What determines the price of something? Why is something discretionary like original pieces of artwork sold for millions while something crucial for our life sustenance like air and water is free?
Why do some people make millions while others have difficulty finding a low paying job?
Then there is value. How is it different than price? Why do we sometimes treasure valuable finds from a dollar store while dissatisfied with high priced goods and services?
Stories of people stranded in dessert islands describe their desperate need for basic tools like a pen, a knife, or cooking implements that we take for granted in everyday life. They are so useful (of high value) to us, the suppliers of these items can easily charge us more.
Yet the price of watches is based on their appeal as jewellery and not their ability to keep time accurately. The price of cars is based on their exclusivity rather their transportation utility.
I suggest that price is a result of competing supply and demand.
Original art pieces are limited in supply; they are unique. So if there is more than one person who desperately want it at any price, then that art piece will change hands at the price that the next bidder will give up the desire of owning it and the willingness of the present owner to part with it.
Water is "free" from our taps because we have settled on an efficient shared cost arrangement of having our government source it and ensure its quality for us. As soon as there is a scare about our drinking water, the price of bottled water rises as people fight to horde as much bottle water as they can due to the limited supply and the heighten demand.
The same goes for incomes. It is not that the million dollar income earner is that much smarter than the rest of us, they happen to be in the right time and place with limited competition for their talent and experience that we are willing to pay them in order to get what we want. Hamburger flipping jobs will always go for low wages because there is such a big labor pool able to do it, not because the job itself is not important.
Value, on the other hand, is subjective to the individual. A life jacket is very valuable to me because I spend time on the water but it is not valuable at all to a landlubber. Regardless of how much it cost to produce one, I will pay for one while someone who stays on land will not buy one no matter how cheap it is.
So somehow, among the various factors of our individualistic values, the cost of producing the item, the aggregate number of people who want the item or service at any time, the ability of the supplier to
meet the demand at any one time describe the ebb and flow of prices, whether it be for a stock, for banker's salary, etc.
The economist will further put out the case for the value of dollars in signalling the state of demand and supply in the market. If the price of an item is going up, it causes more suppliers to bring more goods to the market so that they can make more profit.
This is all such a logical and wholesome picture that what can possibly be wrong with it?
Why do people keep going for hamburger flipping jobs even though it does not pay well?
Why are there not more people getting banker's jobs that pay such a high salary?
Why do we want unique pieces of art when they are so much more expensive than a replica? Why do we value limited edition prints when we know they are not unique?
Where does speculation fit in?
Where did all the money go in the 2008 banking crises?
I have meet people with lots of credentials who can't or don't ever work. Or people who work in a long string of hamburger jobs. Or running shoes that kids have to have, and other items that people own. What's the world really made of any ways? And who gets to say? People through their lives away chasing after the carrot. But it seems that NOBODY gets the carrot. As for where the money came from....Somebody printed it, but it wasn't me. I guess I could say it comes from trees...
ReplyDeletehave a good discussion!
May the force be with you...
VTS