[lbo-talk] What's the deal with conservatives, economists, and the minimum wage?

Tayssir John Gabbour tayssir.john at googlemail.com
Thu Jan 18 20:52:32 PST 2007


On 1/19/07, Doug Henwood <dhenwood at panix.com> wrote:
> On Jan 18, 2007, at 7:25 PM, Jordan Hayes wrote:
> > My favorite counter-example of this "well known truth" is the pre-
> > listing action in hot IPOs. Raise the price? BIG increase in demand.
>
> Yup. After I sent that, regretted not including a PS on asset prices:
> a glaring exception to the rule. Rising stock prices stimulate
> demand; real estate too. And vice versa.

Yeah, my understanding is that when people take prices to be signals, there goes the conventional supply/demand "laws"... A household good which has been rising in price might cause you to stock up on it, even if just to sell it later. Sometimes, the perceived benefit of something even turns out to increase with price.

I hear mainstream textbooks like to pass it off as the supply/demand curves SHIFTING due to changes in expectations.

It's funny to see how serious pricing books (like Nagle and Holden's) treat mainstream theory:

"Both business practitioners and academics labor under the economic assumption of a 'demand curve' to which the effective pricer must optimally adapt. Demand curves are useful concepts for understanding how markets work, but they can be very misleading as a guide to pricing. Why? Because they are based on the assumption that prices are set, and by implication should be set, while holding 'all other things equal.' The essence of effective pricing strategy, however, is the coordinated management of those 'other things.'"

The book even starts with this quote: "Pricing is the moment of truth -- all of marketing comes to focus in the pricing decision."

Tayssir



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