[tonyedgecombe]

>Nope. Prices are set by what the market is willing to bear.

Only when supply is constrained, for example housing in leading cities. Otherwise prices tend to fall to the marginal cost of the item you are buying.

[notch656a]

Supply of tangible goods is always constrained, if by nothing else by physical limitations of the earth and our ability to exploit it.

[tonyedgecombe]

Except that ignores the innovation we bring to manufacturing. If a car manufacturer finds a way to use less material in a component or a furniture maker finds a way to use more of the tree in their products then that lowers the marginal cost. Their competitors will adopt the same idea or else risk going out of business.

Housing however is constrained by the price of land, outside of a few small regions like the Netherlands there is no amount of innovation that will create more of it. Hence the price of housing is set by what the market will bear.