I'm not sure if it makes them happy when you decrease the price, but I always thought it worked like supply and demand. If you have alot of an item, the city buying won't want to pay as much as they normally would. If you only have a little of the item, they will not get mad if you make it more expensive. I'm not sure about that at all though. I usally just leave the prices alone. Only when i'm having a very hard time keeping money in the tresury do I mess with it.
(Also, if you are majorly over-producing an item, it might not be a bad idea to lower the price, if it made other cities happy. And you would get money for the item, instad of giving it away and pay for S&H as you would by giving gifts.)
Someone clear this up for us?