Defying Gravity and the Law of Supply

There is probably some elasticity rule or other factor of supply curves that I haven't realized yet but I may have found something defies the law of supply.

Supply curves show that as price increases, there is more production and more quantity supplied. Supply curves slope up due to the law of diminishing returns - its harder to make more/cheaper goods after the first set of goods.

However, I had my OBOC (Off Broadway On Campus) show this weekend and we ordered shirts with a 4 colored print of "Defying Gravity" (a Wicked song). The shirts cost each person $17 and costed the producer some price to make. But here's the thing with tshirt prints. It costs MORE to make that first tshirt. After the print is made for that first shirt, the price decreases for each shirt produced - it's easier to make tshirts. This defies the law of diminishing returns.

So when the quantity supplied increases, the price actually decreases for the producer. This doesn't follow the Law Of Supply!

Again I may be missing some factor or law of elasticity, but do printed tshirts defy the law of supply and diminishing returns?

Class 33 - Kidneys! Kidneys! Getcha Kidneys Right Here!

Market economies goal = get goods to people who value them the most.

Price system
-ration by price system = people decide/ration for themselves = economize
-prices = consumers look at values and tradeoffs

Can healthcare be independent of consumer characteristics?
-equal access = coin flip chance
-illegal to sell kidneys = higher marginal value on a kidney

transactions = money changes the nature of a transaction
-batering is ineffiecient - hard to find people to barter with
-prices allocate goods - assign values to goods (lowers transaction costs)

Class 32 - Rationing Mechanisms - Not Fair

The challenge we are dealing with is scarcity. We use the price system to ration scarce goods. The costs are opportunity costs and they are what other consumers are willing to pay for a product is a cost for the producer.

Rationing Mechanisms:

1. Need - neediest gets it first. This seems very appealing but it's too vague. Who determines need levels?

2. Queues - first come first serve. This is the most costly. The length of the line = price/cost

3. Lottery - fairest. However, the people who value/need it more might not get the good. Basketball lottery isn't fair. In 2007 the Celtics were the 2nd worse team but got the 5th pick in the draft because of the lottery and didn't get Kevin Durant for this reason.

4. Equal shares - communism. Cutting up makes some things worth nothing and not all parts/time cut up aren't worth the same.

5. Force/Kicking Ass/Might Makes Right - costly. You can't plan and it's not fair - same people never win

6. Merit - good moral connotations but hard to say who earns merit


Evaluation Rationing Mechanisms:

Competition comes from scarcity.

1. What is the nature of competition?
-is it destructive or constructive?
-price system is the only one not destructive.
-when people focus on competition they don't focus on other things
      -but with the price system - competition focuses people on productive benefits

Class 31 - Supply!

Supply
Each point on the curve: the cost of producing a unit. Price increases = more production = more quantity supplied (it costs more to make more).

Supply curves slope UP!
-This is because of the law of diminishing returns - its harder to make more/cheaper to grow the first 10 acres of corn than the next 10 (more fertilizer/water)
-Other factors - other factors that have law of diminishing returns

What changes supply?
-Price of the good changes as you move along the existing supply curve. Change in supply shifts curve.

-changes in factor (input) prices
-expectations
-technology
-changes in other markets
-elasticity

Price Elasticity of Supply - How much more will I produce when the price goes up?
m = %change in quantity supplied / %change in price of good

The Theory of the Leisure Class

Giffen and Veblen Goods

Economists are convinced that nothing "breaks" the law of demand which says that when price increases, demand decreases. Their way of explaining price increase with quantity demand increase is by claims of elasticity, substitution, and complimentary goods. But there are some goods that defy the law of demand.

Giffen goods are a type of inferior good where quantity demand increases with a price increase. These goods are a legend first thought of by Sir R. Giffen, but don't exist - to what we believe. Sir Giffen showed that for example: "a rise in the price of bread makes so large a drain on the resources of the poorer labouring families and raises so much the marginal utility of money to them, that they are forced to curtail their consumption of meat and the more expensive farinaceous foods: and, bread being still the cheapest food which they can get and will take, they consume more, and not less of it. But such cases are rare; when they are met with, each must be treated on its own merits." This in reality is just because all prices have risen and not just bread - and bread is still the cheapest.

Veblen goods seem more feasible. They are also known as goods of ostentation - basically showing that you have wealth. Why should a person desire more expensive goods? Even when the price is outrageous and income doesn't change (or may even decrease) the quantity demanded is still high because it is a symbol of social status. These aren't just normal goods - they are superior goods. It is hard to prove that these goods exist.

For both goods, it is hard to prove they exist. It is very hard to prove that Giffen goods are real, but Veblen goods seem more reasonable. When looking at things in a social class context, goods do seem to increase in price and quantity demand at the same time.

source:
http://kadicamardese.blogspot.com/2007/10/what-are-giffen-goods-what-are-veblen.html

Class 30 - Elasticity and Supply

 Income Elasticity of Demand:

%change in QD / %change in income

-how much consumption changes with income

            -income goes up, number is positive = normal good – buy more as income goes up

            -income goes up, number is negative = inferior good – buy less when income goes up

Ex. Income is $50,000 and you spend $500 on a good and M =2.

            If income increases by 20%, you spend 40% more on that good

            If change in income is $10,000, you spend $200 more on that good.

Cross Price Elasticity:

Cross price elasticity = positive = goods are substitutes

                                  = negative = goods are inferior

Pizza / burritos. Price of pizza increases = demand for burritos increases. = substitutes

SUPPLY

More money = produce more

            Cost = tied to an action (not just a thing)

                    = tied to a person

It costs more to make a bike than a table because bike resources are valued more and the people who make bikes have an easier time finding jobs. Opportunity cost of table resources are less than the bike because people bid away resources.

Quantity supplied vs law of supply:

Quantity supply = amount of good that firms are willing/able to produce at a particular price

Law of Supply = price of a good rises = sellers make more.