The Neopox Pizza Solution

by rschrader

As a consumer, I demand that you raise prices.

"What?" I hear you cry, "RAISE prices?"

Yes, raise prices.

"What? You want to pay more for something? Are you crazy?"

No, I’m an economist. Let me explain how a rise in the price of some goods would benefit the consumer.

Let’s take the much talked about Neopox Pizza shortage, for example. The Pharmacy produces all the Neopia’s Neopox pizza, and sells it at a price under 35 NP. It sells out almost immediately. But in the open market Neopox pizza sells for 2000 NP or more. That price is set by Supply and Demand. Big Demand + Small Supply = Big Price. Notice that the Distributors are making 5615% Profit per unit ((Sale price -Purchase price) /Purchase price)*100). The Producers make none of that profit. The Producers could raise their price to say… 200 NPs for example. They would still sell out almost instantly. The Distributors would still make 900% Profit per unit ((2000 NP Sale price-200 NP Purchase Price)/200 NP)*100). But the producers make an additional 165 NP/unit in pure profit. They could take that profit and invest in:

1. better working conditions and training for their workers, making them more productive,
2. better machines, hire more workers or improve factories to make them more productive and more efficient,
3. the purchase of more resources to make Neopox pizza,
4. pay off loans, or pay better dividends to stockholders reducing financial costs,
5. research and development into new sources of material, better production methods, or a better cure for Neopox.

In other words, they could make more and better Neopox pizza!

So who wins? The Producers win because they make more Neopoints and become more productive. The Workers win because there are more jobs, they are better treated, and better paid. The Stockholders win because their shares are worth more. The Scientists/Engineers/Inventors/ Explorers are better off because they have more money for research. The Distributors still make a womping profit. (They might even make more Total Profit because even though they are making less per unit, there will be more units to sell.) The consumers win because more and better Neopox Pizza will be available which will eventually lower the market price.

If for some odd reason the Pharmacy can’t or won’t raise its price (such reasons might be bad management or a contractual limitation), then a new company should be formed that will produce Neopox pizza. Even if it costs the new company 100 NP/unit to manufacture, they could sell at 200 NP/unit making 100 NP/unit profit, which is more profit then the Pharmacy makes per unit. Care to buy shares in a company like that? "But wait," you cry, "how can you sell Neopox pizza at 200 NPs if the Pharmacy sells it at 35 NP?" Simple. They sell out. The only other source is the open market for 2000 NPs And once again more units are produced and the price drops. Consumer wins.

"OK," you say, "What if I’ve invested in this new company and Neopox disappears from all of Neopia? Then what?"

Well after the party, we will start production of artificial Codestones or Bottled Faeries. The market is similar for those goods, too.