Supply & Demand

[Apollodorus]

If I may ask a hypothetical question about economics:

There is an imaginary commodity known as a 'marx'. One human can consume just one marx in their entire lifetime. There are ten humans on the planet. Therefore, the demand for marxs is said to be 10. Obviously, if the supply is 9 marxs, then marxs will be scarce, and therefore the humans will need to pay money to buy a marx. What, then, will marxs cost if there are 10 marxs? Will they be free or will people still need to pay (supposing the suppliers are totally naive)? Or will there need to be a supply of 11 marxs for them to have no value?

To put it another way, when I go to the bakery at four thirty, they give me buns for free, complimentary. This is because the supply of buns exceeds the demand at that time. But what would happen if the supply and the demand were equal? What then?

Sorry if you understand completely and you think I am treating you like you are stupid: I assure you everyone I asked before now did not understand what I was asking even when I explained it like that.

And yes, this is relevant to this forum.

[gilhyle]

If I unerstand your question, this is really a question for game theory, as applied to economics.....however, without that capacity (never could work the formal arguments properly) it seems to me if demand is 10 and supply is 10 then there is no requirement for a price to reconcile supply and demand...therefore price is zero or does not apply.

[Issaiah1332]

If I may ask a hypothetical question about economics:

There is an imaginary commodity known as a 'marx'. One human can consume just one marx in their entire lifetime. There are ten humans on the planet. Therefore, the demand for marxs is said to be 10. Obviously, if the supply is 9 marxs, then marxs will be scarce, and therefore the humans will need to pay money to buy a marx. What, then, will marxs cost if there are 10 marxs? Will they be free or will people still need to pay (supposing the suppliers are totally naive)? Or will there need to be a supply of 11 marxs for them to have no value?

To put it another way, when I go to the bakery at four thirty, they give me buns for free, complimentary. This is because the supply of buns exceeds the demand at that time. But what would happen if the supply and the demand were equal? What then?

Sorry if you understand completely and you think I am treating you like you are stupid: I assure you everyone I asked before now did not understand what I was asking even when I explained it like that.

And yes, this is relevant to this forum.

I once asked the same question to one of my teachers...he told me that such a thing would never happen. So my guess is that most people are unsure. I would agree with gilhyle and say that game theory would be needed to solve this, being that it deals with equilibria. But I do not know much on the subject, other than the basics, that there was once a movie on the "father" of game theory, and that he was a schizo west virginian.

[Apollodorus]

If I unerstand your question, this is really a question for game theory, as applied to economics.....however, without that capacity (never could work the formal arguments properly) it seems to me if demand is 10 and supply is 10 then there is no requirement for a price to reconcile supply and demand...therefore price is zero or does not apply.

That is encouraging. It was my opinion that this was the case because value is determined by scarcity, and money determines who gets the scarce resources. My argument (I mean, the argument I use when arguing with people about socialism) was that world hunger can not solved by aid, charity and generosity because the supply of food can never meet the demand in a capitalist world because then the market would be glutted, the food would lose its value and the farmers would become bankrupt and find work elsewhere: therefore the next year the demand will once again exceed supply and people will go hungry once again. But you see, this argument is void if I was incorrect about the whole 'food losing its value' thing when supply meets demand: the problem with the capitalist system would not be inherent but in fact solvable with an increase in farming efficiency.

Oh, and I have no idea what game theory is. But if it solves my question for certain then I like it. :lol:

[Magic Snowman]

Actually, just the fact that supply and demand are equal does not mean that an object does not have a market price. Indeed, even if supply is greater than demand, the object would still have a market price.

Think about your hypothetical world, with ten marxs and ten people. Of course if everyone has exactly one marx, then marxs have no price because there is no need to exchange them; everyone has a life-time supply. But if someone has no marx, and someone has two, then the person with two will be able to sell his extra marx. Even if there were eleven marxs, as long as there's one person without any, there would still be a market price. Only when all ten people on the planet have a marx does the eleventh become worthless.

Even if the global agricultural industry were to produce enough food for everyone on the planet, the price of food would not drop to zero. Sorry, you're going to have to find some other arguements against capitalism. But don't worry, there's plenty out there.

[Victus Mortium]

In a modern capitalist economy, the item would be sold at its price of production. In former economies (feudal, slave) it would be sold at its value. In a completely communist society, it would not be sold because everyone would receive based on need and availability. For more information I would highly suggest you read volumes 1,2, and 3 of Das Kapital by Karl Marx. It is pretty much the foundation of communist economic theory.

[mikelepore]

Not in the hypothetical question at the top of this topic, but in real life, there's no such thing as "demand" without the price being part of the item's name.

It's always something like: how much demand would there be for a one-dollar bushel of corn, how much demand would there be for a five-dollar bushel of corn, etc. Only then can there be a buyer's response such as: I would rather suffer the lack of corn than pay five dollars; but I would rather pay one-dollar than suffer the lack of corn.

The stock market does this most directly of all. The very first thing that happens each trading day is the matching of limit orders, for example, owners of a million shares who said "sell them only if the price is $100 or more" will get matched up with the potential buyers of a million shares who said "buy them only if the price is $100 or less" -- and that price will be $100. Then some people will remain in one group or the other, so the stock exchange specialists move the price, and then the matching is repeated.

[Apollodorus]

Alright, considering what has been said since my last post, I will change my question slightly. There would be a limit where the price of food would drop so low that farms would run at loss, correct? If so, whereabouts would this be?

[rouchambeau]

if the supply is 9 marxs, then marxs will be scarce, and therefore the humans will need to pay money to buy a marx

It doesn't follow that if something is scarce that people will have to have some system of exchange.

[gilhyle]

Actually, just the fact that supply and demand are equal does not mean that an object does not have a market price. Indeed, even if supply is greater than demand, the object would still have a market price.

Think about your hypothetical world, with ten marxs and ten people. Of course if everyone has exactly one marx, then marxs have no price because there is no need to exchange them; everyone has a life-time supply. But if someone has no marx, and someone has two, then the person with two will be able to sell his extra marx. Even if there were eleven marxs, as long as there's one person without any, there would still be a market price. Only when all ten people on the planet have a marx does the eleventh become worthless.

Even if the global agricultural industry were to produce enough food for everyone on the planet, the price of food would not drop to zero. Sorry, you're going to have to find some other arguements against capitalism. But don't worry, there's plenty out there.

I fully agree with this and it illustrates the problem in any game theory argument - the assumptions on ownership are critical.

Agriculture illustrates the point : 'surplus' (sic) production gets destroyed rather than feed people. That is what the EU and North American agricultural subsidies in defence of farming are - an exercise of the power of property to starve people.

[BuyOurEverything]

Alright, considering what has been said since my last post, I will change my question slightly. There would be a limit where the price of food would drop so low that farms would run at loss, correct? If so, whereabouts would this be?

As gilhyle pointed out, America actually subsidizes its agricultural industry, which allows it to sell food below it's natural market price. Unfortunately, this undercuts the agriculturally based economies of developing countries because imported American food is cheaper than domestically produced food. So even though they have access to food below market price, they often still starve because they don't even have the minimal amount of money to buy it. Also, as has been pointed out, even if supply matched demand, there are still labour, distribution, and other production costs that would need to be factored in. Plus the producer would still need to make some profit, so the price would never drop to zero.

[Severian]

If I may ask a hypothetical question about economics:

There is an imaginary commodity known as a 'marx'. One human can consume just one marx in their entire lifetime. There are ten humans on the planet. Therefore, the demand for marxs is said to be 10. Obviously, if the supply is 9 marxs, then marxs will be scarce, and therefore the humans will need to pay money to buy a marx. What, then, will marxs cost if there are 10 marxs? Will they be free or will people still need to pay (supposing the suppliers are totally naive)? Or will there need to be a supply of 11 marxs for them to have no value?

To put it another way, when I go to the bakery at four thirty, they give me buns for free, complimentary. This is because the supply of buns exceeds the demand at that time. But what would happen if the supply and the demand were equal? What then?

Sorry if you understand completely and you think I am treating you like you are stupid: I assure you everyone I asked before now did not understand what I was asking even when I explained it like that.

And yes, this is relevant to this forum.

I'm not sure that anyone has figured out how to measure "demand" in practice.

But I'd suggest the labor theory of value gives an answer: that it depends on how much labor is required to produce the commodity. (Including the labor to produce the inputs, etc.)

This doesn't necessarily contradict supply-and-demand. Supply-and-demand can be viewed as a mechanism by which prices arrive somewhere near a value based on the labor they contain.

But it does answer your question which supply-and-demand by itself can't: why do the supply and demand curves meet at one price and not another?