• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Amna Qayyum

Extracts from this document...

Introduction

Amna Qayyum Examine the factors which determine how businesses price their products. Various factors have to be taken into account when a firm sets a price for its products. First of all the firm has to work out the price elasticity of demand (PED) for it's product. If the PED is less than one (inelastic) then the firm should set a higher price in order to maximize revenue, however if the PED is greater than one (elastic) then the firm should set a low price in order to maximize revenue. The firm will also have to see which competition structure it is operating in. If is Perfect Competition then the firm are price-takers, and they can sell as much as they want to at the going rate, which is determined by the intersection between the Demand and Supply curves. If the firm is operating in a monopoly, then it is a price-maker, and can charge as much as it wants to because of lack of close substitutes. ...read more.

Middle

A pricing policy also depends on the state of an economy. If the country is facing a boom, there are low taxes or interest rates, the consumers have more disposable income and can afford to pay a high price, but the firm will only set a high price if the competitors are doing it too. Conversely if there is a recession in the economy, high taxes and interest rates or a high level of inflation, consumers will have less spending power and would spend money on inferior and low-priced good. In Pakistan, where 50 Million people live below the poverty line and inflation for the month of February was 10%, there is more demand for low priced products. If the firm is importing raw material, and the currency appreciates the firm will have to set a lower price. A firm also has to bear in mind its position in the market when pricing a product. If it is a market leader and has a large market share, it can charge a high price because it may have a good reputation and customer loyalty. ...read more.

Conclusion

If there is a price floor (minimum price) or ceiling (maximum price) then the firm cannot exceed these. Using the BCG matrix a firm will have to see what type of a product it is and follow the respective strategy, if it is a cash-cow or star a high price can be set. But if it is a dog or problem child a low price should be kept. A firm can see the lowest possible price it can set through marginal costing, and this can be used in sales and discounts. A firm will also have to bear in mind its production method. If the good is being mass produced and is standardized by the flow method, then the company must be reaping technical and purchasing economies of scale, and a low price can be set. However if the good is customized through job or batch production, and offers variety, a high price can be charged. This can be seen through the difference in the prices of Suzuki cars, which are mass produced and Aston Martin cars, which are tailored to a consumers needs. Keeping these factors in mind a decision can be made. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Factors that influence the price of houses

    This means that the responsiveness of demand to a change in price is very small. This is because there are not many builders and not much space to build the houses needed, so supply cannot change much. This causes situations like housing booms and the supply does not increase with demand.

  2. Retailing In India - A Government Policy Perspective

    Sometimes, incentives subsidize inefficient production that wouldn't exist without them. Brazil's government, for example, tried to get consumer electronics companies, foreign and domestic, to locate in Manaus by offering tax incentives that cost it $576 million in 2001 alone. Manaus is in the middle of the Amazon, 2,500 miles from

  1. Option Pricing Models

    The standard Black-Scholes (BS) formula prices a European option on an asset that follows geometric Brownian motion. The asset's uncertainty is the only risk factor in the model. A more general approach developed by Black Merton-Scholes leads to a partial differential equation.

  2. This report will establish the opportunities and threats presented to Sony by the EU ...

    This is because those in Western Europe are exposed to magazines, cat shows and exhibitions whereas those in the Southern areas don't bother because they don't see it as necessary to be in fashion with the latest car, house or electrical good because they are not so materialistic.

  1. Marketing Plan: Handywares Plc.

    However in their selected market they will have to start selling on a large enough basis to justify expansion and to do this they will need an awareness of their brand. Opportunities International expansion has been increasing As we progress toward a global economy is becomes easier to enter new markets.

  2. Scarcity and Unlimited Wants.

    Diversified firms no longer have 'all their eggs in one basket'. * Reduce competition by removing rivals. Survival of the Small Firm Small firms are able to compete with large firms because: * Some products cannot be mass produced, eg contact lenses.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work