This is an important aspect of economics that lots of people seem to misunderstand: prices are not determined by costs.
They’re determined by what consumers are willing to pay for your product. That’s it.
The manufacturer sets its price based on what will bring them the most profit, I.e. what the consumers are willing to pay times the number of customers willing to pay it. Notice how cost is a pretty minor factor in that.
Supply and demand has an effect because it reduces the amount consumers are willing to pay (because they can get your product elsewhere)
So your argument that software should charge less based on what it costs them is just a misapprehension of how this works in the economy in general.
Well, no... "costs" and "what consumers are willing to pay" are both important factors that go into the price. If the manufacturer's costs go up, then the equilibrium price at which profits are maximized goes up too (although the manufacturer would make less absolute profit overall). That's the real misconception that I think you're pointing at: many people, including the OP, think that prices are completely determined by the seller. In reality, sellers are already maximally greedy, so they want to find this equilibrium price point that maximizes profits. This makes price a signal that they're measuring, not something that they directly control.
Minimum wage debates tend to sadden me, because there's always somebody saying "McDonald's can just compensate by charging $1 more for a burger", making this silly mistake. As if McDonald's is just leaving all that extra money on the table, until it's forced to collect it to pay wages...
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Notes -
This is an important aspect of economics that lots of people seem to misunderstand: prices are not determined by costs.
They’re determined by what consumers are willing to pay for your product. That’s it.
The manufacturer sets its price based on what will bring them the most profit, I.e. what the consumers are willing to pay times the number of customers willing to pay it. Notice how cost is a pretty minor factor in that.
Supply and demand has an effect because it reduces the amount consumers are willing to pay (because they can get your product elsewhere)
So your argument that software should charge less based on what it costs them is just a misapprehension of how this works in the economy in general.
These are logically inconsistent statements. A company that wishes to maximize profit generally seeks to set its output where its marginal cost equals its marginal revenue. When costs change, that point moves, and the price associated therewith changes.
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Well, no... "costs" and "what consumers are willing to pay" are both important factors that go into the price. If the manufacturer's costs go up, then the equilibrium price at which profits are maximized goes up too (although the manufacturer would make less absolute profit overall). That's the real misconception that I think you're pointing at: many people, including the OP, think that prices are completely determined by the seller. In reality, sellers are already maximally greedy, so they want to find this equilibrium price point that maximizes profits. This makes price a signal that they're measuring, not something that they directly control.
Minimum wage debates tend to sadden me, because there's always somebody saying "McDonald's can just compensate by charging $1 more for a burger", making this silly mistake. As if McDonald's is just leaving all that extra money on the table, until it's forced to collect it to pay wages...
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