“The American people will never knowingly adopt Socialism. But under the name of ‘liberalism’ they will adopt every fragment of the Socialist program, until one day America will be a Socialist nation, without knowing how it happened.”

Socialist Party presidential candidate Norman Thomas


Monday, March 14, 2011

Econ 101


Some dope in the WSJ wrote an article wondering why this Givenchy Pierrot T-shirt had a price tag at $800?

He interviewed the store owner who offered as excuses for the price, the cotton blend of which the T-shirt is made, the attractive and seasonally popular leopard print, the exclusivity of the designer, and that only a few hundred of these will be made.

While each of these plays a role in selling the T-shirt, it's the mutually beneficial agreement between the seller and the buyer that sets the price. Obviously at $800 there are people who want the T-shirt more than they want that $800 burning a hole in their pocket, while the seller wants the money more than he wants to keep the shirt. Without this freely agreed upon deal between buyer and seller, the transaction does not take place.

Less erudite people than TRR readers will scoff that the seller is greedy or the buyer is stupid, but neither of these is provably true. Buyers and sellers acting in their own interest agree on a price for an item and a transaction is made. That's how successful economies work.....efficiently allocating resources within the consumer-equilibrating framework of supply, demand, and price.

The next time you whine about the price of something not government related, remember that somebody must be willing to pay it, or else the price would be lower, and your refusal to pay it exerts downward pressure on the price.

3 comments:

David said...

Free market lesson:
Yesterday I acquired a lawn mower from my neighbor's trash at the end of his driveway. (Yes, I did ask permission.)

I pushed it home, rinsed it off, and advertised it on Craig's List for $100. Within two hours it was sold for $85. This is an example of a win-win-win.

My kids think I'm crazy but this is a vivid example of free enterprise and entrepreneurship they are sure to remember. This is the second time I've done this in the last six months. Exact same scenario each time.

david said...

Lat time it sold for the full $100.

Ed said...

Sweet! There's nothing like a real-world lesson in basic entrepreneurship and free-market capitalism for the kids.

David, you'll always embarrass them, but at least they'll learn something.