Supply & Demand

[American]

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.

Why would a company add over 100% more product to a market without a commensurate increase in demand?

 

[Gipper]

Monopolies never produce to demand levels. That's how they maintain their profits - through deadweight loss on the consumer end.

 

[LiberalAvenger]

I've always wondered why corporations receive special privileges and immunities.

 

[American]

I've always wondered why corporations receive special privileges and immunities.

Maybe because they bring jobs to town...and that means taxes.

 

[zimmer]

Maybe because they bring jobs to town...and that means taxes.

:doh
Incredibly obvious, except for the younger generations that haven't spent much time in the work force, or have ever tried to get a business off the ground.

Jot that one down in the Shock & Awe column.

Here is a short course from the Libs Fav to help them along in understanding what once was common knowledge and common sense.

http://www.jfklibrary.org/Asset+Tree/Asset+Viewers/Audio+Video+Asset+Viewer.htm?guid={A138FFB8-5B6A-4C6A-A8CC-70C6E4FF39DA}&type=Audio

John F. Kennedy
Address at the Economic Club of New York, December 14, 1962
The final and best means of strengthening demand among consumers and business is to reduce the burden on private income and the deterrents to private initiative which are imposed by our present tax system; and this administration pledged itself last summer to an across-the-board, top-to-bottom cut in personal and corporate income taxes to be enacted and become effective in 1963.

I am not talking about a "quickie" or a temporary tax cut, which would be more appropriate if a recession were imminent. Nor am I talking about giving the economy a mere shot in the arm, to ease some temporary complaint. I am talking about the accumulated evidence of the last 5 years that our present tax system, developed as it was, in good part, during World War II to restrain growth, exerts too heavy a drag on growth in peace time; that it siphons out of the private economy too large a share of personal and business purchasing power; that it reduces the financial incentives for personal effort, investment, and risk-taking.

In short, to increase demand and lift the economy, the Federal Government's most useful role is not to rush into a program of excessive increases in public expenditures, but to expand the incentives and opportunities for private expenditures.

In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now. The experience of a number of European countries and Japan have borne this out. This country's own experience with tax reduction in 1954 has borne this out. And the reason is that only full employment can balance the budget, and tax reduction can pave the way to that employment. The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.

 

[LiberalAvenger]

Maybe because they bring jobs to town...and that means taxes.

You mean bribes to town?

Since Reagan they have been leaving town.

 

[LiberalAvenger]

:doh
Incredibly obvious, except for the younger generations that haven't spent much time in the work force, or have ever tried to get a business off the ground.

Jot that one down in the Shock & Awe column.

Here is a short course from the Libs Fav to help them along in understanding what once was common knowledge and common sense.

In the days of Kennedy there was hope for the American dream. Nixon gave it to China, Reagan helped destroy the unions. It's been downhill ever since.

 

[zimmer]

You mean bribes to town?

Since Reagan they have been leaving town.

Read the above.
At one time Democrats understood Capitalism worked, how it worked and were anti-Communists.

How things deteriorate so quickly.

.

 

[LiberalAvenger]

Read the above.
At one time Democrats understood Capitalism worked, how it worked and were anti-Communists.

How things deteriorate so quickly.

.

Are you still fighting commies?

 

[zimmer]

Are you still fighting commies?

They have infiltrated the Democrat party.

.

 

[LiberalAvenger]

They have infiltrated the Democrat party.

.

Just don't drink the fluoridated water and all will be well.:fart2

 

[Psychoclown]

I was flipping channels and I caught Hannity (ugh) interviewing the CEO of Shell. He claimed that using "proven oil reserves" was misleading because it was a narrow legal term that did not include possible or probable reserves. He went on to claim the U.S. had trillions of barrels of oil in possible or probable reserves - more than the Middle East. For some reason I immediately thought of this thread.

I did a little research, and as I suspected, the CEO left a few details out. Two of the largest possible reserves in the U.S. are the Green River formation in Utah, Colorado, and Wyoming, and the Bakken Formation in North Dakota. The Bakken Formation has been estimated to around 400 billion barrels of oil in it. However, only 1% are technologically recoverable right now.

The Green River Formation isn't actually crude oil, its oil shale - which requires more processing than crude, making it more expensive to produce. But the Green River formation is the largest oil shale reserve in the world, giving us a potentially huge source of energy if/when we can make it economically viable.

In a perfect world, with unlimited resources, we would be working hard towards making the Bakken Formation oil technologically extractable and also investing in oil shale production while we also continue to develop cleaner alternative fuels. However, we have limited resources. And I suppose the fair question is, are these energy reserves worth the cost when they won't be useable (due to technology or economics) in the forseeable future when we could be using those resources to develop completely new and clean energy sources? And as large as these reserves are, they are not unlimited. Would they be nothing more than a band-aid that doesn't address the long term issue of us needing something other than fossil fuels? I don't know the answer to that, but I did find it interesting to know that we do have some rather substantial domestic sources of oil that potentially be tapped down the road.

Bakken Formation - Wikipedia, the free encyclopedia
Oil shale - Wikipedia, the free encyclopedia
Green River Formation - Wikipedia, the free encyclopedia

 

[obvious Child]

:doh
Incredibly obvious, except for the younger generations that haven't spent much time in the work force, or have ever tried to get a business off the ground.

Linear regression - Wikipedia, the free encyclopedia

Please educate yourself.

 

[obvious Child]

Sorry, I've been busy with work as of late and haven't had a chance to come to DP to see things progress.

You haven't missed much. The level of stupid here has increased significantly over the past week.

Well, prices indeed can drop, but it's not based on supply and demand...technically. It actually does depend on S&D, but on a microeconomic level amongst the cartel nations (OPEC). The truth is that the OPEC cartel is an oligopoly, but not a harmonic one. These bastards stab each other in the back all the time. Because of some nations like Saudi Arabia with claim to a much larger supply feel a need to crowd out certain nations with a smaller pool that don't do their bidding, they will price-cut to a level that will force nations with smaller reserve to hold on to what they have while the energy "big boys" essentially slap them around and make them do their bidding. You know about manipulation. You're married, right?

No, I'm not married. Furthermore, OPEC to me doesn't seem like the force it once was. Comparatively speaking, OPEC's share of total oil production isn't where it used to be. Furthermore, as you point out, OPEC is hardly an efficient or even functional monopoly. Kuwait was backstabbing Iraq during 1989 by refusing to abide to OPEC quotas (and partially got invaded for it). And right now, Saudi Arabia is pretty much at capacity. I do think your argument is a bit off in terms of raw supply and demand. Demand right now is rising at rates that supply cannot hope to math. On average, it takes about 15 years to bring oil to market. At a growth rate of 10%, we need to effectively quadruple our capacity to meet the demand at the 15th year. That's not going to happen. And I suspect that 10% will actually be higher as India and China increase their middle class populations. There's no way we can get the kind of capacity from anywhere much less domestically to provide an additional 270 million barrels per day in that 15th year. I made the crack about needing Jesus the Oilman for a reason. Ignoring all else, the differential between capacity and demand defies logic how increasing domestic drilling could reduce prices. At best outcomes it will slightly reduce the price increase. The fastest way to reduce oil prices to reduce demand. Ironically, to get relief at the pump, the US needs to reduce its demand.

Lots of the price involved with fluctuations have nothing to do with profit and simple S&D, but quite a bit still does, and that's because of a corruption in the collusive factors of oil exporting nations.

True, lots of price doesn't have to do with pure base supply and demand, but factors such as speculation are indirectly affected. We saw oil future rise on an attack on a Saudi facility. That's S&D related.

 

[zimmer]

Hey Zimmer, want to tell me how we're going to get 270 million barrels of oil on top of our declining supplies in 15 years?

MATH RUN FOR YOUR LIFE.

What was that about declining supplies? Every time they look at our reserves... it seems they grow. LOL...

U.S. Crude Oil and Natural Gas Proved Reserves

With Data for 2011 | Release Date: August 1, 2013 | Next Release Date: Early 2014 | full report

In 2011, oil and gas exploration and production companies operating in the United States added almost 3.8 billion barrels of crude oil and lease condensate proved reserves, an increase of 15 percent, and the greatest volume increase since the U.S. Energy Information Administration (EIA) began publishing proved reserves estimates in 1977...U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Proved Reserves

The Experts: How the U.S. Oil Boom Will Change the Markets and Geopolitics
The Experts: How the U.S. Oil Boom Will Change the Markets and Geopolitics - WSJ.com

Top Saudi investor says US energy boom could doom kingdom's economy

Read more: Top Saudi investor says US energy boom could doom kingdom's economy | Fox News

North American Oil to Dominate Supply Growth - WSJ.com
LONDON—North American oil production will dominate world-wide supply growth over the next five years,

Newly found sources of domestic oil and natural gas are having an even bigger impact on the economy than first projected, adding more than $1,200 last year to the discretionary income of the average U.S. family, a new study says.
U.S. energy lifting economy more than expected

 

[JumpinJack]

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.

What do you mean by "materially"? If you don't have enough money to buy product A, but if the price drops a bit enabling you to buy product A...is that a "material" reduction in price? Not for one person, maybe, but it is for another. Need to define "materially."

 

[obvious Child]

What was that about declining supplies? Every time they look at our reserves... it seems they grow. LOL...

This is embarrassing. You spent how many hours to find a single thread you could necro that was before hydraulic fracturing came out as a force?

You really are desperate. Yeah, sure I was wrong on that. Does it bother you that you had to spend hours to find a single post I was wrong on?

Seriously, that was more than 3 years ago.

 

[phattonez]

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.

Hmm, but is that greater demand caused by the drop in price which was caused by the higher supply of goods? In which case you might not have that demand at the higher price.

 

[cpwill]

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.

Relative to the baseline of where it is, no. As demand is increasing faster than supply, price will continue to increase (your model does not include feedback from price into demand).

Relative to the baseline of where it would otherwise be, yes.

Here's a question, though. Where are those 1,200,000 units being built, and do are the jobs associated with that industry include blue-collar jobs that do not require a college degree but pay well over the average?

Because if so, we should absolutely enable that industry here at home and enjoy both an employment boom and a relative decrease in oil prices (sorry, it was just really obvious).

Also, I am not so positive that 3% increase in demand is going to be so dependable going forward.

 

[CaptainCourtesy]

What was that about declining supplies? Every time they look at our reserves... it seems they grow. LOL...

Moderator's Warning:

Because there are some on target responses, I am going to allow this, but in the future, do NOT necro threads that are this old.

 

[zimmer]

This is embarrassing. You spent how many hours to find a single thread you could necro that was before hydraulic fracturing came out as a force?

You really are desperate. Yeah, sure I was wrong on that. Does it bother you that you had to spend hours to find a single post I was wrong on?

Seriously, that was more than 3 years ago.

As noted early on in this thread, I stated there were ample energy resources... and these are always proven to INCREASE. Further, you stating our supplies would dwindle in the next 15-years (I recall it being in there somewhere) was fundamentally wrong, as each new estimate reveals we have ever more oil. Fracking or no... our supplies of energy always grow, and we have massive supplies of energy... the problem with driving prices downward is always government screwing things up.

That you complain about the thread being 3-years old is yet another fail. What does it matter... if it's 5 or 10-years old... so long as your wrongheaded views are corrected? Or is that the problem?

Moderator's Warning:

Because there are some on target responses, I am going to allow this, but in the future, do NOT necro threads that are this old.

Cheers... it's relevant to today, and especially after the fear based comment by the Saudi's.

 

[Bob Blaylock]

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

In order for it to be that, the question would have to include enough information to determine the answer. The OP has deliberately left out some important variables, without which, the question, as asked, is nonsense.

 

[zimmer]

.....

 

[CaptainCourtesy]

Cheers... it's relevant to today, and especially after the fear based comment by the Saudi's.

Moderator's Warning:

And... please do not comment on moderation publicly.

 

[cpwill]

In order for it to be that, the question would have to include enough information to determine the answer. The OP has deliberately left out some important variables, without which, the question, as asked, is nonsense.

Indeed. For example, in the scenario given, if the cost of production drops by more than demand increase, the price will drop net.