The True Cost of Things

The True Cost of Things

I wonder if this short blog is pretty obvious... Eh, whatever, I'll write it.  I did plan to write this one like 21 days ago. Ok, this one is about the price of things. It seems pretty obvious that a 50 cent soda does not represent the true cost of making it. Putting globalization (making products cheaply in other countries because the high value of the dollar), command societies (dictators dictating the price) and monopolies (no competitors,  prices set to whatever monopolies feel like) aside, there are other factors that cheapens the price of things.

First, we have externalities. This is means that the price of making something is payed by the public (i.e us). Here is a perfect example, there is a booze factory that makes super cheap sweet beer. Each bottle cost about 1 to 5 bucks a piece. This factory too sends out a lot of smoke. The southern winds sends this smoke to the city. The people soon start getting asthma, lung cancer and all the fancy smoke related diseases. This illnesses are externalities. The price of the booze does not reflect the social cost of all those people that grew ill because the factory did not feel like installing super smoke filters.

There is also public goods. Basically, these are things that people could not figure out how sell. A perfect example is a lighthouse. It is impossible to chase after every boat and force them to pay for using the lighthouse. In order to with the problem of free loaders, taxes came into the picture.

Lets see, aside from externalities and public goods, we have supply and demand. If the supply of a thing out weighs the demand, then the prices decrease. If there is a higher demand for few things, then the price goes up. Anyhow, mega companies do not follow the normal rules of supply and demand. Around the 1800s, factories learned not to get into price wars. So, whenever the demand for something decreased they simply produce less. This obviously increases unemployment because they needed less workers when the demand is low.

Another interesting effect of demand appears in the stock market bubbles. Basically, a stock is considered a bubble when prices goes up and up. In a bubble, people start purchasing more and more of the expensive stock with the hope that it will increase in price in the future. Like this roller coaster cartoon, the price skyrockets and eventually it blows up.

I think, that is everything there is to be said about prices. The next time you drink a soda think about all those poor Eskimos that died of lung cancer to make it. This is the end of my short blog. Later, I am gonna bore you about something else. Tata and goodnight.