure why that's so important. Perhaps a better way to phrase it is, does the Slutsky equation have applications in public finance, development, or international trade?
Or can I safely put it out of my mind after the midterm?
[/Question]
For those not in Intermediate Micro, this is the Slutsky equation.
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