I may not be in the correct forum. Please direct me to another forum if I am in the incorrect place.

My question is: Why does it seem to be imperative to charge more for a product because of demand?

I really do not know.

Thanks for your help...

Easy.

If the demand for a product exceeded the amount available, then it would run out; the supply would not be there to meet the demand and there would be a shortage. Price is what is in the market for the producer; it is the incentive to produce and demand is part of that function.

If this is still not clear, then I will explain in more detail if you wish.

__________________

(please tell me if you understand this, if not, then I'll try another way)

High demand --> high price

Imagine if there are 2 persons and 2 bread in the market and each person only needs a bread to survive. So everyone's satisfied (or to be technically speaking, the quantity supplied equals the quantity demanded)

However, suddenly there is one more person in town. So we have 3 people and 2 bread and each person needs a bread to survive. So they will bid their price higher until the other could not pay higher (like ebay).

So as you can tell. Higher demand means more people are competing for less goods --> people are willing to outpay the others to get the goods --> higher price.

Thanks for your responses.

Why do we have to raise the price if there is more demand?

Why can't we just charge a fair price?

Why can't we deliver our product "first come, first serve"?

What is wrong with keeping the price the same when there is higher demand?

To make supply meet demand.

Charging a "fair" price vs. the market price would stop the good being sold from being produced in the quantity demanded.

Consumers would suffer, just like during the OPEC crisis in the '70s where government controls on the price of gas created shortages in supply and "first come, first serve" proved how bad it actually was.

http://en.wikipedia.org/wiki/1973_oil_crisis

Shortages are not good for society.

__________________

It is simple business, I have what you want. I have a limited amount (let's say 10 pieces) and 1000 people want what I have. I can get more - which is the smart thing to do.

If only 3 people want what I have - If I need money I have to sell it for what I can get.

__________________
Liberals believe it is okay to kill babies
but not terrorists.

Lets answer this question first.

You're talking about the method of distribution of resources. Among these, there are "everyone gets the same," "first comes, first serve," and "market force" (those are the three I know, if there're more please tell all of us)

Many historian economists would say that market forces are the most efficient and, believe it or not, "fair" distribution of resources.

Everyone gets the same...that's communism, and we all know that didn't really work.

"first comes, first serve" - it sounds fair but it's actually very unfair. Because this system rewards those with the most time at hand. Because they have more time to wake up early, to wait in line to get the resources. People who have busy jobs and a family to take care of are punished, in another word, the harder you work, the less you get.

And the system is prone to be abused. Those who got time can just wait in line, buy a bunch then go back re-selling to those who don't have time. Or they can just buy more then they need because the price is not adjusted to the demand, leading to waste.

And most importantly, this system does not lead to a good adjustment. Imagine you're a rancher producing meat. There's a huge demand for meat, but the price of meat stays the same. Therefore, there's not a whole lot of incentive and additional fund to expand your business to grow more cattle, eventually produce enough meat to supply the larger demand (technically speaking, market moves to a new equilibrium).


On the other hand, market force, sounds heartless and hideous as it does, is actually "fairer" and better for society (this is my opinion) because:

1)if you want more resources you have to work harder to get it, not lesser
2) the system allows for readjustment: higher price creates incentive for producers to expand businesses to supply more goods, reaching a new equilibrium (providing that we make sure there is no unfair competition, namely insider trading or monopoly and the like)


"Fair" is a very subjective word. Fair to whom? "fair" means lower price for consumer, but not necessarily for producers and vice versa

I'm not saying we should not abandon fairness but judging the matter only on the basis of "fairness" is fundamentally flawed because we're all biased here and nothing can pleases everyone.

Then there's still gonna be people who won't get the goods.

Going back to the example i said: a town with 2 persons and 2 breads. Suddenly there's a 3rd person.

by keeping the price of the bread the same, one of the person will end up not having the bread. Someone can get up early to wait in line to get the bride, or pay some under table money to the seller to give the bread to him etc.

By charging the bread higher, yah there're gonna be someone left without the bread, but it increases the chance of more bread enters the market because it creates an incentive for the baker to bake more bread since he will earn more money.

Actually I should point out that these guys are describing the simplest level of economics.

In reality it doesn't work that way.

Take the personal computer. Demand for those is huge but the price has actually gone down over time. What happened there? Well the market adjusted and something called "economics of scale" kicked in. Basically if a company had to exist only making a small number of computers they'd do it almost "by hand" and they'd be very expensive. When you make millions of computers it's done via a highly automated process at huge factories and research costs are spread around.

I guess what I'm saying is that while in the short term a sudden spike in demand will create a shortage and higher prices, the effects of a long term increase in demand could be that the prices goes up, down, or stays the same.

However artificially controlling the price of something is liable to backfire on you. Resulting in things like scalpers and shortages.

If you really want to make something easier on the consumer there are a number of ways a government could intervene without messing up the marketplace. For example in many states some subsets of food and clothing don't have sales tax, and the government is giving out cash cards to help pay for the new boxes TVs will need as the networks go digital. Also if you don't pay attention to the formation of monoploies you can get artificially high prices. Though usually hitting the monoploy with anti trust laws is a better way than messing with pricing.

Economies of scale are still a part of supply and demand graphs. They are just more complex. A graph of supply and demand that includes the effects of economies of scale has curved lines when the quantity supplied gets larger. In simple supply and demand problems, both lines are straight.

__________________

As simple as it sounds, it's fundamental to understand any type of economic issues in my opinion...

Yes there was an increasing demand for computer. The price of computer was very high during the 80s, then started climbing down. It was because the higher price created incentive for companies to innovate and expand their business production, increasing the supply.

The fact of the matter is, the fact that prices dropped so much because the productivity increased so much faster than the demand.
If you're thinking of the old-fashioned Detroit assembly line where each worker works on a specialized parts then assembly them in the end, all of which was done in a single mega factory as "economies of scale"...then I think it's quite inaccurate.

"Economies of scale" just refer to any type of operation that the more you produce the lower the average cost is because your initial investment is so high. And in this case, "economies of scale" explain only part of the high increase in productivity in the computer industry in particular and many other industries.

Other factors are just-in-time management, supply-chain operation, outsourcing and most important of all, the application of computer in production process.