Archive forSeptember, 2014

Producer surplus=New Firms

Today is class we learned about producer and consumer surplus. One key point I remember is when the producer surplus is large, which means producers gain from the exchange. When producer surplus is large, it attacks new entrepreneurs to enter the firm, because they know that they can create a company similar to the company making the profit. What the new company will do is create a similar product and charge a price a little low than what the consumers are used too, this will attract all the customers.

This idea relates to the article I posted In this article, it explains the profits that shaving companies make, like Gillette. The profits are incredible, and the market is a 6.1 billion dollar economy. This opportunity striked the interest of Michael Dublin who invented Dollar Shave Club. He charges a minimal monthly fee, and they send you raizers every month. This company attracted the attention right away from many consumers, and they are doing revenues of 50 million to date. This is a perfect example of what we learned with consumer surplus, and Dollar Shave club saw an opportunity within the producer surplus, and created this company.

Enjoy the Article!!!

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Happy birthday, Nutella!

The market for hazelnuts has experienced similar increases in demand and shocks to supply as those experienced in the market for lemons (see post below). As this article explains, Nutella’s popularity has increased the demand for hazelnuts. A late frost in the hazelnut producing region of Turkey reduced supply. The result of both shifts was in increase in price.

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Shift and Changes in the Demand Curve

My article Lemon Prices Surge As California Draught Constrains Supplies focuses on the price of a complement, lemon, being affected by the price of water and the drought in California. The articles points out that now the demand of lemons has increased over the years due to restaurants and how California needs to keep up with the demand, but is struggling. This has those who are demanding it to either use less or causing them to use substitutes. As the demand and price of water is going up, so is the demand and price of lemons.

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