Supply and demand thesis is irrational - Politics Forum.org | PoFo

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#1507541
Capitalists argue that in order for the market to ensure enough food for the population, it must regulate the prices according to supply and demand.

But nowhere, except in really, really poor nations, do people eat less because of higher food prices.

We will naturally fill our basic needs first, leading us to eat the same amount of food we usually do, whereby the higher prices serve no other purpose than giving more money to the food industry. It serves no practical purpose for the greater good or community!
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By Kapanda
#1507560
If you looked at real evidence, you'd be surprised.

There's an autonomous level of spending, which includes the necessities of which you speak of, but the higher the prices the less luxuries are consumed, and food levels higher than necessary to remain healthy are luxuries.

If Jaffa Cakes cost £10 per cake, there would be none consumed. On that same token, I think they cost £2 now, if they cost £3 or £4, there would be less consumption.
By dktekno
#1507567
There's an autonomous level of spending, which includes the necessities of which you speak of, but the higher the prices the less luxuries are consumed, and food levels higher than necessary to remain healthy are luxuries.


You don't eat less bread in a country where bread is the staple food because it becomes more expensive. Instead you pay more for it, thus having less money for other luxuries (luxuries that may even be in abundance).

People don't eat more food as a luxury, they eat other food as luxury. The reason is that people simply cannot (or very rarely) eat more food than what their stomachs are satisfied with.

It is in the common human nature to satisfy your stomach before satisfying your brain.

You could argue that eating more food than neccessary to satisfy you stomach may be a luxury (luxury = pleasure), but since eating more than that makes you sick, it cannot be a luxury because it is not a pleasure to you. If it is not a pleasure it is not a luxury.

You do not get sick of having 10 cars. Therefore there is nothing that naturally stops you from buying 10 cars. So in order to ensure there can be produced enough cars, the prices are so high, that you can only have 1 or 2 cars.

You do get sick of eating more food than what is healthy.

Though you could argue that it takes more food than what is healthy to make you full, but people will naturally eat food until they are full, at the expense of other luxuries.
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By Kapanda
#1507609
If you are to break it down to food essentials, then yes. Milk, bread, coffee, rice, etc, won't vary much in terms of consumption regardless of price level.

But there are other items that are also food and not much more than luxury. Sweets, cakes, caviar, smoked ham, burgers, and all that stuff. It is consumed, and their levels of consumption vary quite a bit with price levels.
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By TropicalK
#1507615
When you go to a restaurant, have you ever not ordered desert because you didn't want to pay more?

Do you generally eat more at a buffet than at home?
By dktekno
#1507630
Do you generally eat more at a buffet than at home?


No I don't eat more at a buffet, but I eat differently at a buffet.

I eat all the luxuries at a buffet (the meat), leaving out vegetables (I get those at home, I don't need them at a buffet).

I don't know how much I eat, but lets say I eat 1 kg at dinner.
At a buffet, I'd eat 1 kg meat.
By SaulOhio
#1507717
Yes, there is a limit to how much bread a person will eat. That is the demand. Demand is never unlimited, and the theory doesn't say it should be.

Here is your typical demand curve:

Image

Notice that the curve intersects the horizontal axis at a price of zero. Even if the price is free, there is a limit to the quantity demanded. The theory already takes your objection into account.
By dktekno
#1507753
Notice that the curve intersects the horizontal axis at a price of zero. Even if the price is free, there is a limit to the quantity demanded. The theory already takes your objection into account.


But the theory does not take into account that you don't consume less staple food if the prices on staple food is increasing. The fact is that people will tend to cut down on their luxuries first. Only in very poor nations where the poor people have absolute no luxuries to cut in, will you see any differences in consumption of staple food.
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By Kapanda
#1507761
No, actually the theory also takes into account the price elasticity of goods, and it even has a metric to measure what is considered a necessary good (I forget the actual technical term) and luxury goods.

Those staple foods that you speak of would have price elasticity close to 0, and luxuries would have a price elasticity close to 1.

BTW Saul your demand curve is faulty, it's missing the (34,1.50) blob...
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By Potemkin
#1507822
Capitalists argue that in order for the market to ensure enough food for the population, it must regulate the prices according to supply and demand.

The so-called 'law of supply and demand' is perfectly rational, so long as the non-elasticity of certain goods and services is taken into account. What is irrational is the faith that this law of supply and demand will automatically and always ensure that the entire population always have enough food to eat. There are many counterexamples from history which demonstrate the falsity of that belief, most notably the Irish Famine of 1845-52, but also the Bengal Famine of 1943 among others. During both famines, the British authorities were committed to a laissez-faire free market in food, under the assumption that it would be both pointless and immoral to interfere with the workings of the free market.
By SaulOhio
#1508129
I thought I had covered the Irish Potato Famine already on this forum.

There were several reasons why the law of supply and demand did not function in Ireland at the time.

For one thing, Irish Catholics were not allowed to buy, sell, or inherit land. This put a vast majority of the population outside the free market system

Ireland had a long history of expropriations, with every change of political power resulting in land being taken from its owners and transferred to another set of owners. So even the English landlords were insecure in their property rights.

There were also the Corn Laws, and the Navigation Laws which hindered free trade with the rest of the UK.

Blaming the law of supply and demand for the Irish Potato Famine is the usual socialist ruse of blaming the free market for problems that occur in its absence. The free market had an alibi. It wasn't there.

I have brought up these points before on this forum.

Here is what I posted on the Indian famines:
Famines in India: Trade was restricted by local rulers who were allowed to administer the law for the British, and they took local control of the food supply. Also, Governor-General of India at the time, Warren Hastings, raised taxes astronomically.

Bengali Famine

Although there was plenty of food potentially available, the price of rice rose through 'market forces', driven by a number of factors including: the cessation of imports from Japanese-occupied Burma, a dramatic wartime decline in other requisite grain imports into India, compounded by the deliberate strategic slashing of Allied Indian Ocean shipping; heavy-handed government action in seizing Bengali rice stocks in sensitive areas; the seizure of boats critically required for food acquisition and rice distribution; and finally the 'divide and rule' policy of giving the various Indian provinces control over their own food stocks.

You don't remember me making these arguments, and presenting that evidence?
By SeriousCat
#1523252
You don't eat less bread in a country where bread is the staple food because it becomes more expensive. Instead you pay more for it, thus having less money for other luxuries (luxuries that may even be in abundance).


This is known in economics as a "giffen good," where the good defies the law of demand; when prices increases people consume more of the good, rather than less. This usually doesn't exist in 'first-world' countries since almost all food is, in absolute terms, a luxury good. Luxuries are usually very price sensitive for consumers.
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By Nets
#1523361
^ The existence of Giffen Goods isn't exactly proven. Many economists doubt they exist. The classic example given is potatoes in Ireland, but the data from the time is so shoddy it is hard to make a the call.

Personally, I'm not convinced Giffen Goods exist.
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By NYYS
#1523381
I remember reading a crude example of someone setting up a bench in a park to sell brownies, and as the price increased more people were interested in buying them, because they felt like the increase in price signified some kind of quality.

Of course, this only exists to a point. While you probably wouldn't buy someone's brownies for a cent, you probably also wouldn't be paying $10/brownie either. But I think it's more to do with distrusting the quality of something that's "too" cheap than happily paying more and more and more.
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By ThereBeDragons
#1523402
Giffin goods and Veblen goods are different, which have upward-looking demand curves for different reasons.

Well, if anybody wants to see whether or not Giffin goods exist, now would be a pretty good time to do a study.
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By Maxim Litvinov
#1523472
Giffen goods are cool. Poor students and pot noodles would be an appropriate study.

I really can't see how they couldn't exist though. I mean (a) lots of things already exist that don't fit into the pretty diagrams of neo-classical economists and (b) the theory behind Giffen goods just makes sense.
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By Nets
#1523566
Giffen goods are cool. Poor students and pot noodles would be an appropriate study.


Maxim, do the increase in the prices of these noodles cause increased demand?

I really can't see how they couldn't exist though.


I don't think they make sense.

I mean (a) lots of things already exist that don't fit into the pretty diagrams of neo-classical economists and


I understand your eagerness to shit on classical economics, but Giffen Goods come from classical economic theory. They are substitution/income effects taken to their logical conclusion when given weird circumstances.

(b) the theory behind Giffen goods just makes sense.


Why?

There is very little, if any, empirical evidence for their existence.
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By amanamuse
#1523587
dktenonsense wrote:But nowhere, except in really, really poor nations, do people eat less because of higher food prices.

...as not at all evident by my weight loss and subsequent weight gain when moving from Chicago to San Francisco then back to Chicago, but as long as some person with access to the internet posted it on a forum, it must be true! :roll:
By SeriousCat
#1523684
The existence of Giffen Goods isn't exactly proven. Many economists doubt they exist. The classic example given is potatoes in Ireland, but the data from the time is so shoddy it is hard to make a the call. Personally, I'm not convinced Giffen Goods exist.


Giffen goods have existed in one time in history or another, but they mostly exist in certain social classes (usually the lower classes) and in environments that lack viable, affordable substitutes to certain necessities (e.g. particular types of staple foods in poor regions).
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By Maxim Litvinov
#1523757
Maxim, do the increase in the prices of these noodles cause increased demand?

They should, if they are (a) the cheapest foodstuff available (b) there aren't alternatives (c) they are quite filling and (d) they are a 'staple'.

I understand your eagerness to shit on classical economics, but Giffen Goods come from classical economic theory.

Well, I probably mis-spoke. They *come* from an old-style economist and his theory, yes. But they are so *out there* that those economists who work on the basis of over-simplistic 'rules' about what should and should not happen in their social science (eg. increased price = decreased demand) struggle with them. Rightly or wrongly, I associate that sort of dogmatism with neo-classical economics.

There is very little, if any, empirical evidence for their existence.

Because a lot of criteria need to be satisfied and it's easy to 'talk oneself out' of the criteria occurring. Theoretically speaking though, it makes perfect sense - ie. since we know people will try to get an appropriate calorie intake a week provided they can afford it and since we know it makes sense for the poor to buy the cheapest food for its nutritional value, it all clicks into place: ie. it works as a thought experiment which makes *perfect sense*.

The problem is finding an appropriate study where the price of the staple food goes up relative to other foods out there. Which doesn't occur that often, as far as I know. The Irish potato famine produced one such study - perhaps rising rice prices are yet another good example.

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