Editing Econ101

= <u>Econ 101 as it Relates to Wet-Shaving</u> =

or 

== <u>What's This Razor Worth?</u> ==

or 

== <u>Why Did That eBay Razor Sell for Such a Crazy Price?</u> ==





How much is a razor worth?

The answer, of course, is in supply and demand.



"Supply and demand" is a phrase that gets thrown around a lot when it comes to prices of razors, stones, and other wet-shaving paraphenalia. Usually when the phrase comes up is to explain seemingly unexplainable prices: "Well it's supply and demand" someone will say.

Let's take a look at how supply and demand works, and hopefully explain how market pricing works as well.



First, let's look at demand. If we were to survey wet-shavers about how many DOVO Best razors they would be willing to buy at a given price, we would end up with something like this:

[[Image:Demand.png|450x450px]]

Note that at higher prices, less quantity are demanded, and at lower prices a greater quantity are demanded. Basically, you might sell one razor at $1000 or sell 10,000 razors for $20. The shapes and slopes of these curves can vary, but for now all that's important to understand is that less are demanded at high prices, and more are demanded at low prices.





Now let's look at supply.

As you might expect, it works exactly the opposite of demand: at high prices a lot of people want to sell, at low prices not very many will sell. On a graph, it would look something like this:

[[Image:Supply.png]]





If we put those curves together, we can get an idea of what will happen in normal market conditions:

[[Image:Equilibrium.png]]

In a normal market the price of an item will be the equilibrium point - where the supply and demand curves cross. For most goods, this is where the market price ends up.



To clarify how this works, as well as understand what happens when things change in the market, let's look at what happens when a shift takes place.

Say a particular razor has been selling at it's equilibrium price for a long time - supply and demand are stable. Then, one day, someone posts to a high traffic internet forum with really nice pictures of the razor, and a review stating how well it shaves. A lot of people see the review and decide that they would like to buy that razor. What happens is that the entire demand curve moves. More people are willing to buy at all of the price points along the curve.

It would look something like this:

[[Image:Demand-shift.png]]

Note that the equilibrium price has gone up when the curve moved from D1 to D2. Also note that the supply hasn't changed: More people are willing to sell the razor because the shift in the demand curve has raised the equilibrium price, but those people would have been willing to sell at that price before.



Now, all of this assumes that there is a ready supply of the razors to keep up with demand. If the supply were lower to begin with the curve might have a different shape.

What happens though, when the supply goes down over time?

There was a very popular Polish razor that even though it wasn't produced anymore was readily available for a long time. As time has gone on, less and less of those razors are available, and what used to be a $15 razor has skyrocketed in price. Here's what happened:

[[Image:Supply-shift.png]]

The available supply has gone down over time. This has moved the entire supply curve to the left. Note that the demand for the razor didn't need to change - simply having less of them available caused the price to increase.

(I suspect that for that particular razor, the demand did change as well - causing a more dramatic change in the price)





That's the basics of supply and demand. Let's look at eBay prices:

Say the seller doesn't know what they have - they have one razor that they are willing to sell for whatever it sells for. It's the only one like it on the market.

This will cause the supply curve to be a straight vertical line at a quantity of one - I have one and I'll let it go for any price.

The only question then is where does the demand curve intersect?



Here's what it looks like for a truly rare item that is in demand:

[[Image:Rare-item.png]]

Note that if only one item is being sold, it only matters what the buyer willing to pay the most is willing to pay for it (or in the case of eBay, the top two bidders, as the second one needs to drive up the bid of the first).

Also note that the graph attempts to explain why some people find prices crazy that others think are perfectly reasonable - it all depends on where you are on that curve.



Here's a case of a seller willing to take any price on a razor that is not as rare or highly sought after:[[Image:Single-not-rare.png]]

Note that the item can be rare, but not sought after.

If you have a razor from Jones Hardware in Anytown USA, it might be the only one like it in existence. To the market though, it may be just another generic hardware store razor.



Now to answer the big questions:



=== <u>Should I buy this razor for $xx?</u> ===

No one but you can answer this. Tell me where you are on the demand curve, and I'll tell you if you should buy it.

The only problem is, if you know where you are on the demand curve, there's no need to ask me if you should buy it for that price. You already know.



=== <u>How much is my razor worth?</u> ===

To truly establish that, we could come up with a price range that the market would bear based on statistical analysis of a market survey. To do that would cost tens of thousands of dollars.

Your razor ain't worth that much.

Beyond that any answer you get about how much the razor is worth is based on where the person answering sits on the demand curve for that razor, or their observations of where people sit on the demand curve.

People experienced with vintage razors can make an educated guess, but ultimately that's all it is - a guess.

That's why we don't do appraisals on SRP - there is no accurate answer.

If you want to know what the market will pay for your razor - put it on eBay. You'll have the answer in a few days.