Supply and Demand

“The problem is that when there is a disparity between the value of a product to the buyer and the cost of production to a seller, if there is natural competition (cereal, gasoline, etc. are relatively close to natural competition), the actual price will tend towards the cost for the sellers, since companies will keep undercutting each other until the price drops to the lowest they can accept without losing money on each sale. OTOH, if there is a natural monopoly (or something close to it), the actual price will tend towards the value for the buyers, since the lack of competition allows the price to rise as high as the buyer will tolerate.”

Prices are ultimately determined by what buyers are willing to pay, never at what sellers are willing to sell at. The only way for this not to be true is if sellers are paying people to take away product, and then they are actually buyers of a removal service.

Demand must precede supply. Having a bunch of product that no one wants to buy means the product is not worth anything. The supply only comes into the picture after people are demanding something.

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