Economics 101

I believe I ' ve used that title more than once before, and it ' s normally to trash the way economics is usually taught. But there are a few generally accepted ideas about how markets and capitalism work that get de-emphasized or completely overlooked in most public discourse.I ' m going to oversimplify a bit here, but the details I ' m eliding don ' t matter very much. To put it simply, businesses set prices based on what people are willing to pay for their stuff. As Chucky notes, the situation of perfect competition and the situation of monopoly are different, but the preceding statement is still true, it just plays out differently. One detail I ' m going to give short shrift to is that competition is never completely perfect and that there is a continuum between perfect competition and monopoly.Anyhoo, either way, the more something costs, the less of it people will buy. It might be a luxury they don ' t really need after all, or they might be able to substitute something else, or they just might not be able to afford it. So a monopolist can ' t charge an infinite amount. Rather, they ' ll charge the amount that maximizes their profit, i.e. in simple terms the multiple of volume of sales times the profit per sale. Charge too much, and volume will go down and you won ' t make as much money. Still, if your product is in demand you can clean up. Note, however, that it makes no difference at all whether some part of that profit is taxed. The firm is still going to set exactly...
Source: Stayin' Alive - Category: American Health Source Type: blogs