Where Does Price Come From?

source : Where Does The Price Come From? – Whistling In The Wind


The heterodox [[economics]] understanding of [[price]] is that prices are set in response to [[supply and demand]], e.g. lower supply or high demand -> higher price, high supply or low demand -> lower price.

Ice cream and bars do not change their prices during winter and weekdays respectively.

Is price subjective? If so, β€œall it tells us is that a price is whatever the price is.”

If you ask business people how they set price, it lends credence to the theory of [[administered prices]].

Businessmen were reluctant to change prices frequently as this was unpopular with consumers and would not lead to significant changes in sales. They made little or no effort to estimate the elasticity of their products. Businessmen felt that prices cuts would be matched by their competitors sparking a price war, whereas a price rise would not be matched. These two influences caused prices to be quite stable.

flexprice market : a market where prices are adjustable in response to supply and demand (oil?)

fixprice market : prices are rigidly administered

According to surveys done in the piece, nearly half of all businesses in the UK have administered prices.

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