Friday, February 25, 2011

Why is this such a hard concept?

Various Americans are irate that gas prices are up even though all current supplies were purchased at lower prices.

To which I reply: If I sell gas I bought at $3 for $3.50, then I have $3.50 to buy its replacement gallon of gas, which is $4.00. $3.50 won't buy $4.00 worth of new inventory. So I have to raise my price to above $4.00 *now* so I can afford to buy my next truckload of gas, otherwise I won't have enough to buy that next truckload of gas and I won't have gas to sell and I'll be out of business. Why is this concept -- that I have to price my inventory at its REPLACEMENT cost, not at its PURCHASE cost, or I'll have no inventory -- so difficult? Are there really that many people ignorant of the basics of how to run a business?

The real culprits here are the speculators. If we raised taxes on millionaires, they'd no longer have money to speculate with, but oh no we can't do that because speculation creates jobs. In the fertile imaginations of morons, anyhow.

-- Badtux the Snarky Penguin


  1. How come that only works when prices are going up and not when prices are going down?

  2. I have to say, Jerry has part of it right... prices never, ever go down as quickly as they go up. And given the truly obscene profits the oil companies are crowing about -- $9.25 billion (yes, with a "B") JUST for Exxon-mobil last quarter* -- I say it's logical to assume there's a fair amount of price-gouging going on.

    * business/2011/jan/31/exxon-mobil-profits-and-output-rise

  3. You both probably should go review my post on price stickiness during monetary deflation. The reality is that prices don't decline when upstream prices decline until after all inventory purchased at the higher upstream price has been sold. This is because profit = price sold at - price purchased at, and thus if you sell it for less than you purchased it for, you lose money -- which is not a recipe for staying in business.

    - Badtux the Sticky Penguin


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