re: #292 lostlakehiker

You’re wrong about the price of a good being set by what the market will bear, and not by production costs. Whatever the production cost, there will be a market price. The higher the production cost, the higher the market clearing price at which demand curve crosses supply curve.

Production cost, you must bear in mind, is not a fixed number. It’s cheaper per bushel to raise N bushels of corn on an acre than to raise 2N. “Production cost” is a curve describing the amount that the producer must spend to produce thus and so amount. Here, it’s not “produced” until it reaches its market. The cost of delivery to the consumer is part of the production cost.

If your costs go up, and everybody else also sees the same increase in costs, you and your compeers will raise your prices, produce* less, sell less, make less, and everybody’s worse off. This works the same whatever the commodity. Even illegal drugs.

*keeping in mind that it’s not “produced” until it changes hands at the corner. Production in Colombia is just one leg of “production”.

Artist here! My production costs are negligible. My prices are set by the market. And my prices keep going up, because the market lets me charge more ;-)