Scarcity, Opportunity Cost and Competition impact our decision-making moment to moment. This makes economics the basis of life as we know it, after God. Nothing that people value is free, someone pays the cost. To gain that thing of value, scarce resources are given up and cannot be given up again for a different thing of value. And we all are competing to capture those scarce resources.
Tuesday, December 29, 2015
Supply and Demand...isn't it all about that?
What happened here? Olive Garden charging $400 per person for a dinner?!?!?!!!???????
This sounds like good business to me! I’m a little surprised that Olive Garden was “allowed” to charge such high prices. The article reminded me of the man who was arrested for “price gouging.” His business-minded decision to sell generators for a profit to people suffering from the aftermath of a hurricane was prosecuted. In reality, though, this man and Olive Garden are just doing what comes naturally to suppliers in a free market economy: trying to make a profit. Third parties do NOT need to interfere since, if the prices suppliers charge is deemed too high by consumers, suppliers are naturally punished by the loss of profit. This situation would be a surplus. In the same way, if suppliers charge to little, a shortage will occur. If, on the other hand, the suppliers charge the price that most efficiently allocates the scarce resources (generators and Olive Garden dinners in the aforementioned instances) to only consumers who are most willing and able, then market equilibrium is achieved! If people actually buy a dinner for $400, then why wouldn’t the business charge that much?
The fact that Olive garden is able to charge $400.00 a dish then wouldn’t the demand and supply be stated based on the facts? Olive Garden must have an influx of customers than an outflow, generating a higher price setting. As Amber stated about the man “price gouging,” it appears that it is the natural effect of the supply/demand curves. While the customers can go elsewhere to get “cheaper” food, the fact that they don’t and Olive Garden is able to charge prices like that means a different outcome than the price gouging man. Those customers are willing and able to pay that price for that specific dish and the customers value that dish over the cost therefore they cannot be suffering from such expense. Based on prior knowledge of a market, Amber’s statement about third party non-interference is agreeable to say the least. Olive Garden would lower the $400 meal if it created better short term profit than if not. A business tends to sell items, whatever they may be, at the highest price they can with a positive short term profit, if costs are higher than the benefit no one would buy the meal therefore lowering prices. Because that meal has stabilized on their market equilibrium, than it would appear it is valuable to some and therefore, Olive Garden should retain the same price.
This story clearly shows the process of supply and demand. The demand is shifting due to tastes and preferences. Some people prefer to not “mingle with the drunken rabble.” Due to the large price, some might think that the demand curve would shift to the left; however these people are willing and able to buy these tickets. The demand is not going down. Olive Garden, the supplier, realizes that people value a nice restaurant to eat in. They know that people will be willing to pay more, so why not charge $400 dollars? If they can produce the meal at the same cost, if not cheaper due to the decision to not supply breadsticks, and get more money in return, they are expanding their producer surplus by a large amount. Compared to the amount that they normally charge, $400 dollars per person is a large gain. Some people may see it as a ridiculous pricing, but it is actually good business management. If it were too expensive, people would not be buying it. The demand would go down to almost nothing, so the price would go down in order to adjust. As long as people are willing to pay for it, then Olive Garden is making a smart decision by charging a larger price.
Share your unique economics experiences. What did you have to give up to gain that which at the moment seemed so necessary to you? Imperfect information spanked you and now diminishing marginal utility smacks you upside the head, eh?
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This sounds like good business to me! I’m a little surprised that Olive Garden was “allowed” to charge such high prices. The article reminded me of the man who was arrested for “price gouging.” His business-minded decision to sell generators for a profit to people suffering from the aftermath of a hurricane was prosecuted. In reality, though, this man and Olive Garden are just doing what comes naturally to suppliers in a free market economy: trying to make a profit. Third parties do NOT need to interfere since, if the prices suppliers charge is deemed too high by consumers, suppliers are naturally punished by the loss of profit. This situation would be a surplus. In the same way, if suppliers charge to little, a shortage will occur. If, on the other hand, the suppliers charge the price that most efficiently allocates the scarce resources (generators and Olive Garden dinners in the aforementioned instances) to only consumers who are most willing and able, then market equilibrium is achieved!
ReplyDeleteIf people actually buy a dinner for $400, then why wouldn’t the business charge that much?
The fact that Olive garden is able to charge $400.00 a dish then wouldn’t the demand and supply be stated based on the facts? Olive Garden must have an influx of customers than an outflow, generating a higher price setting. As Amber stated about the man “price gouging,” it appears that it is the natural effect of the supply/demand curves. While the customers can go elsewhere to get “cheaper” food, the fact that they don’t and Olive Garden is able to charge prices like that means a different outcome than the price gouging man. Those customers are willing and able to pay that price for that specific dish and the customers value that dish over the cost therefore they cannot be suffering from such expense. Based on prior knowledge of a market, Amber’s statement about third party non-interference is agreeable to say the least. Olive Garden would lower the $400 meal if it created better short term profit than if not. A business tends to sell items, whatever they may be, at the highest price they can with a positive short term profit, if costs are higher than the benefit no one would buy the meal therefore lowering prices. Because that meal has stabilized on their market equilibrium, than it would appear it is valuable to some and therefore, Olive Garden should retain the same price.
DeleteThis story clearly shows the process of supply and demand. The demand is shifting due to tastes and preferences. Some people prefer to not “mingle with the drunken rabble.” Due to the large price, some might think that the demand curve would shift to the left; however these people are willing and able to buy these tickets. The demand is not going down. Olive Garden, the supplier, realizes that people value a nice restaurant to eat in. They know that people will be willing to pay more, so why not charge $400 dollars? If they can produce the meal at the same cost, if not cheaper due to the decision to not supply breadsticks, and get more money in return, they are expanding their producer surplus by a large amount. Compared to the amount that they normally charge, $400 dollars per person is a large gain. Some people may see it as a ridiculous pricing, but it is actually good business management. If it were too expensive, people would not be buying it. The demand would go down to almost nothing, so the price would go down in order to adjust. As long as people are willing to pay for it, then Olive Garden is making a smart decision by charging a larger price.
ReplyDelete