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Author | Topic: Economics: How much is something worth? | ||||||||||||||||||||||||||||||||||||||||||||
Percy Member Posts: 22505 From: New Hampshire Joined: Member Rating: 4.9 |
Dr Adequate writes: Now, you were telling us how in mainstream economics, value is the same as price? I don't think value is the same as price. If you read through my recent posts to Crash you'll see where I outline one way to view the relationship between price and value. --Percy
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Percy Member Posts: 22505 From: New Hampshire Joined: Member Rating: 4.9 |
Hi Dr Adequate,
I had no trouble following your math, but your presentation left me a bit confused. Let me explain. I think the core of your idea is represented by this paragraph:
Dr Adequate writes: The simplest way of looking at it is this: suppose your fairy godmother appeared and said that you could either have the use of A or $x. Then A =you $x for the exact sum x at which you would say: "meh, it doesn't really matter" and would be willing to toss a coin to decide. (Technical note: we should probably assume that the cost in time and effort of purchasing A is negligible; if the only boutique selling it was on the summit of Mt. Everest, this would complicate the situation.) But before this paragraph you said, "Let's concentrate on actual goods with a value expressed in a positive number of dollars," then after this paragraph you use the example of oxygen, which except for hospitals and space stations and the like is free and is not an actual good. So I'm left not being sure I follow your point entirely because of the ambiguity about when you're talking about goods valued in dollars and when you're not. But in any event, it appears you have been poking about reading up on economics and have therefore clearly learned that in mainstream views price and value are linked, but that there are many views on how best to think about value. The way you present it as "A =you $x" where it doesn't matter either way whether you have the money or the object seems not all that different to one of the formulations of value from neoclassical economics:
Perceived Incremental Value = Perceived Benefit - Perceived Cost This formulation is trying to get at how individual consumers make purchasing decisions. As cost goes down our perceived incremental value goes up, assuming the perceived benefit for a given good is constant. When perceived incremental value is 0, then perceived cost is the value in dollars of the good to that consumer. You average across the purchasing decisions of many consumers and you get an aggregate measure of value. --Percy
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Dr Adequate Member (Idle past 314 days) Posts: 16113 Joined: |
But before this paragraph you said, "Let's concentrate on actual goods with a value expressed in a positive number of dollars," then after this paragraph you use the example of oxygen, which except for hospitals and space stations and the like is free and is not an actual good. So I'm left not being sure I follow your point entirely because of the ambiguity about when you're talking about goods valued in dollars and when you're not. Oxygen has a price of $0, it has a value of $∞. As I made clear, pretty much anything can be valued in dollars whether or not it has a price, is for sale, is considered a good, exists, etc.
But in any event, it appears you have been poking about reading up on economics ... For the last decade or so, yes.
The way you present it as "A =you $x" where it doesn't matter either way whether you have the money or the object seems not all that different to one of the formulations of value from neoclassical economics: Perceived Incremental Value = Perceived Benefit - Perceived Cost Well, it has an equals sign in it, so I guess there is a point of similarity.
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Dr Adequate Member (Idle past 314 days) Posts: 16113 Joined: |
Percy writes: I don't think value is the same as price. Percy writes: Here's what the Wikipedia article on Value (economics) has to say about value and price in neoclassical economics:
In neoclassical economics, the value of an object or service is often seen as nothing but the price it would bring in an open and competitive market. This is determined primarily by the demand for the object relative to supply. Many neoclassical economic theories equate the value of a commodity with its price, whether the market is competitive or not. As such, everything is seen as a commodity and if there is no market to set a price then there is no economic value. Percy writes: I'm talking about mainstream economics which derives from versions of neoclassical economic theory that largely equate value with price. Mainstream economics should be the primary focus of this discussion. Mainstream economists who prefer not to equate value with price don't believe that it is wrong but that it is insufficiently detailed and nuanced, and then you begin getting into discussions of marginal utility, supply/demand, rational choice, etc. In other words, they believe it is wrong to equate value with price only in the same way that is wrong to say that the Earth is spherical rather than an oblate spheroid or even more detailed descriptions. Percy writes: Anyone who doubts that mainstream economics equates value with price need only look at the value-added tax. Percy writes: The final value of the product to the customer is the initial cost of the raw materials plus the sum of the values added at the various steps of the supply chain, which happens to be its price. Percy writes: The part of the Wikipedia quote I was working with was, "In neoclassical economics, the value of an object or service is often seen as nothing but the price it would bring in an open and competitive market." Percy writes: The profit (created value) appears on the bottom line of the supermarkets' financial reports. Percy writes: Value reflects the totality of prices at which a commodity is changing hands. Percy writes:
I am explaining the dominant paradigm in economics today, one where many, as Wikipedia explains, "equate the value of a commodity with its price."
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crashfrog Member (Idle past 1496 days) Posts: 19762 From: Silver Spring, MD Joined: |
Apparently we both agree that the classical definition of value is useless I think basically all definitions of value are useless, in economic terms anyway, because there's no way to rigorously connect them to any tangible quality. In our own day to day experience, we intimately grasp the concept that price and value are only loosely related.
If you recall, you objected to "equated" and argued that "linked" is a better term for the relationship between value and price, and I agreed, but now you're using "equated." What gives? What gives, I guess, is that you keep agreeing that price and value are not identities, but you keep treating them like identities and supplying quotes from Wikipedia articles that equate them. But they can't be equated. Which means that your very first line in the thread:
quote: is wrong. "How much someone is willing to pay" is the price, not the value. And the price cannot be the answer to "how much is something worth?" if price and value are only broadly linked.
The $100,000 *classical value* of the book of an earlier example is completely divorced from both reality and price, but if the value of the book, using value as defined by mainstream economics, were actually in the neighborhood of $5 then one could reasonably expect to see prices in a range around that value. And yet one can quite reasonably expect to see prices in a wide range around something's assumed "value"; that's the basis of comparison shopping, looking for deals, going to auctions, etc. Everybody is intimately acquainted with these behaviors because we expect that the price of something might vary quite widely around our perception of its value.
So what we see is that as price increases relative to value (increasing y-axis) that quantity sold decreases (decreasing x-axis). We see that on an imaginary graph? Percy, I'm truly at a loss for words - I could imagine and describe a graph that showed the exact opposite, that as price rose relative to value, sales volume increased, but what on Earth would that prove? It would be an imaginary graph! I'm not a student of economics, exactly - I'm more of a student of students of economics - and I wonder to the extent that this sort of thinking - "look, here's a graph produced by a mathematical model I created; thus, the truth of my model is demonstrated" - is endemic to economics. Of course, I could find examples to support my model, such as the time online clothing retailer Banana Republic advertised a price increase,, or a dozen articles on how raising your prices can actually increase your sales volume. Those would be anecdotes, but at least they would be real anecdotes as opposed to showing me the decaying exponential function and asking me to imagine axis labels.
No, I don't need to watch the show No, you should. It's entertaining. It's up on Netflix. And, you know, it might get you to chill out long enough to pull the stick out of your ass.
If the gun were really changing hands at prices in the general neighborhood of $15,000 then the guy would sell it for $15,000 instead of to Rick for $3000. Seriously, Percy, watch the goddamn show. It's practically the catchphrase - "You just heard my expert tell you it was worth $1000; I'll give you $300 for it." You can watch people literally go agape at Rick's lowball offer literally seconds after they've just been told what it's worth. It's such a frequent feature of the show that it's an Internet meme. Now, is it really worth $15,000? Like I said, that's what the expert says, and he's says he's basing that off what he's seen at auction. Maybe he's lying, but it stands to reason that if he was going to put a finger on the scale, it would be to Rick's benefit, not the benefit of the random customer, and that therefore his appraisal would be low, if anything. I don't see why Rick's "buddy who's an expert on things like this" (that's usually how the expert is introduced) has any incentive to overvaluate something Rick is trying to buy.
If the expert you mentioned was assigning a value based on the market for the gun where guns in its condition are changing hands in the neighborhood of $15,000, then Rick would just be out of luck. Except that, 3 out of 4 times, Rick isn't out of luck. He gets the $15,000 gun for $4000. (Usually he gets negotiated up a bit.) And then the item goes on sale for more than double what he paid. Clearly your "neoclassical economics" is utterly foundering on how this real-world behavior can be explained, but The World-Famous Gold and Silver Pawn Shop was apparently an incredibly successful business even before the show started.
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Percy Member Posts: 22505 From: New Hampshire Joined: Member Rating: 4.9 |
Dr Adequate writes: Oxygen has a price of $0, it has a value of $∞. As I made clear, pretty much anything can be valued in dollars whether or not it has a price, is for sale, is considered a good, exists, etc. If you're talking about oxygen in the air for breathing then it has a price and value of $0 because free oxygen does not change hands anywhere for any price. It's free. By the same logic you could just as foolishly argue that food and water has an infinite value, or that any essential nutrient like calcium or iron has an infinite value. Threaten to lock me in a box and give me no food containing vitamin C until I die of scurvy and I will certainly give you everything I own, but the value of vitamin C is actually in the neighborhood of a couple pennies per milligram. People make their purchasing decisions about this vital nutrient based upon it's perceived value as weighed against the price for which it is being offered. The relevant point actually concerns supply and demand. If for some reason the supply of vitamin C became limited in a region of the world (including in available food) then its perceived value would increase and the price would rise. Speaking of oxygen, that reminds me, if you ever feel the need to actually pay money to breath it there actually do exist oxygen bars that will sell you oxygen administered through those funny nose things you see patients on TV shows wearing all the time. Plain or scented. --Percy
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crashfrog Member (Idle past 1496 days) Posts: 19762 From: Silver Spring, MD Joined: |
but you *do* need to learn not to say "pawn" when you mean "sell". In point of fact, I didn't say it; the customer did. (It's not infrequent in the show to cut to an aside by Rick about the statutory difference between pawn and sale in the state of Nevada, or to show Rick's efforts to deal with nonpayment of the loan, or the inventory management necessary to make sure they don't sell pawned merchandise until the loan is in arrears.)
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crashfrog Member (Idle past 1496 days) Posts: 19762 From: Silver Spring, MD Joined: |
It is possible to have a vertical demand curve, where absent market controls, the market-clearing price for something approaches 100% of one's worldly possessions and a lifetime of indentured servitude.
The increase in price of American medical care over the years - even as Americans consume less care overall - is one such example.
http://www.healthcostinstitute.org/2010report Implicitly, we understand why this is - when you need medical care, you have to pay what they're asking for or you die. The nature of the transaction gives providers incredible power to extort higher prices. Historically, medical care has always commanded a premium price but it's only been in the past century that medical care has actually delivered nonzero value to the consumer. "Medicine" used to be synonymous with "prayer."
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Dr Adequate Member (Idle past 314 days) Posts: 16113 Joined: |
As you've already acknowledged my reply about oxygen, I sha'n't add this example by edit as I planned, but make a new post.
We are now in a position to put a value on free software. If Open Office serves my needs just as well as Microsoft Office, then clearly they have the same value. If we want to put a dollar value on this, it is just the amount with which my fairy godmother would be able to just compensate me for not having any office software. This makes more sense then your claim that it has no value because it has no price. For one thing, my way allows us to make sense in English, for another thing, it explains why I want free software, and for a third thing, it lets us see why the efforts of the Free Software Foundation should be encouraged more than people who actually produce nothing of value.
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Dr Adequate Member (Idle past 314 days) Posts: 16113 Joined: |
If you're talking about oxygen in the air for breathing then it has a price and value of $0 because free oxygen does not change hands anywhere for any price. It's free. By the same logic you could just as foolishly argue that food and water has an infinite value, or that any essential nutrient like calcium or iron has an infinite value. Threaten to lock me in a box and give me no food containing vitamin C until I die of scurvy and I will certainly give you everything I own, but the value of vitamin C is actually in the neighborhood of a couple pennies per milligram. People make their purchasing decisions about this vital nutrient based upon it's perceived value as weighed against the price for which it is being offered. Oh look, you're conflating price and value again. The price is what people pay for it. The value, to you, of having oxygen, is the least price someone would have to pay you to induce you to not have oxygen. Unless there is some finite amount of money for which you would die, that is indeed infinite.
Speaking of oxygen, that reminds me, if you ever feel the need to actually pay money to breath it there actually do exist oxygen bars that will sell you oxygen administered through those funny nose things you see patients on TV shows wearing all the time. And so according to you it must have value, since it has a price. Indeed, anyone who's figured out how to sell oxygen must be "creating value" hand over fist.
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Jon Inactive Member |
If for some reason the supply of vitamin C became limited in a region of the world (including in available food) then its perceived value would increase and the price would rise. No; its scarcity would increase, and this would cause the price to go up. The way to make the value of something increase is to make it able of providing greater percieved benefit to the consumers. A scientific discovery showing that vitamin C has health benefits no one ever knew of before would increase its value to consumers.
If you're talking about oxygen in the air for breathing then it has a price and value of $0 because free oxygen does not change hands anywhere for any price. It's free. Falling back on the claim that oxygen has a value of $0 should be a clear sign that your position is in serious trouble. JonLove your enemies!
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Percy Member Posts: 22505 From: New Hampshire Joined: Member Rating: 4.9 |
Hi Dr Adequate,
I bow to your power to misrepresent. I can't repeat myself from scratch in every post. As I said before, my recent posts to Crash outline one view of how value and price are related in mainstream economics, and in another of my recent posts to you I described another, the one you dismissed without any intelligent comment. In mainstream ecomomics value and price are very closely related. People will pay according to the value they assign. If the price rises above what they perceive as the value they will be less likely to buy, or will buy less. If the price drops below that value they will be more likely to buy, or will buy more. Perceptions of value play a significant role in marketing strategies. It's why stores become crowded during sales. This isn't rocket science. I understand that you guys have a concept of value that bears little or no relationship to price, but in the world where real people live that isn't true. --Percy
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Dr Adequate Member (Idle past 314 days) Posts: 16113 Joined: |
I bow to your power to misrepresent. So I should hope. It is quite impressive, isn't it? I am, so far as I know, the only person in the world who can misrepresent someone by repeated in-context word-for-word quotation of what he said. No-one else can do this. I'm awesome.
In mainstream ecomomics value and price are very closely related. Did you miss post #194? It is perfectly "mainstream" to associate value with utility rather than price. Also, it's non-stupid.
I understand that you guys have a concept of value that bears little or no relationship to price, but in the world where real people live that isn't true. Would you like to ask some real people if oxygen has no value to them? Or if free software has no economic value? You're pretty much surrounded by perfectly real people who are telling you that value and price are two different things. You are also told this by those "mainstream economists" who aren't an anonymous person of unknown qualifications editing Wikipedia.
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New Cat's Eye Inactive Member |
So for the free software, no doubt it has value to the country's economy, but without a price, and therefore without an Economic Value, its not going to be accounted for when measuring things like the GDP. I don't know exactly how GDP is calculated, but if this is true, I would say --- what of it? The question of whether it has economic value has nothing to do with whether someone using a particular method of accounting takes this value into account. The issue is that people where using this graph to make points in that other thread:
But now they're arguing against the principles that the graph uses. If you don't like those principles, then don't use the graph that is based on them.
If I maintained that it required intelligence to learn a foreign language, would it be a good refutation to reply that IQ tests don't measure this capacity? I might say --- well then, so much the worse for IQ tests. Except, in the other thread you guys were all about using the IQ tests and now you're arguing against them.
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Percy Member Posts: 22505 From: New Hampshire Joined: Member Rating: 4.9 |
crashfrog writes: I think basically all definitions of value are useless, in economic terms anyway,... Well, gotta give you credit for honesty if nothing else.
...because there's no way to rigorously connect them to any tangible quality. I just in the previous message described how value and price are connected, more about that later.
What gives, I guess, is that you keep agreeing that price and value are not identities, but you keep treating them like identities and supplying quotes from Wikipedia articles that equate them. Since I just in the previous message described a price/value ratio that is not a constant value 1, how is it that I am treating them like identities? I can't help the Wikipedia site's use of the word "equates", but you're making the wrong interpretation. Those with a larger vocabulary than provided by the favorite online dictionaries know that equate can mean "to make comparable or show the relationship between" (Webster's Third New International Dictionary, Volume 1), and it seemed obvious to me from the outset that that's how it was being used. Yes, as I said in Message 1, the simple answer is that something is worth what someone is willing to pay. That was a starting point and point of departure, not the whole shebang with all the details. We're getting into the details now.
"How much someone is willing to pay" is the price, not the value. Yes, of course this is true. I've been describing value as an aggregate across the totality of prices paid by all consumers. In a small community of 3 supermarkets that don't use promotions the price of a bag of peas is $.90, $1.00 and $1.10. During a given week the supermarket sales are represented in this table:
The lower the price/value ratio the greater the bargain and the greater the sales, and if you graph those numbers they'll come out looking something like this:
Gee, what do you know, it's the same graph you said showed an imaginary relationship! Anyway, this is just a simple inverse relationship showing that the greater the bargain as measured by a decreasing price/value ratio the greater the sales, which is exactly what happens in the real world. (Again, the y-axis label should be price/value, and ignore the numbers on the hash marks.)
And yet one can quite reasonably expect to see prices in a wide range around something's assumed "value"; Well, not necessarily in a wide range, but yep, that's it, you got it, except you don't need quotes around value because its a very familiar term in mainstream economics.
Everybody is intimately acquainted with these behaviors because we expect that the price of something might vary quite widely around our perception of its value. Well, yeah, the price might possibly vary widely around the value, but not all that often or that much. I can usually buy a can of soda from a machine for between $1.00 to $1.50. I'm sure those are neither the highest nor lowest vending machine prices people can find, but variations are usually an issue of supply/demand and maximizing profits.
Seriously, Percy, watch the goddamn show. Seriously, Crash, a reality show? Really? This is where you're learning your economics? Did you know that at least some reality shows are in part planned/scripted? Do you know for a fact you can trust everything you see on this show? Could I recommend Jersey Shore to you (no, I haven't actually seen it, but it sounds like it might be your kind of thing). Well, anyway, you present it again, so let's go through it again:
Now, is it really worth $15,000? Like I said, that's what the expert says, and he's says he's basing that off what he's seen at auction. Maybe he's lying, but it stands to reason that if he was going to put a finger on the scale, it would be to Rick's benefit, not the benefit of the random customer, and that therefore his appraisal would be low, if anything. I don't see why Rick's "buddy who's an expert on things like this" (that's usually how the expert is introduced) has any incentive to overvaluate something Rick is trying to buy.
If the expert you mentioned was assigning a value based on the market for the gun where guns in its condition are changing hands in the neighborhood of $15,000, then Rick would just be out of luck. Except that, 3 out of 4 times, Rick isn't out of luck. He gets the $15,000 gun for $4000. (Usually he gets negotiated up a bit.) And then the item goes on sale for more than double what he paid. Clearly your "neoclassical economics" is utterly foundering on how this real-world behavior can be explained, but The World-Famous Gold and Silver Pawn Shop was apparently an incredibly successful business even before the show started. So you're telling me that the expert tells the customer the gun is worth $15,000 and that the customer knows he can get $15,000 (or heck, even just $10,000) by selling it on eBay or traveling to the auction, but he instead sells it to Rick for $4000. What aren't you telling me here? Are the loan sharks threatening to break his legs if he doesn't pay them by noon? Come on, get real. I can believe selling to Rick for a discount of maybe 10% or 20% or whatever is standard for go-betweens these days so that you can avoid the hassle and rigamorale of possible restoration costs, travel, having to spend your free time, etc, but a 70% or 80% discount? Come on, no one's that stupid. Get real. --Percy Edited by Percy, : Punctuation.
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