In economics does one raise or lower prices when sales are down?

Good question. I have no idea, but agree with your example. Waiting to hear from others…

Generally if you are selling something and your competitor is selling it for a lower cost, then you need to lower you cost to compete. But this is very simplified as the cost of production of what you are selling may have gone up. So overall cost of items may go up because the cost of production went up.

In the example of meat, there are several aspects that play in. Cost of feed is one, cost of fuel and transportation costs is another. But interestingly, the size of the herds have been decreasing for the past 4 years. So there is less meat available for sale.

Another aspect you are not factoring in is inflation. The value of the dollar. The value of the dollar goes down and therefore it takes more of them to buy something. So let’s look at beef. The ranchers are having to spend more for all their production costs because their dollars are worth less. So their production costs go up. Fuel prices are up so the cost of transportation is up. Fewer cows are being raised so there is less product to sell. And the population keeps growing so there are more people that need to eat. So more and more dollars are chasing fewer and fewer steaks. Therefore they can ask more for each steak.

I’m going to assume this hasn’t got anything to do with changes in cost or supply shortages for the producers. That it’s just retailers and butchers adjusting to short-term changes in demand.

I would guess they’re trying to maintain profit margins and will rely on a smaller number of customers who are more impervious to price increases (because they’re rich and don’t care).

They might need to do so to keep up with rent and wages.

Business owners don’t read economics textbooks, so they don’t do things that economic theory predicts that they should. Market clearing and supply and demand equilibria are generally a myth in reality.

If the market is competitive then prices should go down. It does no good to have unsold merchandise.

Sounds like there’s much more that goes into pricing than the supplier saying, “I need more money for my kids in college so I’ll raise prices.”. Interesting.

In simple terms: a price reduction will likely bring new customers or sales. A price increase, on the other hand, causes customers to buy less product, meaning you’re losing sales.
The bottom line is that when price elasticity is high, your customers react strongly to price changes.

There are a lot of issues that come into play on pricing. Commodities are more likely to follow the traditional economic models but intangibles such as convenience, quality, or service will add changes that are less predictable. The trick in pricing is to know your audience. What do your customers want? With the current shortages business may make changes that seem counter productive. For instance if I’m quickly running out of product I may increase the price to slow down the volume just to keep product on the shelf. Some times it’s better to have it and not sell it, than to not have it.

It depends on the market and what your competitors are doing. How good are their products and services and prices relative to yours? How strong is the demand?

If you raise prices, you will drive more customers away, either to your competitors, or they might find other things to buy entirely. On the other hand, if your profit margins are already thin, lowering prices to attract customers might not be viable.

If your sales volume is low, and you have enough margin, you should lower prices to increase volume. But if you are in a relative non-competitive niche in terms of your market, you might want to raise prices to make up for the volume with margin.

It isn’t one size fits all.

Depends on if you want to move product or gain market share (reduce price), or if you want to increase profit (increase price).

This question reminds me of a story about two guys that wanted to start their own business. They figured they could buy apples out in the country and bring them back to sell in the city if they had a truck. So they agreed it would be a good business and bought a small truck to get started. They went to mthe country and bought apple for a buck apiece and brought them back to the city and sold them for a buck. After the first month they realized they were losing money and decided they should have bought a bigger truck.

Buy high, sell low and make it up in volume.