> 'Firms are quick to raise prices when their costs increase,
> but not so keen to reduce prices when their costs fall.'
>
> Talk to a non-economist, and you would probably get 80 per
> cent agreeing with this statement. Ask an economist, and
> you would probably get a more sceptical response. That is,
> until recently, after a wide range of careful empirical
> studies have shown that non-economists are indeed correct
> in their suspicions.
As a non-economist this makes sense to me. If I was selling something why on earth would I want to drop the price just because the cost fell??? I think I would be celebrating the increase in profits! Who wouldnt? The only reasons I can see to drop the price (although there may be other reasons) is if the competition was undercutting me or if the demand for the product bottomed out and I couldnt sell.
Then again I am not an ecnomist or a bussiness woman, but the same goes with wages. If I am getting X amount now for my labor why on earth would I take a position that paid less???
These things seem to work together to me.