- This topic has 1 reply, 2 voices, and was last updated January 7, 2022 at 10:22 am by .
-
Topic
-
DT Cochran has a question: “Can anyone explain why the price of bananas in Canada is so stable?” The other question is why the prices of apples and oranges aren’t stable? And the third question is how, given that prices of different commodities change at different rates, economists square the circle to ‘derive’ downward sloping market demand curve?
The logical difficulty for economists is that when relative prices change (even if everything else stays the same), income gets redistributed. And unless all consumers are identical drones with the same preferences — and preferences that don’t change with income — there is no reason for the market demand curve to slope downward even if individual demand curves do.
Poof, there goes half of economics.
Just saying.
-
Replies
-
-
It could be just that bananas are ‘loss leaders’ in Canadian grocery stores – items sold just above or below cost to entice people into store and to psychologically ‘nudge’ the shopper toward the idea that the grocery store prices are in general ‘a good deal’. This is plausible to me because bananas are a great product to choose for a loss leader: they are very cheap, relative to other products (so selling under margin isn’t that costly) and they go off really quickly (so the store wants to sell them more quickly than the average product).
The global price of bananas tells a different story (compare to oranges below): steady, almost systematic price inflation of 300% since 2003.
-
- You must be logged in to reply to this topic.