I really like bananas. Great way to start the day. Tasty and nutritious.
Wegman’s sells them for 49¢ a pound, but I would pay more than that. At 99¢ a pound, I’d still get them. I’m happier paying less, but I could afford the higher price.
So why doesn’t my grocery store take advantage of this? It could double the price of bananas and still keep my business. One reason might be that the nearby Safeway would start flaunting its lower prices and lure me away. But another argument is that I am not typical in my passion for the fruit. There are certainly other customers who are much nearer to indifference. At 49¢, they’ll pick up a few bananas; at 59¢, they’ll go with the melon. In economic parlance, the folks most likely to switch away when the price goes up are the marginal buyers. I, with my ardour, am an inframarginal buyer. For price setting, it’s the marginal buyers that grocery stores think about. At 99¢ a pound, I’d still be buying, but the store’s overall banana sales would fall sharply.
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