Hello. This is Nada from Seito Medical School. This time, we will be talking about quantity adjustment and price adjustment, which have different perspectives in macroeconomics and microeconomics. When a lot of things are sold, the difference is whether to increase the quantity while keeping the price the same, or to raise the price and seek more profits.
I may talk a little passionately about this quantity adjustment and price adjustment this time. Or maybe he will release an epic fantasy story after Hotaru no Hikari. For those times, grab a cup of coffee and have a good time. yo, Chekeracho! !
One question in economics is whether quantity adjustment or price adjustment is better. This also has long-term and short-term implications. In the short term, when sales of goods increase in the market, the cost of goods includes things that cannot be easily lowered or increased, such as wages, so factories respond by increasing production. This is what is called a quantity adjustment. On the other hand, in the long term, it can be said to be a price adjustment because the expenses such as wages, which are the main factors in prices, are adjusted over a long period of time in response to market movements.
The field of economics that focuses on quantitative adjustment and focuses on the short term is called macroeconomics. On the other hand, the field of economics that focuses on price adjustment and the long term is called microeconomics. Keynes, the founder of macroeconomics, famously said, ``In the long run, everyone is dead.'' Adjusting prices is difficult. Dear readers, the prices of things are rising due to the recent price rush (October 2023). When the price of this item increases, it is called inflation.
So, is the current period of long-term price adjustment?The current inflation can be said to be caused by a rise in the cost of producing goods, which is called a cost push. One reason is that oil prices are rising due to the conflict in Ukraine. Of course, the economy is not bad, so it can be said that there is some demand inflation where consumption leads to consumption.
If the product sells, increase the price. If the product doesn't sell, lower the price. This is the idea of general equilibrium, but it's not quite the opposite; if a product sells, lower the price and increase sales. You can see that the idea that if a product does not sell, raise the price and increase profits is not wrong. However, since economics emphasizes a balanced and stable economy such as general equilibrium, general equilibrium theory can be said to be the more mainstream way of thinking.
The economics that focuses on this microscopic general equilibrium theory is called the ``new classical'' or ``monetarist'' economics. By the way, macroeconomics is called "Keynesian".
Now, onto the main topic. Regarding my opinion, whether quantity adjustment or price adjustment is better, I think it would be good to have the option of trying both. For example, what about a plan like this? When a product sells, the price is lowered through price adjustment. A fall in the price of a selling product means a further increase in market share and an increase in total profit. Here, profit is sales - expenses = profit. Lowering the price will reduce the profit per product, but it is assumed that it is possible to increase the overall profit while maintaining the profit rate by adjusting the quantity. In other words, you can improve your company's performance by adjusting quantities and prices on a case-by-case basis.
However, in the short term, prices are fixed, so I think it is too simplistic to use quantity adjustment. Because it is a short-term project, it is impossible to rebuild factories to increase production in a short period of time, so price adjustment may be more appropriate. On the other hand, in the long term, there is enough time to rebuild the factory, so it can be said that it is suitable for volume adjustment.
On the other hand, in the short term, it can be said that adjusting the quantity or price is not suitable because the price is fixed and there is no time to set up a factory. On the other hand, in the long term, both price and quantity adjustments are possible.
Furthermore, products that sell are subject to both quantity and price adjustments, but products that do not sell are not subject to either quantity or price adjustment.
What we have seen so far makes us wonder whether what is said to be true in economics is really true, and whether what is assumed is a bias on the part of academics. I believe that the correct approach here is to think about it until you are completely convinced. I guess you could call it a critical spirit.
This is Hotaru no Hikari. I think it's best to be flexible when it comes to quantity and price adjustments. What I'm more curious about is that I previously wrote an article about what A=B and C=D are. What if we applied this idea to economics?
For example, the quantity theory of money is interesting. The formula MV=PT is called the quantity theory of money. M: Money supply, V: Money circulation velocity, P: Prices, T: Real GDP. In other words, if the amount of currency M goes around the market V times, T, which is real GDP when the price is P, will be the same amount. By the way, GDP is the total amount of products produced by a country in one year. MV is the currency side and PT is the value side of the produced goods, but we divide this into M=T and V=P. Then, what happens if we multiply the two equations again and rewrite the equation as MP=VT? Honestly, it's a little interesting.
Here, the original formula for the quantity theory of money is, in Japan, M = M3 = 1,467 trillion yen, T = real GDP = 555 trillion yen, and M/T = P/V = 2.63. The new rearranged formula is MP=VT, so M/T=V/P, and V/P=2.63. The original formula P=2.63V, and the rearranged formula P=V/2.63. Does this make sense? I'd like to post another article about A=B and C=D, so stay tuned. See you soon.
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