The three problems of free markets - Why Capitalism never lowers prices in the long run

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12.19.2023 04:44PM

In Capitalism, there is the so called "supply and demand" theory.

It is a theory that price of a product is determined by its supply and the demand for it on the free market.

Here are the three problems of the free market.

Problem 1 - Demand greater than supply

If demand is greater than supply, every economist will tell you that prices must go up.

Problem 2 - Demand equal to supply

If demand is equal to supply, prices again go up because anyone selling products at lower prices will quickly run out of them, and those who sell at higher prices will become the only sellers and will earn more money.

Problem 3 - Demand lower than supply

Many economists falsely believe that if demand is lower than supply, that prices go down.

That is far from reality.

When supply exceeds demand, what happens is not that prices go down, but capitalists reduce production to reduce supply.

After supply is reduced and becomes equal to demand, we again have Problem 2.

Also, there is the cost of production effect where even if supply is higher, price cannot go down as cost of making a product wont allow it.

Therefore, we see that in free market, even the most ideal circumstances dont enable any reduction in prices in the long run.

Average prices always must go up because every seller works to have demand for his product greater than its supply.

Debates: 5

Posts: 3,261

12.19.2023 08:09PM

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@Best.Korea

If demand is equal to supply, prices again go up because anyone selling products at lower prices will quickly run out of them, and those who sell at higher prices will become the only sellers and will earn more money.

Goods get replenished pretty frequently.

When supply exceeds demand, what happens is not that prices go down, but capitalists reduce production to reduce supply.
After supply is reduced and becomes equal to demand, we again have Problem 2.

If supply goes down, it's because demand went down first. Why produce something you know people don't want?

Also, there is the cost of production effect where even if supply is higher, price cannot go down as cost of making a product wont allow it.

If a store wants to get rid of something without throwing it away, they may offer the produce for less than the cost of production and just not buy any more of those items for the foreseeable future.

Therefore, we see that in free market, even the most ideal circumstances dont enable any reduction in prices in the long run.

What if cost of production decreases? 50 years ago, big and heavy computers that are much less advanced than the ones we have cost hundreds of thousands of dollars. Because the cost of production went down pretty significantly, it allowed us all to have technology superior in quality by every metric as well as price.

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https://www.titlemax.com/discovery-center/planes-trains-and-automobiles/average-gas-prices-through-history/

12.19.2023 09:52PM

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@Best.Korea

This can be disproven with one chart.

Fuel is the singular example which is the least favorable to me, since it's a depletable resource so you would only expect prices to rise over time. Even so, gas prices from 2015-2021 were consistently below $3.30, which, adjusting for inflation, was lower than throughout the periods 1932-1945 and 1979-1983.

If free market capitalism has enabled inflation-adjusted prices to remain stable over the very long term for a resource whose overall supply cannot grow at all, then what does this say about commodities for which factory production can simply be ramped up in the event of shortages?

Topic's author

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12.19.2023 10:30PM

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@Swagnarok

Even so, gas prices from 2015-2021 were consistently below $3.30, which, adjusting for inflation

Adjusted for inflation?

Just curious, do you know what is inflation?

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12.19.2023 11:24PM

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@TheUnderdog

What if cost of production decreases? 50 years ago, big and heavy computers that are much less advanced than the ones we have cost hundreds of thousands of dollars. Because the cost of production went down pretty significantly, it allowed us all to have technology superior in quality by every metric as well as price.

Yes. Technological advancements can make things cheaper by reducing cost.

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12.19.2023 11:29PM

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@Best.Korea

So then the free market is good then on this aspect? Would you agree with that?

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12.19.2023 11:38PM

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@TheUnderdog

Yes. In the areas where cost of production goes down, prices can decrease.

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12.20.2023 01:29AM

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@Best.Korea

Just curious, do you know what is inflation?

Yes. It is a decrease in the buying power of a given amount of money, especially that which results from government monetary policy (e.g. printing more money).

Key word: governmental. Capitalism is not responsible for this.

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12.20.2023 11:37AM

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@Swagnarok

Its a rise in prices, buddy.

13 days later

#10

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01.02.2024 03:27PM

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@Best.Korea

There's only one problem with the free market: the government.

Topic's author

#11

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01.02.2024 03:32PM

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@Greyparrot

Still dreaming the impossible dream of abolishing the government?

Do you know why it is impossible? Because world is all about power and government is the most powerful thing in the world.

Even if you abolished one government, you would merely be creating space for new one to grow.

Its something that Karl Marx knew and Mikhail Bakunin didnt.

#12

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