On 12/11/2010 12:14, Sylvia Else wrote:
On 12/11/2010 9:14 PM, wrote:
In sci.skeptic Sylvia wrote:
You're conflating cost, price and value. They're distinct concepts.

Obvioustly. Hence my referce to to part they individually play in
standard supply/demand theory. You either accept that theory or do not.

If you do, then your "deductions" from prices are incorrect.

If you do not, then you admit that prices have little to do with
supply or demand. I.e. prices are even more arbitrary than the
simple thory would have it. If so, then your "deductions" from
prices are more incorrect.

[some economics 101 definitions]

You're just lowering the bar.


The market determines where the price lies between cost and value, but
the price still has to lie between them. If it doesn't then either
sellers are losing money on the sales, or purchasers are paying more
than they believe the thing is worth. Neither scenario is going to occur
in the normal way of things. People sometimes make mistakes, and
sometimes things are sold below cost or bought above value for ulterior
motives, but in the main stream the price cannot lie outside the limits
of cost and value, because people are not that stupid.

They are *exactly* that stupid. I take it that you have never heard of
any of the "Designer" Brandname products that are priced way beyond
their intrinsic value or cost to manufacture. People will pay insane
amounts of money for a trendy "Name" on their clothes, perfume etc.

It isn't hard to find people paying more than something is worth on eBay
when they get hooked on excitement of the auction. In some cases they
end up paying more than the new price when shipping is included!

On the other side of the equation the original Mini Cooper MkI lost the
BMC company money for every one sold - clearly not sustainable. And the
telecoms industry is still recovering from its irrational exhuberence in
bidding way over the odds for European 3G telecoms licences.

http://en.wikipedia.org/wiki/Telecoms_crash

A much earlier example of irrational market exhuberance that is far
enough back that it can be looked at fairly dispassionately now is the
Dutch tulip mania of the 1600's where single tulip bulbs were at one
time valued to be worth more than a house. History is littered with such
examples of greed and stupidity combined in equal measure.

http://en.wikipedia.org/wiki/Tulip_mania

The recent banking crisis has similar roots (greed, stupidity and herd
instinct) in trading CDOs. As did the crash 80 years earlier and the one
another 80 years before that. The latter even came with a stern letter
from the Bank of England to the merchant bankers about their errant
ways. Nothing really changes only players get replaced.

Regards,
Martin Brown