/sci/ - Science & Math

[Anonymous No.9351730]

I am totally fucking lost.

Say that Donald Trump establishes a price ceiling for burgers tomorrow, according to the economics I am taught a shortage will be created because producers will be deterred from making as many burgers as they would at a price equilibrum, but demand would increase as burgers would be cheaper now.

But if for each individual burger there is still a profit to be made from each sale why shouldn't you be meeting the new demand for cheaper burgers? This is not accounting for behavioral economics so fast food chains trying to spite da ebil gubmint shouldn't be an explanation.

[Anonymous No.9351732]

>>9351730
lower price means it's not as good to make burgers. this means less burgers. how many less, who knows.

[Anonymous No.9351735]

>>9351732
Your response does not make sense. Why not produce the amount of burgers that would have reduced the equilibrium price to the current price floor if you're forced to charge that amount anyways?

[Anonymous No.9351738]

>>9351732
Are you suggesting a substitution effect from the perspective of the company? That if I'm a McDonalds I'd rather start making more tacos if burgers recieved a price ceiling?
>>9351735
Price ceiling not floor*

[Anonymous No.9351742]

Demand increases, supply might increase as long as it's still profitable but at some point the cost of the materials and process to make a burger would surpass the price ceiling, making it not profitable anymore would be my guess ? idk

It's not like there's a monopoly for burgers, there's competition and things are priced appropriately. If you think it's overpriced, then buy burgers somewhere else.

[Anonymous No.9351744]

>>9351730
>but demand would increase as burgers would be cheaper now.
The problem is simple: you've mixed up demand (a function of price) and quantity demanded (at a given price).

Quantity demanded : Number
Demand: Price -> Number

Type mismatch.
Fixing the market price changes the (market) quantity demanded but does squat all to the demand function.

Also should this really be on /sci/?

[Anonymous No.9351747]

>>9351744
I jumbled my words a little, I was referring to the quantity demanded with the term "demand"

The quantity demanded would still increase and it would be more profitable to increase supply until it aligns with the quantity demanded, resulting in more profit.

I made a thread on /his/ also, /biz/ is crypto general

[Anonymous No.9351750]

>>9351735
>Why not produce the amount of burgers that would have reduced the equilibrium price to the current price floor if you're forced to charge that amount anyways?
that's exactly what you do.

[Anonymous No.9351754]

>>9351750
But then you would produce more burgers?

[Anonymous No.9351759]

>>9351742
To add on this, overall burger quality would also decrease as companies cheap out in order to keep profits going.
If you want shitty cheap burgers, then chances are someone's already making them even without a price ceiling.

[Anonymous No.9351761]

>>9351754
you make less burgers. the benefit is less.

[Anonymous No.9351762]

>>9351759
>To add on this, overall burger quality would also decrease as companies cheap out in order to keep profits going.

That would affect demand itself not just the quantity demanded

I don't want burgers cheap I just want to understand why I would be taught that price ceilings decrease supply when that is evidently not the case?

[Anonymous No.9351763]

>>9351761
The price is less but the quantity demanded is higher so you make burgers until the virtual price decreases until you are no longer using potential price per unit sold ( say sell a burger for 5 dollars when it's worth 8, so you make burgers until they're all worth 5)

[Anonymous No.9351764]

>>9351747
>I jumbled my words a little, I was referring to the quantity demanded with the term "demand"
Okay, quantity demanded increases, but your argument still fails at
>increase supply until it aligns with the quantity demanded
because this makes no sense.
You can increase the quantity supplied, because quantity supplied is a number. You can't increase supply, because supply is a function mapping prices to numbers.

Quantity supplied : Number
Supply: Price -> Number

And the supply curve is determined by non-market conditions like the cost of burger production (cost of rearing cows and shit), consumer tax and shit. One thing it is definitely *not* determined by is price, because the price enters as input when you try and evaluate the function, and not before that.

[Anonymous No.9351766]

>>9351762
I said why in the first post, demand for burgers increases => demand for materials to make burgers increase => materials to make burgers get more expensive => it's not profitable anymore.

If you also make a ceiling for the materials, then at some point you either run out of materials, or people who provide these materials get another job as they don't make enough money or something.

[Anonymous No.9351768]

>>9351763
the same burger now costs less than it did before. investing in the industry altogether became worse. the new optimal value might be higher burgers, if you only make burgers, but you'd rather do something else.

[Anonymous No.9351772]

Some companies can't make burgers as cheaply as McDonalds. They can't turn a profit at the newer price so they stop altogether.

[Anonymous No.9351778]

>The price is less but the quantity demanded is higher so you make burgers until the virtual price decreases until you are no longer using potential price per unit sold
losing potential price per unit sold*

>>9351766
The explanation you are giving me narrows the range of possible hypotheticals where a price ceiling would increase the quantity supplies, however it would still be possible that a price ceiling could reduce the price where the new quantity demanded is met by a quantity supplied that does not demand too many prime materials to make the good unfeasibly costly. (simpler put it will still be profitable to make the good after the demand for prime materials and their price increases), so it would be incorrect to claim that a price ceiling invariably reduces supply.

If we are accounting for a company without options for substitutes, of course, because the substitution argument seems to solve this, if a price ceiling reduces the profit of a product too much a supplier will interest himself in more profitable alternatives.

>>9351772
But then their establishments and capital would be bought up by a larger franchise like McDonald's'? So that could not reduce supply too much.

[Anonymous No.9351782]

>>9351730
That's often what does happen as one of many choices market actors can make. Restaurants may decide to expand to meet the demand. That's a shift in supply to the right. But it's not guaranteed, and you shouldn't assume that for a problem unless it tells you the full story.

[Anonymous No.9351789]

>>9351778
Yes, eventually you're capping the market for burgers, other foods take over. People don't make (as many) burgers anymore as they don't make as much profit as they would making different food.

[Anonymous No.9351804]

>>9351789
But if we are to put such a ceiling on a business where no product alternatives are available within their department and where the business cannot relocate, would my scenario still be valid?

Suppose that the US government put a price ceiling on what local oil extractors sold their crude oil at, locally or abroad, in a past decade where other energies were not feasible. Other forms of extraction are not viable for them because they cannot conveniently exchange all their capital for capital for extracting a substitute, such as coal, equitably. Then oil extractors would just drill more oil to meet the newer quantity demanded? Would a disinterest of investors in this less profitable industry LIKELY cause a collapse of the extractive industry? Is a balance of price reduction and investor interest possible so that this price ceiling increases the supply in a persistent manner?

[Anonymous No.9351815]

>>9351804
Probably not.
Only if the oil industry is a monopoly and prices are heavily inflated. Otherwise the market regulates itself through competition

[Anonymous No.9353030]

>>9351730
profit maximization strategies are inherent in publicly traded companies.

[Anonymous No.9353660]

>>9351730
There will be a shortage of cheeseburgers because ONLY the burger joints that are able to produce burgers below the equilibrium price will still be able to produce burgers and turn a profit. If you're a struggler Mickey d's and you're only making 20 cents on the burger, and suddenly you have to charge one dollar less for each one by law, you are no longer making any profit and have to shut down. Now there are less burgers in the world.

[Anonymous No.9353667]

>>9351744
/his/ is low IQ and /biz/ is just people trying to make money fast, /sci/ is the only place to discuss economics in any academic way, and even then the answers in this thread indicate that very few people on /sci/ understand basic economics

If you want a quality answer, op, go to the economics stack exchange

[Anonymous No.9353697]

>>9351730
Think of it this way. Let's say equilibrium is $5 with 20 burgers supplied and demanded, Trump sets price at $4. Now 24 burgers are demanded, but producers want to make 16. Why do they only want to make 16 if they're still making a profit? Well, basically we defined it to be that way when we wrote the supply curve. Who knows why its that way, maybe there are other products they would rather make with their resources. The most obvious thing is that even if they make a profit, you could possibly make more of a profit making another product. There's an implicit opportunity cost that we don't talk about. The price that they are willing to make a certain amount at is what we're given by the supply curve.