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Why doesn't milk cost $20 - LibertyHQ

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Wheylous Posted: Tue, Mar 12 2013 11:28 PM

Why doesn't milk cost $20?

We will here define "free markets" and examine the role of competition in a free market to answer the question "If businesses are greedy, why doesn't milk cost $20?"

Got Milk

 

It's introductory material, so yes, I do not cover every single aspect of it, but I give a basic viewpoint that people never consider.

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Milk doesn't cost $20 yet. But wait a few more years.

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Wheylous replied on Wed, Mar 13 2013 8:53 AM

I don't think that was the point of the article :P

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gotlucky replied on Wed, Mar 13 2013 9:57 AM

How would you know? :p

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Wheylous replied on Wed, Mar 13 2013 12:00 PM

I know the guy who wrote it.

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Markets aren't perfectly competitive.

http://sphotos-b.xx.fbcdn.net/hphotos-ash3/537490_440728102678658_312526130_n.jpg

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Neodoxy replied on Wed, Mar 13 2013 4:45 PM

"Markets aren't perfectly competitive."

What an original insight.... Our economic theories must be perfectly useless now...

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cporter replied on Wed, Mar 13 2013 7:41 PM

haha, brilliant marketing. Use modern populism to grow your base. Costco's not even in the same market as WalMart.

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Wheylous replied on Wed, Mar 13 2013 8:10 PM

Let's throw random facts and hope they stick! Hurr durr!

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What's a "record profit"?

http://thephoenixsaga.com/
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http://www.huffingtonpost.com/2013/03/12/costco-profit_n_2859250.html

I love the misleading title: "Costco's Profit Soars To $537 Million Just Days After CEO Endorses Minimum Wage Increase". Is it just me, or does it imply there is a causal relationship?

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cporter replied on Thu, Mar 14 2013 7:59 PM

Record profit in this case means highest profit for that company. They weren't saying Costco had higher net profits than WalMart.

I'm pretty sure the Costco CEO believe in what he's saying, but it's still awfully convenient that his recommended minimum wage increase is above the starting wage of his competitors and below the starting wage of his own company.

Costco's a great company and Sinegal's a great CEO. They have a good business model and he runs a tight ship. It's a very labor un-intensive model with fewer, bigger stores, carrying fewer, bigger items almost exclusively in the grocery market with less manual labor put into presentation than other stores. They pay their fewer workers relatively well - whether that benefits them in the long run is hard to say, but it's certainly not making them go bankrupt. It does limit their agility, because there's very little room to move on their prices if they ever needed to cut something it would almost certainly be some employee benefit or salaries. But in the mean time why not pay more and get the better employees?

Competitors with different business models (WalMart, Target, etc.) can't pay what Costco pays or they'd go broke. If they did pay that compensation they'd have to take up the Costco business model, which wouldn't work. WalMart, Target, and other department stores offer hundreds of thousands of products compared to Costco's few thousand.

I can't help but note that the same people praising Sinegal for paying more cry about wages in a market being a "race to the bottom" and all that.

 

 

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Greendogo replied on Fri, Mar 15 2013 7:22 AM

@Wheylous: Could you write a piece on minimum wage laws for that website?

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Wheylous replied on Fri, Mar 15 2013 9:10 AM

Greendogo - if demand is high, then I will do so in the future. However, there are plenty of articles out there that critique the minimum wage thoroughly.

Actually, you know what? I will make a new section on LibertyHQ to contain anti-minimum wage articles. Look around for it in the next week. I'll post the link here.

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Meistro replied on Fri, Mar 15 2013 3:30 PM

How can an article on a cattalactic problem mention neither supply nor demand?

 

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Ah, so by competing and offering higher wages for the same work, employers determine marginal revenue product. The only difficulty is - will I take the risk? How will I know whether people are being under-payed?

Good point, cporter. I'm sure it also has to do with getting people to shop at his store.

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(NOTE TO MODS: photo meant to portray greed, not any particular ethnic group.)

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gotlucky replied on Sat, Mar 16 2013 12:58 AM

Are you asking questions in order to learn, or are you just here to troll?

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Wheylous replied on Sat, Mar 16 2013 2:19 AM

Meistro - this is an article that is meant to introduce the issue to very beginners who have never even thought about markets.

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Are you asking questions in order to learn, or are you just here to troll?

Even though I write in a not-completely-serious format, to learn.

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Neodoxy replied on Sat, Mar 16 2013 7:29 AM

In a repeated-game scenario it's probably not the best idea to post a picture of a niggardly jew after posting what's supposed to be a question.

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In a repeated-game scenario it's probably not the best idea to post a picture of a niggardly jew after posting what's supposed to be a question.

Jews aren't a people. It was the best graphic I could find. So are you going to answer my question?

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gotlucky replied on Sat, Mar 16 2013 2:02 PM

Who cares about answering your question when you aren't actually interested in an answer?

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Neodoxy replied on Sat, Mar 16 2013 4:45 PM

"Jews aren't a people. It was the best graphic I could find. So are you going to answer my question?"

I didn't say they were, and you nonetheless posted a picture of what is meant to be a niggardly jew. Your question is so simple that it shouldn't need answering with the amount of time you've spent on this site. If you still don't understand the basics then either pick up a book or ask things in a non-offensive way that doesn't make you look like a troll or a quack.

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Who cares about answering your question when you aren't actually interested in an answer?

Way to be dismissive.

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Your question is so simple that it shouldn't need answering with the amount of time you've spent on this site.

Not really. It's a blanketed assumption that free market liberals make, without any substantial evidence supporting it.

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gotlucky replied on Sat, Mar 16 2013 5:45 PM

Troll:

Ah, so by competing and offering higher wages for the same work, employers determine marginal revenue product. The only difficulty is - will I take the risk? How will I know whether people are being under-payed?

Buzz, in another thread full of your trolling behavior, I made the clear point of stating that economists are not the same as entrepreneurs. Aristophanes also linked to more information about marginal revenue product. So, the question remains, why should anyone care to answer your questions when you clearly don't care about the answers?

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Malachi replied on Mon, Mar 18 2013 5:13 PM

his avatar resembles alex jones.

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gotlucky:
Buzz, in another thread full of your trolling behavior, I made the clear point of stating that economists are not the same as entrepreneurs. Aristophanes also linked to more information about marginal revenue product. So, the question remains, why should anyone care to answer your questions when you clearly don't care about the answers?

 

But that Investopedia "article" did not explain how marginal revenue product is calculated. Why would I ask a question if I don't want an answer? I'll repeat my question: how do competing employers decide that workers are being underpaid? Wheylous' article was good and I'm sure it holds true when it comes to milk, but human beings are a lot more complex than cows. We differ in skill.

 

Malachi:

his avatar resembles alex jones.

 

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eliotn replied on Tue, Mar 19 2013 5:57 PM

"But that Investopedia "article" did not explain how marginal revenue product is calculated. Why would I ask a question if I don't want an answer? I'll repeat my question: how do competing employers decide that workers are being underpaid? Wheylous' article was good and I'm sure it holds true when it comes to milk, but human beings are a lot more complex than cows. We differ in skill."

1. You got it backwards.  Its not the employers that are competing, its the workers who are sellers and competing in providing their services.  You might as well say that the shoppers are competing for milk in wheylous' example.

2. The questions are different.  The milk article refers to the question of what prevents the seller selling the good for too much.  You seem to be asking "how do the buyers of the good realize that they are paying too little"?  The answer is that they won't be able to get the good at the low price, and they can increase what they want to pay if they still want the good.  And businesses realize they are underpaying their workers, when nobody wants to be hired for a particular job.

3. What does human differences have to do with anything.  Many goods come in different varieties, so what?

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1. And how do workers determine their marginal revenue product?

2. What? No. That's not an answer. Why won't they be able to get the good at a low price? They can increase what they want to pay, but they won't because other employers have NO clue what the marginal revenue product of the workers is.

3. So it's impossible to calculate productivity unless you have all the info in which case you're the one employing the labor that you're underpaying.

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Wheylous replied on Wed, Mar 20 2013 6:54 PM

Its not the employers that are competing, its the workers who are sellers and competing in providing their services.

Well, from what I understand, it's both. Worker bid wages down, employers bid them up.

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eliotn replied on Wed, Mar 20 2013 7:02 PM

"1. And how do workers determine their marginal revenue product?"

Non-sequitor.  Competition for buyers does not imply that the competitors somehow determine "their" marginal product for the good they are selling.  Rather, it is the buyer of the good who has an idea of the marginal revenue product.  What workers determine is the wages that they will work for, which is different than them determining marginal revenue product.

"2. What? No. That's not an answer. Why won't they be able to get the good at a low price? They can increase what they want to pay, but they won't because other employers have NO clue what the marginal revenue product of the workers is."

1. Marginal Revenue Product is subjective for each employer. 

2. Employers can make speculations about marginal revenue product, and they have an idea of how the individual worker can contribute, based on what the worker's work experience/background/etc.  They do not know the exact Marginal Revenue Product in advance, but that is different then them having no idea of how an invidual worker will contribute.  Also, once they have a better idea, they can correct their mistakes, reducing the wage of or firing the unproductive workers, and raising the wages of productive workers to keep them in the company.

3. Employers who demand wages that are too low will find themselves in a competition problem similar to the milk problem:

-People will look for other employment opportunities, possibly substituting other types of jobs or simply refusing to work, like how people in the milk example will work for someone else, even quitting their current job for that better paying jobs.

-Even if people couldn't switch, employers will bid upward.  Is an incredibly productive worker working for a competitor for too low of a wage?  Why not attract him with a higher wage, increasing your profit (because he does a lot for your company).  The fact that the custom around pricing is different doesn't change this.

"3. So it's impossible to calculate productivity unless you have all the info in which case you're the one employing the labor that you're underpaying."

So what if its impossible to calculate the marginal product revenue?

 

Schools are labour camps.

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Malachi replied on Wed, Mar 20 2013 7:29 PM

So it's impossible to calculate productivity unless you have all the info in which case you're the one employing the labor that you're underpaying.

it is impossible to calculate productivity unless you are the one buying the "products" or produce thereof, yes.

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