A Scenario looking for answer. (1 Viewer)

[Right.Meow]

Well just the other day I was having a conversation with a kid who thinks he knows it all. So the debate was "Is it possible for a product that costs lets say $1000 to make be sold for a lower price? Given circumstances such as supply and demand."

Given I havn't done Commerce or Economics for quite a few years, I'm looking for a basic yes or no answer with a small explanation. Thanks for your time.

 

[partymaster01]

Yes lol

Well im pretty sure

 

[Right.Meow]

I understand the fact it's not smart business sense to do so, I just want to clarify this is purely theoretical. I mean for example, people stop having a demand for Platnium (Not that it would happen) the price would fall below production cost and probably would be worthless, correct?

PS: Just for argument sake, can someone explain why it would go below perhaps using supply and demand. So I can send this URL to the kid who has no idea about basic economic principals.

 

[gnrlies]

I understand the fact it's not smart business sense to do so, I just want to clarify this is purely theoretical. I mean for example, people stop having a demand for Platnium (Not that it would happen) the price would fall below production cost and probably would be worthless, correct?

PS: Just for argument sake, can someone explain why it would go below perhaps using supply and demand. So I can send this URL to the kid who has no idea about basic economic principals.

Well in economics, production costs are not what counts. It is opportunity cost. Production costs are a sunk cost - i.e. youve paid it and cannot get it back. By all means if the price falls below production costs you might cease future production (this would would in fact represent a movement along the supply curve as supply falls as demand falls), but it would be meaningless for previously produced inventories.

For these inventories you would consider the opportunity cost not the production cost. For example you would consider what the costs of NOT selling the platinum is. Simplistically the cost of NOT selling the platinum is the price you would obtain for it (which may be below the production costs). If it is considered that it could be sold later, you would consider whether the price of platinum is expected to rise or fall, and consider an appropriate discount rate. So if the price of platinum was expected to rise you might wait until a later date, if not then you would sell now.