--- Doug Henwood <dhenwood at panix.com> wrote:
>
> On Jan 18, 2007, at 7:25 PM, Jordan Hayes wrote:
>
> >> When you raise the price of something you reduce
> the demand for
> >> it, whether it's porridge or labor.
> >
> > My favorite counter-example of this "well known
> truth" is the pre-
> > listing action in hot IPOs. Raise the price? BIG
> increase in demand.
>
> Yup. After I sent that, regretted not including a PS
> on asset prices:
> a glaring exception to the rule. Rising stock prices
> stimulate
> demand; real estate too. And vice versa.
>
[WS:] To play devil's advocate, one can argue that the price of assets is a reflection of the anticipated future return that the asset will generate, so it is the anticipated furure demand (on the assumption that demand for an asset is driven by its yield) that is driving the price, not vice versa, pretty much in the same way as the current demand increase pushes current prices upward.
One can also make a similar argument about labor - higher price indicate greater expectation about its future productivity and thus demand for it, while worker who prices himself too low indicates expectation of lower productivity, and thus undercuts future demand for his services. I underastand that this is how the market for consulting services works.
Wojtek
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