Economics question

[phideaux]

I need someone that's an economist to explain something for me.

I go into grocery store, hardware store, big box store, gas station and many other business on a weekly basis.

Just for conversation sake let's say I buy a gallon of milk (could be gas,bread, tools misc) for $2 today.
I know the business paid $1 for that milk. They make their profit...ok.

I go back tomorrow to buy another gallon...same milk , ( gas, bread ) is still on the shelf....but ...it's now $3 a gal.

So now the business is making double/triple profits.

This I see everywhere .

They paid a price for the goods. They raise the price of THAT item 2,3,4 times before it's replaced.

Is this common business ?

Am I crazy or is this price gouging?

Jim

 

[Tootsie]

I had one store manager tell me that they will charge what the market will bear, when I questioned why a gallon of cider was twice the price of what it as at the same chain store a few short miles away.
i don’t think we can do anything about price hikes, gouging or not. But we can remember and choose to take our business elsewhere.

 

[Katie Müller]

Not an economist, but I'll explain from my POV.

These stores receive shipments periodically. The milk you bought yesterday was $2 but it was delivered on Truck A; Truck B has delivered new milk for $3. The price increased sometime between shipment A and shipment B, but before shipment B ever reached the store.

So,

The farmer says, "prices to run my dairy farm is going up. The natural gas I use to heat my barn went from $60 / month to $100. I'm not selling milk for .25 cents a gallon anymore I'm selling it for .50 cents or else my business will fold."

That now goes to the bottle factory and the factory says, "I bought all these plastic gallon jugs for .05 cents a piece last week and now they're .10 cents a piece because petroleum costs on plastic rose. And on top of that, I went and bought new ink and label-stickers for the jugs. That price went from .20 cents for a label to .40 cents for a label. I want $1.50 now for my gallon of milk to cover cost of production and make a profit."

Gasoline prices have gone up. So transporting milk used to cost, let's say .50 cents, now it's a dollar.

When the final bill arrives for the grocery store, the clerk has to pay more for the milk now than on the last run because one commodity, gas, went up in price. He's making no more of a profit than he already was. With gas going up in price, it reflects on everyone's bills and everyone has to jack up their prices.

--

That's one explanation. It's a lot more intricate than that. Another explanation is the mass printing of fiat currency; it's worthlessness and lack of belief in the dollar. But I'm not an economist to get into all the details of that.

 

[The Lazy L]

Store Owner pays (based on your example) 50 cents for a gallon of milk. With a rent/mortgage payments, utilities, labor, government regulations, insurance costs he needs to sell the milk at $1 per gallon to make a 5 cent profit.

Now his milk supplier informs him that his next order for milk will cost him $2.60 per gallon. Where does the Store Owner get that extra $2.10 he'll need to purchase more milk?

He can borrow money and pass the loan interest on to his customers. Or he can remark his existing milk at the new price with the intent of raising some of the funds needed to purchase the next order of $2.60 milk. He's making the same nickel profit.

 

[hiwall]

We have high inflation right now.
So a retailer sells an item for $1 that he paid 50 cents for. He knows the future price of that item has already gone up but he keeps his price at $1 and makes his normal profit.
He sells out and reorders the item. Now he pays $1 for that item. All the profit he made selling the last batch is used up just to restock. Fine.
So he paid $1 and now sells them for $2. He knows the price is still increasing but he sells all his for the $2 and makes his normal profit.
Again he goes to reorder and his new cost is $2 each. He does not now have enough money to order the same amount again because of his overhead costs. He can only order half as many.
This is a simplified example but anyone can see how it goes. Inflation hurts both the seller and the buyer. That is why during long periods of inflation retailers go out of business.
There is almost no way for them to keep up with prices. Their overhead rises just as fast as all other prices. They cannot make enough profit to stay in business.

 

[UrbanHunter]

When gas prices are going up the gas station owner is faced with the fact that he does not know what his next load of fuel will cost per gallon until it is on it's way. So he may be selling fuel for $1 that will be replaced with fuel that cost $1.50 (For example), if he hears that his next load will cost more he will raise his prices right away because he will have to make up the difference out of pocket. If prices are going down, he will delay lowering his prices until the inexpensive load is in the ground, but he may hold back a day or so to finish selling the expensive stuff at a profit. The typical profit margin on gas at the station in 2.5%, so when prices go up rapidly the owner and find themselves in a cash-flow bind.

 

[backlash]

They charge as much as they can get away with charging.
When the price of a replacement product increases the store, gas station, or any other retail business can increase their price immediately with no explanation other than saying the price increased so we had to charge more.
Gas stations are the worst. They have what they call regional pricing. Several years ago in the Seattle area the new followed a tanker truck from place to place. One area had prices a lot higher than another all from gas from the same truck. That's why gas cost more at stations close to freeways, airports, and downtown cost more than out of the way places.

 

[LadyLocust]

I need someone that's an economist to explain something for me.

I go into grocery store, hardware store, big box store, gas station and many other business on a weekly basis.

Just for conversation sake let's say I buy a gallon of milk (could be gas,bread, tools misc) for $2 today.
I know the business paid $1 for that milk. They make their profit...ok.

I go back tomorrow to buy another gallon...same milk , ( gas, bread ) is still on the shelf....but ...it's now $3 a gal.

So now the business is making double/triple profits.

This I see everywhere .

They paid a price for the goods. They raise the price of THAT item 2,3,4 times before it's replaced.

Is this common business ?

Am I crazy or is this price gouging?

Jim

Replacement value.

In one sense yes and in another no. If you bought a used car for $1000 then decided to resell it would you charge $1200 and make a $200 profit if by the time you decided to resell it was worth $1800? Perspective I s'pose.

 

[hiwall]

In the store, first the manager has to somehow find out what items are going up and how much they are going up. Then he decides on his new prices. He makes a list of items and the new retail prices. He gives that list to an employee and that employee goes around the store with a labeler and changes all the shelf sticker prices to the new amount on the list.
Next after prices are changed on the shelf an employee changes the retail prices in the computer so customers now gets charged the new higher prices. Some of that new profit just went to pay the wages of those employees.
Or if the retailer is in San Fransisco the retailer does not bother raising prices. He just waits until all merchandise is stolen and closes the store.

 

[Supervisor42]

Is this common business ?

Am I crazy or is this price gouging?

Yes. And we have more than 3 years of this yet to go.
It will get worse because it is a self-growing process. We know this from the past.
The more prices go up, the faster prices will rise.
About the most we can do is, find someone that voted for Biden and give them a stern talking-to.
The cost of stupidity is high.
If you want some good news, check out the plunge in the price of crude-oil today.

 

[SLADE]

Why do we feel food should be cheap?
No matter who the chief is the farmer seems to get it in the shorts.
People need to grow their own food as best they can.
Spread the wealth give the farmer and farm workers a goodly wage.
We buy all kinds of toys just to make ourselves appear well off but hate paying for food.

 

[Caribou]

The retailer, especially a small retailer, is stuck between a rock and a hard spot. A gas station owner gets a delivery, he goes down and pays the bill, and the next day prices go up. Does he raise prices now so he can afford to buy the next load?

A gas station gets a fuel delivery. The next day fuel prices drop. Other stations in the area get their deliveries later so they can sell their fuel for less. Does he sell his fuel at a loss or hold on to it?

 

[backlash]

There are very few, if any independent gas stations left.
Work for the big companies or starve to death.
Most gas stations rely on selling things other than gas like sodas and snacks and tobacco products to survive.
I can't think of a single gas station around here that is not a minimart except one membership CC only places that are geared towards businesses.
Same thing with movie theaters. Either they sell $8 popcorn and $5 drinks or go out of business. They make squat on the actual movies.

 

[LadyLocust]

Why do we feel food should be cheap?
No matter who the chief is the farmer seems to get it in the shorts.
People need to grow their own food as best they can.
Spread the wealth give the farmer and farm workers a goodly wage.
We buy all kinds of toys just to make ourselves appear well off but hate paying for food.

I've told Hubby (poor ears) that we have EPA, Min. wage, perks & specified working conditions, inspections etc. but then buy our products from overseas where they pollute, pay 80 cents/day, no QC etc. The US wants things but doesn't want to pay for those things. Visit your local farms & buy direct (I am agreeing with you)

 

[SLADE]

An economist would say a business that cannot afford to be in business should go out of business.
The capitalist system at work.
We need to think about change and where we went wrong with that system.

 

[Bacpacker]

I agree. SLADE. Growvas much as you can, then support local for as much else as possible

 

[UrbanHunter]

Everything in every store should have a "made in" label, Clearly marked on the front of the item. Stores should have to put it on the price tag or barcode sticker.

 

[SLADE]

Everything in every store should have a "made in" label, Clearly marked on the front of the item. Stores should have to put it on the price tag or barcode sticker.

They play with that label too.

 

[Katie Müller]

About the most we can do is, find someone that voted for Biden and give them a stern talking-to.

I visit the graveyard every now and again to see grandpa. I'll let him know the next time I'm there.

--

This is how we'll be buying milk in about a year or two.



Or my dad's personal favorite image:

 

[Katie Müller]

My brother just sent this to me. I think it's relevant to the convo, so here you go:

 

[The Lazy L]

You folks forget about the Jimmy Carter inflation years.

 

[Neb]

You folks forget about the Jimmy Carter inflation years.

I was at sea in the Mediterranean for most of Carter. Probably one of the better places to be at that time.

Ben

 

[bkt]

phideaux - lots of things are in play. When you go to a store that sells many things, prices are determined on the overall cost of everything, not just one item. If milk prices rise but rice prices fall, it may be that to the consumer the prices seem stable because the store owner spreads the difference between the two products. But price rises could certainly be due to someone looking to charge what the market will bear.

In some cases, companies are looking to cut inventory, so they keep the prices level even though they might be able to charge a bit more if they put some effort into advertising. I know a few stores selling electronics and radio stuff looking to just clear out inventory.

I'm not worried, though. Here I am with a legit $100 trillion dollar bill.

 

[SLADE]

When the great American Crypto Dollar is created the 2nd phase of Richard Nixon and Henry Kissingers plan will be complete.
Destroy the value of all privately held assets.

 

[Neb]

When the great American Crypto Dollar is created the 2nd phase of Richard Nixon and Henry Kissingers plan will be complete.
Destroy the value of all privately held assets.

So you got me thinking...


My buddy had maybe 20 - 30k invested in N-scale engines and rolling stock. Would that be worthless ?

The Princess has her name on 7 real estate properties. How is the value if those destroyed ?

Don't know the answer. Just thinking.

Ben

 

[Katie Müller]

I wasn't even born yet during the Carter years, so that's my excuse!

@bkt - My brother regrets not buying $100 trillion dollar note. And so do I. Lol. Maybe I'll get one from the USA mint eventually.

 

[hiwall]

Jimmy Carter inflation years
Why did we have high inflation starting in the 1970's?
Could it be because we went off the gold standard in 1971?
Gee, I wonder.
And we have even higher inflation now as the US Dollar starts to totally collapse.

 

[Supervisor42]

I wasn't even born yet during the Carter years, so that's my excuse!

Awww , you missed all of his 'fireside' chats with America about how everyone should put on a sweater and turn their thermostats down in the winter.
If everybody just makes a small sacrifice, the country will be just fine.
Thank you peanut-farmer president!

 

[SLADE]

So you got me thinking...


My buddy had maybe 20 - 30k invested in N-scale engines and rolling stock. Would that be worthless ?

The Princess has her name on 7 real estate properties. How is the value if those destroyed ?

Don't know the answer. Just thinking.

Ben

I guess greatly reduced in value would be a better way of saying it.
All of these changes move very slooowly just to get us used to it.

 

[bkt]

I wasn't even born yet during the Carter years, so that's my excuse!

@bkt - My brother regrets not buying $100 trillion dollar note. And so do I. Lol. Maybe I'll get one from the USA mint eventually.

Wow. I just looked up buying more of these bills and they aren't cheap. I bought a pack of 25 from endthefed.org years ago for about a dollar each. Now they're around $200 or more each.

Jimmy Carter inflation years
Why did we have high inflation starting in the 1970's?
Could it be because we went off the gold standard in 1971?
Gee, I wonder.
And we have even higher inflation now as the US Dollar starts to totally collapse.

The Vietnam war bankrupted the country. You can thank Johnson and Nixon for that lunacy. Carter's policies were pretty awful, but the economic pain would have hit us whether he had been president or not.