Identify and Explain the Main Economic Factors That Determine the Price of a Good or Service
Determining the price of a product is important for a product’s and a company’s success. This essay identifies and explains that demand, supply, elasticity/inelasticity, product life cycle, competition, equilibrium / disequilibrium and Tax are the main economic factors to determine the price of a good or service. As an example, this essay also analyses the economic factors which have led to rises in the prices of such crops in the past 5 years.
The main economic factors that determine the price of a good or service
We have learnt from the lecture and text book that the market has the forces to determine the price and quantity of a product traded in a market [1]. The main forces are: demand, supply, elasticity/inelasticity, product life cycle, competition, equilibrium/disequilibrium and tax and etc.
• Demand
The law of demand states that larger quantity will be purchased when price decreases. As shown Fig 1[2], as the price falls, consumers are willing to demand greater amounts of the good. Fig 1: Demand curve
There are the other alternative factors that also influence the demand:
a) The Consumer’s income: The effect that income has on the amount of a product that consumers are willing and able to buy depends on the type of good we 're talking about.
b) The price of related goods: Think about two goods that are typically consumed together. For example, bagels and cream cheese. If the price of a bagel goes up, we will be willing/able to buy fewer bagels. On the other hand, some goods are considered to be substitutes for one another. For example, for some people Coke and Pepsi are substitutes. If the price of Coke increases, this may make Pepsi relatively more attractive.
c) The Tastes and Preferences of consumers: This is a less tangible item that still can have a big impact on demand. For example, if a celebrity endorses a new product, this may increase the demand for a product.
d) The consumer’s Expectations: One 's expectations for the
The main economic factors that determine the price of a good or service
We have learnt from the lecture and text book that the market has the forces to determine the price and quantity of a product traded in a market [1]. The main forces are: demand, supply, elasticity/inelasticity, product life cycle, competition, equilibrium/disequilibrium and tax and etc.
• Demand
The law of demand states that larger quantity will be purchased when price decreases. As shown Fig 1[2], as the price falls, consumers are willing to demand greater amounts of the good. Fig 1: Demand curve
There are the other alternative factors that also influence the demand:
a) The Consumer’s income: The effect that income has on the amount of a product that consumers are willing and able to buy depends on the type of good we 're talking about.
b) The price of related goods: Think about two goods that are typically consumed together. For example, bagels and cream cheese. If the price of a bagel goes up, we will be willing/able to buy fewer bagels. On the other hand, some goods are considered to be substitutes for one another. For example, for some people Coke and Pepsi are substitutes. If the price of Coke increases, this may make Pepsi relatively more attractive.
c) The Tastes and Preferences of consumers: This is a less tangible item that still can have a big impact on demand. For example, if a celebrity endorses a new product, this may increase the demand for a product.
d) The consumer’s Expectations: One 's expectations for the