December 24, 2012 at 11:53 am #17476ronigafniMember
hi, my friend was asking me about why certain goods have reduced in quality over the last decade.she wanted to know whether or not goods generally all reduce in quality together as an economy deteriorates or whether it is specific to different industries and why that would be so. I mention to her accumulation of capital and inflation but I don’t think I am able to give one strong cohesive answerDecember 24, 2012 at 4:54 pm #17477miljacicMember
Give some examples as to what do you mean more concretely. You mean like, computer parts break down faster? In some of technical products, producers have learn to optimize better, so one way to reduce the price is to shorten the lifespan of a computer or a music box. Why would you make a newest laptop work impeccably for 15 years (and they could achieve this easily, if they only wanted it) if after 4-5 years it’s going to be soo obsolete? Anyway, start from there…December 24, 2012 at 8:45 pm #17478ronigafniMember
I think she perceives that products are getting shoddier. She mentioned clothing and other products being shipped overseas. She did mention how phones and electronics seem to break quicker in her mind these days. I think it’s tied to inflation, extra costs associated with gov’t and unions, preferences of people for cheaper products in certain circumstances, and maybe her individual experience but I want to just tie it together on a macro level and then bring it down to individual examplesDecember 27, 2012 at 10:31 am #17479jmherbenerParticipant
Entrepreneurs will provide the spectrum of quality that people’s demands make profitable. The spectrum will range from used goods to tailored made. If your friend is noticing a deterioration of quality in the clothes, phones, cars, and so on she is used to buying, it might just be a change in brand positioning by the entrepreneurs whose products she frequents. It’s likely that there are higher quality brands available.
Though it’s an empirical not theoretical question, one would suspect that as standards of living rise, people’s demands would skew towards higher quality and so entrepreneurs would adjust production accordingly. Government policies that make us poorer, then, would tend to reduce quality. This effect will likely be specific to markets which government intervention burdens more heavily. If the government imposes costs on producing certain goods, entrepreneurs react by lowering other costs, including perhaps buying cheaper, lower quality inputs. Price inflation works in a similar way on product quality. If an entrepreneur is producing a good for which input prices are rising faster than output prices, then he may lower the quality of his product or the size of a unit of it to best adjust to people’s demands. But the effect of rising prices on quality comes from the disproportional increases in the prices of different goods and not price inflation per se. If all prices rose in proportion, then, entrepreneurs would make no adjustments in production.December 27, 2012 at 3:56 pm #17480maester_millerParticipant
To piggyback on Dr. Herbener’s point about inflation, I once listened to Peter Schiff describe two methods of “hidden inflation” on his radio show, changes in quantity and changes in quality.
Generally speaking, consumers are most sensitive to and more aware of the price of a product rather than the quality of parts or even (in the cases of grocery items) the amount of product in a container. If a company finds that its costs are rising, one might assume they will simply raise the sale price of their product. But the consumers would immediately notice this, and it would upset many. So many companies simply choose to use lower quality inputs, reduce the quality of customer service, or charge the same price for less product (the infamous “grocery shrink ray”).
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