ABSTRACT
Some product prices are set by markets; some are set by various government agencies; a relatively small number are set by powerful buyers; and far more are set by sellers. A main concern of this chapter is the common ways prices are set by sellers. A second but vital concern is with price behavior, the speed or slowness of the response of prices to shifts in demand and supply. If prices quickly respond to changes in supply and demand markets quickly equilibrate and price is the important allocator of resources. But if prices change only once a year, for example, markets may not quickly equilibrate and the role of price in allocating resources is terribly diminished. In addition to determining product prices, many firms must decide the extent to
which they will advertise and the economics of that decision is confronted in this chapter, as well.
