Supply & Demand AND

What Price products & services

A product's price varies mostly by two factors; supply and demand. When large supplies of an item are made, the item's cost will go down. When very few supplies of the item are made, the price will go up. When the demand of an item is high, the price rises. When the demand of an item is low, the price will go down.

·Production Expense:

Products can't be made for free! When a toy is made of wood, and the price of wood goes up, the toy's price will go up, too, and vice versa. When a factory hires a lot of workers, they have to pay a lot of wages, and to pay them all, the factory must raise their prices. There is also taxes, distribution (transportation), and advertising.

·Competition:

Competition keeps prices low. If you owned the only grocery store in New York City, everyone would go to you. You could charge anything you want, since the NYC citizens couldn't go to a cheaper place. But, if another grocery store is built next to yours, and has lower prices, you'd better lower your prices below your neighboring competitor, or you'll go out of business! People will shop at the cheapest place nearby, so always keep your prices low!

·New Research:

Have you ever noticed how the price of radios have been constantly going down? Yet, the price of prescription medicine and cars have remained expensive? That's because radio makers don't need to research for better radio techniques or features. New technologies produced by other companies make it easier to make radios, hence the price of radios will go down. However, car makers are always researching and testing for better and safer cars. Medicine makers are researching for new cures for disease. The costs of these researches and tests are paid off by raising their prices.

Source = http://library.thinkquest.org/J003305F/variable.htm

·`Supply & Demand:

Demand

Supply

Equilibrium = where supply equals demand and both are stable

Source = http://yourknowledge.hubpages.com/hub/The-Winners-and-Losers-of-Globalization

In the example above demand has increased. At £0.35 previously only 200 mars bars were demanded now 300 mars bars are demanded.Consequently demand has SHIFTED from D1 to D2

1. The good or service becomes less popular2. Decrease in advertising on the good or service3. Other substitute goods fall in price4. Fall in quality or a health scare5. People have smaller incomes

DEMAND FALLS IF

1. The good or service becomes more popular2. Increase in advertising on the good or service3. Other substitute goods (e.g. twix) increase in price4. Improvement in quality5. People have larger incomes

DEMAND INCREASES IF (MARS BARS)

It is possible that demand may change for reasons other than price

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You will see

But for NOW >>>

"Price"

Think of a question with "Price" as the Answer ....

Write it or be ready to answer

Coca-ColaiPad 2

32 GB

X-Box 360Game Philips

3D TVMini

Scooter

The Price is Right

$499$??? $0.50 $199 $999

Total:

$499$??? $499$???$499$???

$1757.49$???

Which team will get the closest to the market price?

You have 1 minute, each product, and 1 minute to add (the prices) to work out the Total market price?

$59.99$499$???

Why is setting the right price for a product so important to a business?

Which jeans would you choose to buy?

George Jeans Levis Jeans$9.99 $80.00Click 1 Click 1Click 2 Click 2

OR

OR

You thought that Levis are better quality than George?

A Consumer study in 2007 found that George jeans were better than Levis jeans in all three of their quality inspections tests. The results showed that:

· George jeans were more durable than Levis

· George jeans were less likely to shrink than Levis after washing

· George jeans kept their original appearance for a longer period of time than Levis

....think again!

Factors that determine price

For you to complete