Friday, September 19, 2014


So today, I came across a story by Emma Reynolds published by in which Ms. Reynolds goes Mad Max over prices Australians pay "on almost all goods, from cars to clothes to gadgets." Ms. Reynolds believes conspiracy is afoot, which forces Australians to pay higher prices for the same goods than others of the world, notably Americans. Ms. Reynolds cherry-picked a handful of products to buttress her claims —
Razer Blade laptop, Lancome lip gloss, Honda Accord V6, Burberry trench coat, current-release song from iTunes.

Right now, one Australian dollar buys 89 cents U.S., which is 11% short of a whole U.S. dollar.  Australian politicians levy a goods and services tax (GST) of 10% on most goods, services and other items sold or consumed in Australia.

Microsoft sells the Surface Pro 3 tablet for US$799.00 to Americans. Microsoft sells the same Surface Pro 3 tablet for AU$979.00 to Australians, which includes the GST. Here is what happens when accounting for the lower buying power of the Australian dollar and the GST.

(1) US$799 × 1.11 = AU$886.89
(2) AU$886.89 × 1.10 = AU$975.58

So it appears that Microsoft offers their Surface Pro 3 at a $3.42 premium. Maybe Microsoft execs hope to gain that premium to offset regulatory compliance costs. Perhaps Microsoftians seek a few extra dollars to offset foreign exchange costs.

As always, in trade, or commerce, or real economics, there is but one law and one axiom, the Law of Prices and the Axiom of Profit. The Law of Prices holds the winning bids of purchase and sale in the face of what is on offer sets the price. The Axiom of Profit holds the sum of sales must at least equal the cost of production otherwise a producer goes to ruin.

So for products for which Australians pay much higher prices than Americans, it is more than likely the Australians who buy such products outbid their fellow Australians, especially for luxury goods on offer to Australians. These winning bidders push prices beyond exchange rate differences and the GST.

No one works at a loss. At less than break even, anyone would stop trying to produce property, which is the right of ownership and is what gets bought and sold in purchases and sales of trade.

American sellers must at least break even and likely must gain a higher return to capital relative to what can be gained in the USA where 313 million Americans live to make the effort worth it to sell to 23 million isolated Australians who live at least 12,087 km (7510.6 miles) away from Los Angeles.

On a lark, I looked at the price for jar of Vegemite (400g). Woolworths sells a jar for AU$5.56. I can buy Vegemite down the street at Cost Plus World Market for US$8.99. That US$8.99 price is US$7.96 cheaper than the typical price.

US$8.99 exchanges to AUD$10.07. So, the price I would pay is a whopping 81.1% more than your typical g'day mate!

Australians should ask themselves why is an Aussie dollar only worth 89% of a U.S. dollar. Aussies should ask themselves why their pols levy a 10% tax on everything bought and sold.

Aussies might discover that central bankers at the Reserve Bank of Australia buy bonds Aussie pols float to pay for welfare when foreigners fail to buy all the bonds for sale. Aussies might discover that pols need to levy that GST to pay interest on all of those bonds sold to pay for political welfare.

It looks like the News of Australia pings this "prices are high" story once a year.

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