At 28:54, I believe the figures for "quantity sold" are incorrect. They should be 3, 2, 1, 0, 0. For example, at Price=$4, Seller Z will not sell, since his coffee is higher on his value scale than $4. The numbers as given in the video result from comparing the sellers' coffees to the price ranked below, whereas they should be compared to the price ranked *above* (i.e., as a seller, do I prefer the dollar value *more* than I prefer to keep my product). Alternatively, then, if you swapped each seller's 2nd and 3rd-ranked preferences, then the quantity sold figures would be correct. One further minor nit: the dollar values in the sellers' value scales should be in parentheses, since they are hypothetical amounts, rather than amounts that the seller currently has in possession.
What if buyers A,B, and C are willing to buy coffee at 5 dollars and sellers X,Y, and Z are willing to sell it at 1 dollar? What would be the market clearing price? Anything between 1-5 would satisfy all preferences
I can't say that I think you're wrong, but even if customers might be willing to pay more, businesses are also willing to let them pay that cost as well and keep doing so until/if the demand or competition drive the price down or more or less equalize/settle on a harder number.
If the price of coffee is too low, buyers will buy more coffee than if the price had been higher, which again would drive up its price until it clears.
Well the mark of any good entrepreneur is recognizing and acting on demand. So while he may not know exactly how much they're willing to pay, like the person said above me, the fact the coffee is so much cheaper than consumers would be willing to forgo should mean his coffee is going out of stock pretty quickly and he has the freedom to raise the price inch by inch. Eventually this should reach a relative equilibrium, at whatever price they can get the most profit for coffee without pushing a relevant amount of buyers away. And the great thing about prices is this reasonably limits the amount of coffee consumers can buy so it isn't constantly out of stock, but also incentivizes the producer to make more coffee. But even though the coffee sale may end up charging around 5$, or more depending on how many consumers he was getting, this should certainly incentivize competitors to sale coffee for a lower price and chip in on that business. Afterall, the producer was willing to sale for about 1$ to begin with. So, you know, nothing is set in stone, but given your conditions this would probably result in the coffee being about $2.50. But like the video explains, consumers all have really different values. Some may be willing to buy for 5$ and other might only think it's worth 2$. Similarly with consumers who might be willing to sale cheaper vs higher. Maybe the price of coffee ground goes up with the demand for coffee over time. A price summarizes these many diverse values.
And I know that was a two year late reply that probably won't be read by OP lmao. But just for anyone else curious for a really simple but fleshed out explanation.
These guys live in an alternative universe were people are willing to pay more and more. In the real world you see people always looking for a lower price. That is how a market works!
The Subjective theory of value could hardly be called a theory or scientific. It assumes it’s own conclusion when it defines value as utility and becomes nothing more than a tautology. Completely unfalsifiable. It’s not even wrong. There is no causal mechanism between ordinal utility and prices. You must take prices as given because you cannot derive a quantitative measure of exchange from a qualitative measure of ordinal utility. If utility is identical to value, then subjective theory is unfalsifiable. If utility is predicated of value, then value is underdetermined by utility. In either case the theory is a failure.
His breakfast humor was very clever. :)
But why do people in Madrid earn more? Comparative Advantage?
At 28:54, I believe the figures for "quantity sold" are incorrect. They should be 3, 2, 1, 0, 0. For example, at Price=$4, Seller Z will not sell, since his coffee is higher on his value scale than $4. The numbers as given in the video result from comparing the sellers' coffees to the price ranked below, whereas they should be compared to the price ranked *above* (i.e., as a seller, do I prefer the dollar value *more* than I prefer to keep my product). Alternatively, then, if you swapped each seller's 2nd and 3rd-ranked preferences, then the quantity sold figures would be correct. One further minor nit: the dollar values in the sellers' value scales should be in parentheses, since they are hypothetical amounts, rather than amounts that the seller currently has in possession.
What if buyers A,B, and C are willing to buy coffee at 5 dollars and sellers X,Y, and Z are willing to sell it at 1 dollar? What would be the market clearing price? Anything between 1-5 would satisfy all preferences
I can't say that I think you're wrong, but even if customers might be willing to pay more, businesses are also willing to let them pay that cost as well and keep doing so until/if the demand or competition drive the price down or more or less equalize/settle on a harder number.
If the price of coffee is too low, buyers will buy more coffee than if the price had been higher, which again would drive up its price until it clears.
Well the mark of any good entrepreneur is recognizing and acting on demand. So while he may not know exactly how much they're willing to pay, like the person said above me, the fact the coffee is so much cheaper than consumers would be willing to forgo should mean his coffee is going out of stock pretty quickly and he has the freedom to raise the price inch by inch. Eventually this should reach a relative equilibrium, at whatever price they can get the most profit for coffee without pushing a relevant amount of buyers away. And the great thing about prices is this reasonably limits the amount of coffee consumers can buy so it isn't constantly out of stock, but also incentivizes the producer to make more coffee. But even though the coffee sale may end up charging around 5$, or more depending on how many consumers he was getting, this should certainly incentivize competitors to sale coffee for a lower price and chip in on that business. Afterall, the producer was willing to sale for about 1$ to begin with. So, you know, nothing is set in stone, but given your conditions this would probably result in the coffee being about $2.50. But like the video explains, consumers all have really different values. Some may be willing to buy for 5$ and other might only think it's worth 2$. Similarly with consumers who might be willing to sale cheaper vs higher. Maybe the price of coffee ground goes up with the demand for coffee over time. A price summarizes these many diverse values.
And I know that was a two year late reply that probably won't be read by OP lmao. But just for anyone else curious for a really simple but fleshed out explanation.
7:27
These guys live in an alternative universe were people are willing to pay more and more.
In the real world you see people always looking for a lower price. That is how a market works!
The Subjective theory of value could hardly be called a theory or scientific. It assumes it’s own conclusion when it defines value as utility and becomes nothing more than a tautology. Completely unfalsifiable. It’s not even wrong.
There is no causal mechanism between ordinal utility and prices. You must take prices as given because you cannot derive a quantitative measure of exchange from a qualitative measure of ordinal utility.
If utility is identical to value, then subjective theory is unfalsifiable. If utility is predicated of value, then value is underdetermined by utility. In either case the theory is a failure.
@@jimothy9943 🤡