Econ Geek Question

[threeonefour]

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this is a real life problem. not an argument about the correct answer to an econ quiz. I got into an argument about why a particular company was sucking the exhaust pipe.

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my argument is valid whether or not you are talking about a quiz or a real company.

the simple truth is that it matters why prices vary. it also matters what they vary relative to.

From 1980 to 1995 (i am fudging these numbers but this is definitely true for a long period in the late 20th century) the price of gasoline rose. but the price of gasoline relative to other goods actually dropped. so the nominal price of gas rose, but in reality gas was cheaper. when gas was 2$ a gallon in 2001 or so, it was actually cheaper than it was in the eighties, in real terms.

also, to repeat my above post, if the the price is rising at a rate faster than the interest rate, then you probably shouldn't be taking it out of the ground. you ever wonder why lumber companies cut trees down when they do? or why wine companies age their wines for x years before they sell it? as long as prices is rising faster than the interest rate you are making money by holding out.