When I read price theory analysis, I don’t see a clear distinction from standard economics. There is often some extra detail that looks like Industrial Organization theory.
I would hope that at least some of the questions would deal with externalities. It seems to me that many real-life policy issues involve transactions that have consequences beyond those to the transactors themselves.
I’m not an economist or anything but I’ll try my hand here.
Why does a new car that costs $20,000 rent for $40 per day, but a tuxedo that costs $500 rents for $90 per day?
The best explanation that I can think of is that the tuxedo depreciates significantly faster than the car despite having a lower capital cost. There is also the potential additional cost to needing multiple sizes and maybe alterations to the tuxedo which increase the price.
Why is milk sold in rectangular cartons, while soft drinks are sold in round containers?
This one is difficult. Obviously square cartons are more efficient than the round soft drink bottles. Maybe part of the answer is that milk is fungible, so efficiency is more important—consumers are only looking at price. Whereas soft drinks are differentiated and consumers may prefer a nicer looking container.
Why do so many restaurants offer free refills on beverages?
Maybe because the cost of refilling the beverages (materials and waiter time) is minimal compared to the potential upside of consumers purchasing more food that is the main earner for most restaurants. Not to mention restaurants can price in the expected number of refills into the initial drink price.
On the rental car/tuxedo example, I think it is also important to note that cars have a resale market. There isn't a similar market for tuxedos.
I think the best answer I've heard about the rectangular vs. cylinder containers is that people are more likely to consume soft drinks directly out of the container. Thus, the cylinder is preferable because it is easier to hold.
But juice is often sold in cartons! The real answer has nothing to do with price theory (or economics of any kind). It's just a matter of physics (soft drinks are under pressure).
It is odd to say that it has nothing to do with economics of any kind. A different way of stating your point is that it is much less costly to store pressurized drinks in cylinders than any of the available alternatives. That is indeed an economic argument. The cost savings from using cylinder containers is enough to justify the increased costs of packaging/shipping/stocking.
OK I'll give you that the parenthesis was an exaggeration. But that does not detract from my main point is that there is no apparent preference for holding round cans vs rectangular juice boxes and that the reason for circular containers is more related to cost of production than the price at which the product can be sold.
Interesting situation, and probably the correct analysis if the monopoly had been magiced into being the previous day. Unfortunately, there is a bunch of depressing research that basically says organizations don't really improve -- if not devolve -- over time on their own and that the primary mechanisms by which market competition operates is the replacement of old corps by new (either explicitly or implicitly via an aquisition or new division swallowing the firm) meaning that the monopolist might be just wasting money on inefficient old methods.
Though maybe this research doesn't transfer because you would expect hostile reorgs to liberate the missing profit. But I suspect that lots of friction in real world is imposed by semi-natural monopolies that aren't public.
When I read price theory analysis, I don’t see a clear distinction from standard economics. There is often some extra detail that looks like Industrial Organization theory.
I would hope that at least some of the questions would deal with externalities. It seems to me that many real-life policy issues involve transactions that have consequences beyond those to the transactors themselves.
Would you be so kind to share some resources to teach price theory at undergrad level?
"Price Theory: An Intermediate Text" by David Friedman and Gary Becker is highly thought of.
I’m not an economist or anything but I’ll try my hand here.
Why does a new car that costs $20,000 rent for $40 per day, but a tuxedo that costs $500 rents for $90 per day?
The best explanation that I can think of is that the tuxedo depreciates significantly faster than the car despite having a lower capital cost. There is also the potential additional cost to needing multiple sizes and maybe alterations to the tuxedo which increase the price.
Why is milk sold in rectangular cartons, while soft drinks are sold in round containers?
This one is difficult. Obviously square cartons are more efficient than the round soft drink bottles. Maybe part of the answer is that milk is fungible, so efficiency is more important—consumers are only looking at price. Whereas soft drinks are differentiated and consumers may prefer a nicer looking container.
Why do so many restaurants offer free refills on beverages?
Maybe because the cost of refilling the beverages (materials and waiter time) is minimal compared to the potential upside of consumers purchasing more food that is the main earner for most restaurants. Not to mention restaurants can price in the expected number of refills into the initial drink price.
On the rental car/tuxedo example, I think it is also important to note that cars have a resale market. There isn't a similar market for tuxedos.
I think the best answer I've heard about the rectangular vs. cylinder containers is that people are more likely to consume soft drinks directly out of the container. Thus, the cylinder is preferable because it is easier to hold.
But juice is often sold in cartons! The real answer has nothing to do with price theory (or economics of any kind). It's just a matter of physics (soft drinks are under pressure).
It is odd to say that it has nothing to do with economics of any kind. A different way of stating your point is that it is much less costly to store pressurized drinks in cylinders than any of the available alternatives. That is indeed an economic argument. The cost savings from using cylinder containers is enough to justify the increased costs of packaging/shipping/stocking.
OK I'll give you that the parenthesis was an exaggeration. But that does not detract from my main point is that there is no apparent preference for holding round cans vs rectangular juice boxes and that the reason for circular containers is more related to cost of production than the price at which the product can be sold.
Interesting situation, and probably the correct analysis if the monopoly had been magiced into being the previous day. Unfortunately, there is a bunch of depressing research that basically says organizations don't really improve -- if not devolve -- over time on their own and that the primary mechanisms by which market competition operates is the replacement of old corps by new (either explicitly or implicitly via an aquisition or new division swallowing the firm) meaning that the monopolist might be just wasting money on inefficient old methods.
Though maybe this research doesn't transfer because you would expect hostile reorgs to liberate the missing profit. But I suspect that lots of friction in real world is imposed by semi-natural monopolies that aren't public.