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Supply & Demand

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obvious Child

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Hypothetical:

If there are a 1,000,000,000 units of product A, all effectively identical and someone adds 1,200,000 more to the market and demand is annually increasing at 3% (so 30,000,000) will that materially reduce prices?

*Assume no barriers to purchase for all potential buyers.
 

Areopagitican

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Hypothetical:

If there are a 1,000,000,000 units of product A, all effectively identical and someone adds 1,200,000 more to the market and demand is annually increasing at 3% (so 30,000,000) will that materially reduce prices?

*Assume no barriers to purchase for all potential buyers.
If a tree falls in a forest...
 

DrunkenAsparagus

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Not if the business owner doesn't know what he's doing.
 

DrunkenAsparagus

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I don't see how that matters. A mere 1.2% increase in goods that's easily outstripped by demand cannot possibly reduce prices where no barriers to purchase exists.
Sorry, It's late, and I didn't see those extra three 0s. To answer your question, I don't think that it would affect price much. Nobody said that supply and demand is a 1:1 ratio.
 

Kandahar

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Hypothetical:

If there are a 1,000,000,000 units of product A, all effectively identical and someone adds 1,200,000 more to the market and demand is annually increasing at 3% (so 30,000,000) will that materially reduce prices?

*Assume no barriers to purchase for all potential buyers.
There are lots of other factors that could influence the price, but if everything else stays the same then the price should increase.
 

obvious Child

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There are lots of other factors that could influence the price, but if everything else stays the same then the price should increase.
Indeed. My math is a bit off, it should be 2,338,251 additional product or 2.3% and 10,124,628 increase in demand (10.12%).

If you can't guess, I'm subtly talking about something else.
 

Kandahar

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Indeed. My math is a bit off, it should be 2,338,251 additional product or 2.3% and 10,124,628 increase in demand (10.12%).

If you can't guess, I'm subtly talking about something else.
I figured, but I wasn't sure what.
 

Psychoclown

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I don't see how that matters. A mere 1.2% increase in goods that's easily outstripped by demand cannot possibly reduce prices where no barriers to purchase exists.
It's not going to reduce prices from the original starting point, since as demand is increasing faster than the supply. So with demand outpacing supply, prices will increase. However, prices will be slightly lower compared to if 1.2 million extra units had not entered the market. And whoever added those extra units will probably make a tidy little bundle in the process. I have a feeling I know what commodity you're talking about, but I'll wait and see.
 

obvious Child

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Okay people, now tell me, how can the price of oil fall if we expand off shore drilling which represents the same percentages and when demand is growing at the given percentage?

How the HELL can prices fall when supply increases 2.3% and demand increases 10.12%?

It boggles my mind how some people just suspend supply and demand when it comes to oil.
 

Kandahar

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Okay people, now tell me, how can the price of oil fall if we expand off shore drilling which represents the same percentages and when demand is growing at the given percentage?

How the HELL can prices fall when supply increases 2.3% and demand increases 10.12%?

It boggles my mind how some people just suspend supply and demand when it comes to oil.
Well, technically they're correct in the sense that the price will be lower than it would otherwise be (albeit still higher than the current price). The demand will increase regardless of whether or not the supply increases.

But I don't support (most) offshore drilling because the environmental consequences are simply not worth the risk...especially since the oil industry is probably only going to be around for another 10-15 years.
 

obvious Child

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Well, technically they're correct in the sense that the price will be lower than it would otherwise be (albeit still higher than the current price). The demand will increase regardless of whether or not the supply increases.
True, but that's not what they are talking about. Some seem to think that we can actually lower prices by drilling more yet fail to recognize that supply cannot catch up with demand. Some loonies cite the 87 billion total barrels offshore without realizing what is actually recoverable and the time frame. 10.12% demand compounded over the average 15 years it takes for such oil to reach market and when the additional supply is 2.3%, it doesn't take a genius to figure out that's a losing proposition. But many people can't figure it out. There's a thread detailing that in the energy subforum and none of the "Drill More" crowd has the guts to post.

But I don't support (most) offshore drilling because the environmental consequences are simply not worth the risk...especially since the oil industry is probably only going to be around for another 10-15 years.
Honestly, that doesn't bother me. I'd rather just get off the entire system which is geared towards financing Russia, Iran and Saudia Arabia. I don't like funding our enemies. Some people here do. And can you explain to me why so many people think that oil isn't priced on international commodity exchanges?
 

The Mark

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It seems obvious to me that the second poll option is correct.

To be more precise, prices will not fall, but they may rise at a slower pace.
 

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Depends. It sounded like you were describing a firm that's in perfect competition (no barriers to entry, non-differentiated product). If that's the case, then price will be unaffected. Demand will be as close to perfectly inelastic as you can get, meaning that any switch in price will upset revenue maximization, which is P=MC (perfect competition form of MR=MC).

In the case of the oil, you can't go by that. Oil is a naturally occurring oligopoly, and since oligolopical firms in an industry can achieve above normal profit, they are not bound by cost minimization or the simplest functions of S&D to achieve profit. In addition, a lot of the price in oil is not a direct result of supply and demand. It has a lot of red-tape costs and manipulation involved.

You can't apply the same rules in monopoly and oligopoly industries as you can with perfect competition and monopolistic competition.
 

obvious Child

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Depends. It sounded like you were describing a firm that's in perfect competition (no barriers to entry, non-differentiated product). If that's the case, then price will be unaffected. Demand will be as close to perfectly inelastic as you can get, meaning that any switch in price will upset revenue maximization, which is P=MC (perfect competition form of MR=MC).

In the case of the oil, you can't go by that. Oil is a naturally occurring oligopoly, and since oligolopical firms in an industry can achieve above normal profit, they are not bound by cost minimization or the simplest functions of S&D to achieve profit. In addition, a lot of the price in oil is not a direct result of supply and demand. It has a lot of red-tape costs and manipulation involved.

You can't apply the same rules in monopoly and oligopoly industries as you can with perfect competition and monopolistic competition.
Fair enough, but everything you described furthers my argument that prices cannot drop. With oligopolistic compeition already in play and manipulation, the addition of slowly increasing supply and rapidly increasing demand suggests that up is the only logical conclusion to prices, contrary to the beliefs of some.
 

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I really don't get this poll, it isn't something to debate, just an economic question with a right or wrong answer.
 

samsmart

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Hypothetical:

If there are a 1,000,000,000 units of product A, all effectively identical and someone adds 1,200,000 more to the market and demand is annually increasing at 3% (so 30,000,000) will that materially reduce prices?

*Assume no barriers to purchase for all potential buyers.
Math is hard!
- Barbie
 

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Point is that those who think more drilling will lower prices are out of their minds when you apply actual economics.
Oh okay, I get the analogy. I just thought someone was trying to get me to do their homework for them.
 

zimmer

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I really don't get this poll, it isn't something to debate, just an economic question with a right or wrong answer.
This is typical of leftists.
They take a question in its purest form, eliminate all the variables, and then say drilling won't reduce the price.

That's also how we go bankrupt. With Ponzi Schemes that work on paper but eliminate all the human, and profit motivated variables.

There are other variables like coal, natural gas, nuclear... two of three which leftists hate. Nothing new in the world of energy. No need to reinvent the wheel.

So drilling more, producing more natural gas and oil, mining and using coal (which Obama wants to kill as well) and building nukes won't assist in driving down oil prices?

OK.:lamo

Know people know why we are in trouble.
1 + 1 = 11

.
 
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obvious Child

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This is typical of leftists.
Not surprising. You consider statistics and math "leftist."

They take a question in its purest form, eliminate all the variables, and then say drilling won't reduce the price.
Okay genius, tell me what other factors would reduce the price of oil.

Then claim zero variation because that's what the numbers tell you.
Simple fact of the matter is that offshore is immaterial. There is no way with the increase in supply that it could even match the increase in demand. A belief that increased drilling in such areas could potentially reduce prices is to defy reality.

There are other variables like coal, natural gas, nuclear... two of three which leftists hate. Nothing new in the world of energy. No need to reinvent the wheel.
Relevance?

So drilling more, producing more natural gas and oil, mining and using coal (which Obama wants to kill as well) and building nukes won't assist in driving down oil prices?
Considering the majority of oil is used as a liquid fuel, more natural gas, coal and nuclear won't change the price of oil. Especially when the increase in demand is coming from non-US sources.

Some days I feel bad smacking you down painfully.

Tell me how increasing supply by less then 3% when demand is over 10% can somehow decrease prices. Try. Or just run away and ignore my post as you normally do.
 

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This is typical of leftists.
They take a question in its purest form, eliminate all the variables, and then say drilling won't reduce the price.

That's also how we go bankrupt. With Ponzi Schemes that work on paper but eliminate all the human, and profit motivated variables.

There are other variables like coal, natural gas, nuclear... two of three which leftists hate. Nothing new in the world of energy. No need to reinvent the wheel.

So drilling more, producing more natural gas and oil, mining and using coal (which Obama wants to kill as well) and building nukes won't assist in driving down oil prices?

OK.:lamo

Know people know why we are in trouble.
1 + 1 = 11

.
No, it is a simple economic question with a right or wrong answer. Ever heard of Ceteris paribus? Look it up.
 

zimmer

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No, it is a simple economic question with a right or wrong answer. Ever heard of Ceteris paribus? Look it up.
This is related to another thread.
Hence, went over your head.

.
 

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This is related to another thread.
Hence, went over your head.
Doesn't matter, I didn't even know this was about oil until someone told me, and it still doesn't matter. It still is a simple right or wrong economic question. It's a type of question I answered in my first week of AP Economics last year.

I'm guessing you still don't know what ceteris paribus means?
 
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