Passing Costs onto Consumers - An instance where I was dead wrongSubmitted by dwalters on Thu, 08/07/2014 - 19:26
Early last year, I authored a post titled The Fallacy of Passing Costs onto Consumers. Therein I wrote, "...it is demonstrated that the market price is independent of the costs of production." Boy did I miss the mark. More so, I was dead wrong.
Some time after that post, I developed a mathematical model to describe when a person will act versus not and published it in a short booklet - The Macroeconomics of Individual Action: A Mathematical Extension to Austrian Thought. In that text, I demonstrated that both consumer utility and the cost of production determine the most profitable price for a good or service - the market price. Locating the maximum of the profit as a function of price lead to the expression:
That is, according to the proposed model, the market price can be accurately estimated as the sum of the average satisfaction the good or service provides to the consumer plus the total cost incurred by the producer. Thus, any time additional costs are levied against a producer in the form of, for instance, taxes, minimum wage increases, regulatory burdens, or increased cost of required materials, if the producer wishes to maximize profit, the additional costs must be passed on to the consumer.
I've been meaning to correct myself for quite a while but just haven't got around to it. Mistakes provide opportunities to grow. The only time a person should regret a mistake is if no lesson was learned.
Mistakes are learning opportunities. Don't let them go to waste.