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2

tl;dr as KennyLJ correctly points out the concept of correct price is meaningless and it does not exist or rather you could say any price is the correct price (but again this just makes the whole concept meaningless because if every price is correct then thats just a price - a concept of 'correctness' makes only sense if there are some incorrect instances). ...

-2

Your question is actually 3 or 4 semi-independent ones, but I'll take your cue and attempt to answer in the same manner. Adam Smith in his book "Wealth of Nations", Book 1, argues that there are two distinct forms of value in "every thing": Value of use; the value one has from using said thing. Value of exchange; the amount of another ...

9

Price is set by the competition In general, the prices are set by the supply and demand for the whole market. If a merchant sells the same goods for a higher price than competitors without a corresponding advantage (location, better service, convenience) then people won't buy these goods and the merchant will earn less profit as the decrease in volume will ...

7

Your reasoning seems to be this: Under the old conditions, a widget seller calculates that the profit-maximizing price of a widget is \$1. Conditions now change (e.g. because of increased theft). Under these new conditions, she should not change her selling price, because of her earlier calculation that \$1 maximizes profits. But the above reasoning is ...

1

I see your point. However, theft in effect increases the cost of purchase, which changes everything. The easiest way to get to the bottom of the answer is thinking of a simple scenario but in extremes. A shop sells one item only, has no thefts, purchases the items for 10 each, and sells them for 15 (making 5), and sells 10 per hour (making 50 profit per hour)...

0

A high level of theft increases the cost of a product and therefore changes the profit-volume relation. In price setting the cost of a product is normally analyzed along several levels of cost fixed and variable. Theft increases both cost types (increased fixed costs for theft prevention measures and variable costs due to high shrinkage level). As with all ...

-1

The principle of Supply vs. Demand states that prices increase when supply falls or demand increases. Theft reduces the supply of sellable items, so it implies that the price should increase to reflect this. However, there can be feedback effects that prevent this from continuing unchecked. Suppose the reason for the theft is that the price is too high for ...

17

What you're describing is retail shrink. It is taken into consideration when setting prices. A business will typically have consultants come in, measure their shrink to be X percent, and prices will be adjusted accordingly. Back when I worked in retail, there was a big printout in the break room informing everyone on shrink. The 5 kinds of shrink outlined on ...

28

prices should have already been set to maximize the trade off between profit-per-sale and volume sold But profit-per-sale depends on costs, which depends on the theft numbers, so if theft increases, the equation changes.

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