[OPE-L:6454] Re: What is prior?

John R. Ernst (ernst@PIPELINE.COM)
Fri, 10 Apr 1998 15:52:07 -0400 (EDT)

It seems to me that many producers of commodities know what
they will sell for and know what they will buy for before
they produce. My wife has an uncle who is a part-time farmer
here in the States. Every year before he plants he knows what
he will get for his output. In this case, the price of the output
is known prior to production no matter how much haggling one
experiences at the retail level.

There is a futures market.


>>Alan wrote on Fri, 10 Apr:
>>> > When you walk into the shop and see the cauliflowers on sale for $1 you
>>> > don't know whether the store owner has set the price of $1 artificially
>>> > high with the expectation that the bargaining process will drive the
>>> > down. In other words, you don't know whether s/he expects to sell the
>>> > cauliflower for $1 , $0.50, $0.25 or anywhere in between.
>>> Sure. which only tells us that the price changes constantly. Which is why
>>> when recording any price we have to specify it as the price of a definite
>>> moment in time. If the cauliflower is priced at $1 at 10am, then that's its
>>> price at that time. If it sinks to $0.40 by 4pm, then that's its price at
>>> that time.
>>No, I think it tells us something more. It tells us that the price listed
>>for many commodities may be purposely inflated since the seller expects to
>>decrease the price in the sales process. In other words, the so-called
>>"list price" may be, and often is, a fictitious price that the seller has
>>no intention of selling the commodity for. Yet, if at a single moment in
>>time we added-up all of the prices for commodities in the manner you
>>suggested in your post on Wednesday, we would also have this fictitious
>>component that would inflate the aggregate price level.
>>How can we get around this? Only by adding prices ex post. Then we _know_
>>what market prices were.
>>> If it's sold for $0.30, then that is its price at the time of sale. >
>>> This is exactly the way that, for example, commodity prices are recorded in
>>> the commodity exchanges. That's what ticker tapes are for, except now they
>>> do it with screens. At any time, check the screen, and you see a list of
>>> prices. These are the prices of that moment.
>>Right. But my point is that the listed prices are different from the
>>market prices.
>>In solidarity, Jerry