🚀 go-pugleaf

From article <1992Nov10.155126.5425@news.eng.convex.com>, by swarren@convex.com (Steve Warren):
> In article <4690045@pollux.svale.hp.com> dlow@pollux.svale.hp.com (Danny Low) writes:
>>There are two ways to price goods, purchase cost + margin or replacement
>>cost + margin. When the two costs are the same the two methods are
> 
> No, there is only one way to price goods: "How much would someone be willing
> to pay me for this thing???"

You're both half right.  Danny is talking about the supply curve, and
Steve is talking about the demand curve.  According to classical
economic theory, the price is where they intersect.

> If a decision is made to impose heavy duties, this creates an impression that
> the item may be more difficult to obtain, causing consumers to be willing to
> pay more for the item...

No, causing consumers to try to buy before the price goes up.  The
price goes up because if it didn't the retailer would run out of
stock.  A retailer has to figure that if he/she runs out of stock, the
price was too low.  Raising the price causes fewer consumers to be
willing to pay the price.  Those who buy are the ones who were willing
to pay the higher price to begin with, and were getting a windfall
(called consumer surplus) because the price was lower.  Anyway, that's
the classical answer.

> ....  Retailers experiment with raising the price, looking
> for how high they can go before it affects their sales volume....

It always affects their sales volume.  Not always noticeably, though.
Sometimes noticeably, but they don't notice until it's too late.

> .....  As long as
> people are still buying, they are going to keep raising the price.  Once they
> reach the consumer's objection point they will back off on raising the price,
> because they want to keep selling.

Basically true, but oversimplified.  There is no specific objection
point.  In theory, there is a price that maximizes their profit, and
they try to get close to it.  They never know exactly when to raise or
lower the price, and those who guess wrong go out of business.  Notice
that no two mail-order ads quote exactly the same price.

I wouldn't want to be a retailer in this market.

							Marty
marty@hoqaa.att.com		hoqaa!marty
Martin B. Brilliant		(Winnertech Corporation)