We’ve all seen it before: the classic supply and demand graph. The theory of price is basically that graph: the economic theory that price for a good or service is based on the equilibrium where supply and demand meet.
The more demand there is for a limited good, the higher the price will be. The higher the supply, the less scarce it is, and the lower the price will be. Things like available substitute goods, seasonality, availability of raw materials, and market competition—all those outside forces you can’t really control—all factor in, affecting supply and demand.
And, of course, not all goods and services are created equal. Some goods have high price elasticity of demand, meaning that people change their behavior when prices change...while others have low price elasticity of demand, which means people will keep buying the goods, even when prices are changing.
The theory of price makes all of these outside forces endogenous. Supply and demand curves can rotate and shift, but at the end of the day, it’s the equilibrium that determines the price. In neoclassical theory, anyway.
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Cost Accounting: What is Peak Load Prici...0 Views
And finance Allah shmoop What is peak load pricing Ah
uber you're such an evil genius Ever tried to book
a ride at five thirty after work on a rainy
day Yeah good luck with that And if the ride
normally would have cost eighteen bucks well be ready to
pay thirty or forty or fifty The biggest uber mover
twelve thirty two a M January one Yeah drunk New
Year's Eve Post partiers desperate to get home for the
ensuing annual with you know porcelain Goddess So peak load
or peak demand season or peak demand Ours happen when
demand you know peaks like there's lots of it Lots
of demand and pricing toe optimize profits derived from the
fact that at peak demand times there is either just
tons of demand or that the demand curve in this
period is vertical like people will pay almost anything for
that New Year's ride home If it normally cost twenty
bucks it can cost one hundred and people will pay
Why Well because the marginal value of that hundred bucks
is way cheaper than a running your car into a
tree Be running your car into a human see having
do I tickets and jail time that would ensue and
d twenty years of psycho analysis to help you deal
with the fact that you ran over one of the
young actors from modern family So peak load pricing used
to be a huge thing in long distance calling like
during business hours when businesses that were well more or
less price insensitive to the cost of a phone call
it was a rounding error in the course of doing
their business would do anything or pay anything for that
call from New York to Florida or London or wherever
they were calling two bucks a minute Find four bucks
Fine just make the call It was such high pricing
that a lot of consumers simply did not make the
call and the phone companies feared regulatory backlash and also
wanted to take advantage of the consumer demand at cheaper
prices So when Peak crest sted and the night set
in like between say ten P M and seven A
M prices were cut massively for long distance phone calls
like by half or by two thirds There was another
reason for the peak load pricing as well In those
days Priest Skype and Google Hangout phone companies were circuit
switch not packet switch which meant that there were in
fact line capacity Maximums that were hit went like eight
percent of the country tried to use the phone lines
all of the same time So to scale up for
nine or ten or twelve or fifteen percent of the
country using the phone lines all at the same time
it cost the phone companies of Fortune and they wanted
to get paid back for their efforts So the higher
prices matched their higher marginal costs in providing that infrastructure
Well all that went away with Internet telephony But the
scar still exist on the population who grew up under
that iron fisted telephony rule So where is peak load
pricing today In oldie worldly things electricity will the same
physics that hit phone companies hit electricity producers as well
On ly so much power can be generated at cheap
fish prices on the grid at once And if demand
exceeds their maximum who bad things happen like the whole
system overheat and shut down as a safety precaution avoids
fires or the local power company's has toe by power
from others in some form and then ship that power
locally and it's a whole mess So power companies charge
big peak load prices and highly encourage laundry doing after
midnight when very few people are sucking from the electric
teet And there is a ton of excess or slack
capacity in the system to remember all that the next
time there's a brownout from a hot day when everyone's
blasting a C units on high and eliminate is on
tap and they only their doors open and it's just 00:03:47.868 --> [endTime] very cranky
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