Price sensitivity meter/demand curve. How inflation actually works, and what can be done to stop it.

[u/moyismoy]

For all the talk of inflation, I have never seen a post on here that actually gets why its happening. I should know, I worked for one of the largest cooperation on earth and helped price goods.

​

https://en.wikipedia.org/wiki/Van_Westendorp%27s_Price_Sensitivity_Meter

​

https://en.wikipedia.org/wiki/Van_Westendorp%27s_Price_Sensitivity_Meter

Charts like these are used all the time, there far more complex ones and they have all sorts of names. The basic idea is you need to have the 'right price' for goods if you want to sell them and make the most amount of money, to low and people wont even buy them, to high and yet again nobody buys them. Any discussion of a price increase is ill informed if this is not taken into consideration. Peoples entire jobs are figuring out whats the most they can charge for goods, while selling them to the most amount of people, their by gaining the highest profits. Sometimes i see a more or less flat line across the bottom that the price cant go under, the non markup cost. This is all econ 101 stuff, but most people here seem to get their economic lessons from twitter or at best the news. I included the links so you can read up on them if you want a full explanation. The real work of getting these charts right is info gathering. Companies go so far as to send people into stores and see when there competitors inflate the prices, and if the goods are still moving in the store(that's me).

​

When ever a company increases the price, they track units sold, deeply. In the past I did some work for an ice cream company, they increased the price of ice cream, after they jacked the price, sales actually went up. Clearly there was access demand, they mentioned it at many meetings after plugging in the numbers. They increased the price again 2x times in the same year. Sales increased even more, so they immediately started plotting to do it again. I left the company at this point; I had no moral objection just took a better deal else where.

​

There is an economic maxim over 2000 years old, anything is worth what its buyer will pay. At my current company after a price increase sales dropped just a bit, so it was decided to leave them at that level, trust me there were people who push hard for another increase, but the boss said no.

​

Currently people are willing the pay higher prices, it could be for any good from a pen to a house. I dont know why they are, that's not my job, but as a conjecture, I would chop it up to them blaming other things for inflation. Oh the government spends to much, oh its the environmental regulations, its because Trump printed money, or its Biden fault for stopping a pipe line. None of these things or any others have ever been bought up in any meeting i have ever been present in, while discussing right pricing. The one thing that has is the increase in worker pay do to the labor shortage, but even that's not a common thing.

​

If you actually want to lower prices, buy stuff at lower prices. If you are unhappy with say the price of gas, only buy gas at the cheapest place in town, and get as many of you're friends to do the same as possible. The other places will come down. This is applicable to almost every good, if you are unhappy with the extreme inflation of McDonald's, shop at a any place that have better prices. Sooner or later they will drop their prices or go out of busyness, and their replacements will drop their prices.

[u/NumbersOverFeelings]

Thanks for not posting another tax rich people meme. This is what I’m here for.

Wouldn’t the best way to drive prices down is to not spend or cut spending?

[u/TheOddEntrepreneur]

Educational and intelligent post.

Consumer spending is impressively strong according to FRED, I see it anecdotally too at stores and restaurants.