av Kaur Gurinder för 6 årar sedan
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Difference between the price that consumers are willing to pay for a product and what they actually pay
Known as paradox of value
States/Explains that the goods critical for survival are cheaper than the goods that have no bearing on human existence
Example: Water is critical to survvival however is much cheaper than diamonds which are a luxury and not needed to survive
Marginal utility theory supports this idea
Theory states that as people receive less satisfaction while consuming more of a product, they will want to pay less for the product (the more you buy, the less you want to pay)
Theory states that as people consume more, the extra satisfaction they receive declines
State of balance achieved by an end user of products
Refers to the amount of goods and services they can purchase given their present level of income and current level of prices
Helps calculate which combination of products could give a consumer the most satisfaction
Marginal Utility = Marginal Utility Price of product A Price of Product B
Cost Factors
Increasing output (supply) may be costly depending on the industry
Ease of Storage
Sellers have two options when the price of a product drops
Keep aside some inventory into storage, and sell it when prices rise again
Sell the product at a new and lower price
Time
The longer the time period a seller has to increase production, the more elastic the supply will be
Coefficient of supply elasticity= % change in quantity supplied % Change in price
Amount of time available
Some goods may become elastic as consumers start to find substitutes for them
Fraction of Income spent on the item
Goods that are expensive and take up a large amount of a family budget are elastic
Nature of the Item
Goods that are neccessities tend to be more inelastic than goods that are considered luxuries/a want
Availability of substitues
Goods who have substitutes tend to be more elastic than goods that do not
Given per cent change in price causes an equal per cent change in quantity demanded
These goods tend to be wants
Given per cent change in price causes a greater per cent change in quantity demanded
Givern per cent change in price causes a smaller per cent change in quantity demanded
These goods are tended to be neccessities
Formula to measure the actual change in quantity demanded for a product whose price has changed
Coefficient of demand elasticity= % Change in quantity demanded % Change in price
Marketing Boards
Composed of representaties from the government and from the producers
Organization who administer these quota restrictions
Subsidies also have some drawbacks:
Subsidies are seen as a barrier in free trade in the global economy
Subsidies may keep inefficient producers in business
Taxpayers pay for the progran
Subsidies have some advantages:
Has the advantage of Benefitting buyers with lower prices and sellers with extra revenue
Allows more of a product to be exchanged between buyers and sellers
Second problem; Consumers pay a higher price but receive less
First problem is; what to do with the surplus
Sometimes, Surplus can be sold on the world market or distributed to less developed cpountries
Surplus is usually bought by government to ensure floor prices are kept
Can cause quality of products to suffer/cevrease
Suppliers would want to lower down their productio costs, hence, they would try to find ways ot save their costs and could use cheaper materail for products meaning product quality would suffer
May create an "underground economy"
Occurs when a shortage of a product would cause certain consumers to buy a big stock of the product so that they could later sell it to people for a higher price.
Shortages may cause long line ups for the product
Example: When/if a government were to have ceiling prices on gasoline, it would cause gasoline shortages and long line ups. This would continue to occur until prices were allowed to be lifted once again causing supply and demand to remerge at the equibilarium
Refers to substitute goods. If prices of substitue goods is lower, consumers would want more of those increasings its demand, eventually increasing supply.
Different government policies such as fiscal policies would have a great impact on the supply of products
Example: Increasing taxes would decrease supply
The price of a product and the supply of the product are directly related (direct relationship). If prices of a product increases, so does its supply.
An increase in production costs would decrease the quantity supplied as owners do not want to have high production costs
Example: Suppliers would decrease supply for a product when they realize production costs are exceeding the market price of the product
Decrease in the price of goods would increase demand as consumers could purchase more in less of an amount than usual
Increase in the price of goods would decrease demands as consumers wouldn't want to spend that much
Example: A celebrity endorsing a specific product such as an acne treatment could potentially change consumer preferences and help increase the demand for that product
Decrease in population would decrease demand on products and services as left people are present to purchase
Increased population would increase demand for products as more people are present to purchase
Example: The money consumers would save from buying non branded pasta would represent the consumers extra income. Some consumers would use that extra income to purchase another box of the same pasta, thus, increasing its demand.
Example: If the price of a well known branded pasta such as PRIMO were to rise, consumers would start to substitute and purchase a pasta that is a different brand such as compliments as it's price is lower and more affordable. This would decrease the demand of the branded pasta and increase demand for the no brand pasta.
Price of Product or Service
Moderate/Low prices keep demand stable and increases demand as consumers find the price within their budget and find spending affordable
High prices decreases consumer demand as consumers do not want to spend such a high amount
Financial Resources
Consumers must have enough income and financial stablity to freely be able to purchase the product/ service
High income increases demand
Low Income decreases demand
Desire
Consumers must desire the product in order for the products demand to be high
