You might be forgiven for expecting that during the harvest season that prices for the things being harvested are lower than at times of the year when these crops are less commonly available. I expect that too.
So here is a little question for my students. If you go to Wegmans and buy a small can of pumpkins in May or June, you are likely to pay just a few cents for the equivalent of a small pumpkin. But when our family took a trip out to Pumpkinville farms the other day (you know those kind of places where you can feed goats, take tractor rides, eat cider donuts, and even pick pumpkins), you would have noticed that prices for very small pumpkins were around $4.00 and for larger pumpkins (by no means the Great Pumpkin) were around $12.00. I thought that your economics textbook taught you that when the supply of pumpkins increases, pumpkin prices should fall. This is an indirect way of stating that demand curves slope downward. But clearly, at Pumpkinville and all of the other pretty farms we passed along the roadside, there was an abundance of pumpkins, all selling at prices higher than I think I recall seeing in Wegmans a few months ago. What is going on?
Of course, it is because people want pumpkins at it is close to Halloween season, driving the demand up, and the price along with the demand. More people are willing to pay for a pumpkin now than ever before. In fact, immediately after Halloween pumpkin prices should dip down dramatically.
This is what I think.
Supply and demand isn’t the only factor in determining prices. Halloween season has gave farmers more incentives to grow them and sell them on the market. But what farmers also realize is that there will ultimately be more supply of pumpkins. This will drive the price of the pumpkin on the market down drastically, gaining virtually no profit for each farmer. Thus, in order to raise pumpkin prices and their scarcity, they will develop their own farm to attract more buyers. The farm will attract price-insensitive people and families for the Halloween season. They will go to the farm and enjoy it with their friends and family, and have the accessibility and convenience of buying a “fresh” pumpkin right off the farm for 4 or 12 dollars. No one has to buy them. But the farms are saying, “if you can afford it buy it, but if not there are less convenient alternatives in stores”. A perfect analogy is to compare it with a movie theater. I don’t remember the last time the demand was so high or supply so low as to drive popcorn prices to 5 dollars for a bag of popcorn. The manager has the power to control those prices inside the theater. He or she knows that the value of popcorn will be higher in movie theaters because people tend to want to chew on something enjoying while watching a movie. And there are willing people who are price-insensitive to not care so much for the cost, but for the satisfaction he or she is going to get. There are options to brining in candies and small foods to theaters, but the convenience and the monopolization of popcorn market in the theaters target the price-insensitive group.
Did you get a chance to see this book yet?
http://amateureconblog.blogspot.com/2008/08/quick-book-review-why-popcorn-costs-so.html
825670 767108I observe there is a lot of spam on this weblog. Do you want aid cleaning them up? I may well assist in between courses! 764730
47724 622887Really clean site , thanks for this post. 985257
944792 100880I discovered your internet site website online and check a lot of of your early posts. Maintain on the top notch operate. I just now additional your Feed to my MSN News Reader. Seeking for forward to reading considerably far more from you discovering out later on! 519201