PRICEDEFINED:THREEDIFFERENTPERSPECTIVES 229
suggeststhat theresultsofpricemanipulatio'1arepredictable.Thelatterroleforprice
acknowledgesthatman'sresponsetopriceis sometimesunpredictableandpretestingprice
manipulationisa necessarytask. Let'sdiscusseachbriefly.
RationalManPricing:AnEconomicPerspective
Basically,economicsC1ssume"ihai:theconsumeris a rationaldecisionmakerandhasper-
fect:nformation.~·~herefore,if a pricefora particularproductgoesupandthecustomeris
awareofallrelevantinformation,demandwillbereducedforthatproduct.Shouldprice
decline, demand would increase. That is,thequantitydemandedtypicallyrisescausinga
downwardslopingdemandcurve.
Ademandcurveshowsthequantitydemandedat variouspricelevels(seeFigure9.2).
Asa sellerchangesthe pricerequestedtoa lowerlevd,theproductorservicemaybecome
anattractiveuseoffinancialresourcestoa largernumberofbuyers,thusexpandingthe
totalmarketfortheitem.Thistotalmarketdemandbyallbuyersfora producttype(not
justforthecompany's ownbrandname) iscalledprimarydemand.Additionally,a lower
pricemaycausebuyers toshiftpurchasesfromcompetitors,assumingthatthecompetitors
donotme~tthelowerprice.Ifprima')'demanddoe~notexpandandcompetitorsmeetthe
lowerpricetheresul t willbelowertotalrevenueforallsellers.
Since,intheU.S.,weoperateasa free marketeconomy,therearefewinstanceswhen
someoneoutside theorganizationcontrolsa product'sprice.Evencommodity-likeprod-
uctssuch as air travel,gasoline , andtelecommunications,nowdeterminetheirownprices.
Becauselargecompanieshaveeconomistsonstaffandbuyintotheassumptionsofeco-
nomict~eoryasit relates toprice,theclassicprice-demandrelationshipdictatestheeco-
nomichealthofmostsocieties.AlanGreenspan,ChairmanoftheU.S.FederalReserve,
determinesinterestrateschargedbybanksaswellasthemoneysupply,therebydirectly
affectingprice(especiallyofstocksandbonds).Heis consideredbymanytobethemost
influentialpersonintheworld.
o 100 140
Quantitydemandedin a givenperiodoftime(#ofunits)A:;'3reductioninpriceunitwouldcausea 40-unitincreasein the
quantitydemandedassumingnoothervariablechanges.
FIGURE9.2 Priceandder;land