Prices are important. Prices are critical in determining how much of different goods is demanded and how much is produced. Market-determined prices reflect preferences, anticipations and costs. People, both consumers and producers, make decisions in light of prices of some goods relative to prices of other goods and prices of goods today relative to prices expected tomorrow and prices of outputs relative to prices of inputs.

The world is a changing place. Jungle instinct alone is enough to suggest that some sorts of changes best lead to price changes if we are to keep demands and resource allocations in proper alignment.

Some of the underlying changes are cyclical, following a well-defined path over the hours of a day or the seasons of a year. And so prices of goods can appropriately rise and fall over a cycle even when production costs per unit vary little.

Thus, ski-resort, cruise-ship, airline, restaurant, and theater prices often vary greatly, depending on the month or the hour. Demands for evening plays are greater than for matinees. The optimal price to charge for the product varies with changing demand. To put the matter differently, the product itself is defined not only by its physical characteristics but also by the time of its supply and consumption: an evening performance at the theater is not the same commodity as an afternoon performance of the same play with the same actors.

Some electric power companies, reports The New York Times, are belatedly learning what theater and telephone company managers have long understood: The demand for their product is cyclical, and the price can best reflect the rising and falling demand.

A flat "average equilibrium" price per unit of electricity over the daily and seasonal cycles will be too low for peak periods (it will encourage still more to be demanded when usage already is naturally great) and too high for slack times (it will further curtail the quantity demanded when usage is naturally small). If production capacity is made great enough to handle peak demand, there will be much idle plant the rest of the time; if there is lesser capacity, there will be peak-period shortages.

Problems are compounded if production expenses are higher in peak periods because of utilization of equipment with higher operating costs, requiring, say, use of an oil-fired plant to supplement a hydroelectric dam.

Raising peak-load prices and lowering slack-period prices may leave total electricity consumption unchanged. But it would go some way to even-out consumption over the cycle. And that, in turn, would reduce both immediate operating expenses and the costs of producing more plant to satisfy peak demands. Smoothing the consumption cycle means making fuller and better use of smaller plant investment.

1.Is charging lower prices for matinees than for evening movies price discriminationcharging different customers different prices for the same goodor are matinees and evening movie viewings different goods?

2. How could higher electrical prices in peak demand periods and lower prices in low demand periods lower overall production costs, even if it did not change total electrical usage over the entire cycle?