There Ain’t No Such Thing as a Cost-Plus Lunch

Source: Foundation for Economic Education
by Dan Sanchez

“In media coverage of today’s rising prices in general, this has become a prevailing narrative: ‘businesses are passing their rising costs onto consumers.’ While superficially plausible, this gets the economics of prices the wrong way round. The explanation refers to ‘cost-plus pricing,’ which is the business practice of setting prices by starting with your costs and then adding a markup. Of course, nothing in economics says that a business owner cannot use this method to decide on a price to quote. Surely, some do exactly that. But it is only a heuristic and it is not what fundamentally drives price changes.” (06/13/22)