Price determinants
Written by Salimkhan Seisembayev | Proofread by Yasmin Uzykanova
Definition:
Price determination is when the forces of supply and demand determine the price, it is to determine the price of a good sold and services rendered in the free market. In certain cases the government can intervene in the determination of price like a minimum service price for wheat.
Factors affecting the price determination
Product cost - product cost is the most important factor that affects price, it includes total fixed cost, variable cost and semi variable cost occurring throughout the process of production, distribution and selling of a product or service. Fixed cost refers to those costs which remain constant, variable cost is directly linked to the levels of production and semi-variable costs take into account the costs that change with the level of activity.
Elasticity of the product & Demand - if the product is elastic, small changes to the price will have a deep effect on the levels of quantity demanded by the consumer. If the product is inelastic then small changes in price will have nearly no effect on quantity demanded on the consumer since the consumer will be willing to pay up to that point where he perceives utility from the product to be equal to the price paid.
Extent of the competition in the market - A firm can put any price for its product if the degree of competition is low. Although, when there is competition in the market, the price is fixed after keeping in mind the price of the substitute goods.
Government and legal regulations - The firms who have a monopoly in the market, usually charge a higher price for their products whether it's a good or service. In order to protect the customer the government intervenes and regulates the price of commodities.
Marketing methods used - A range of marketing methods such as circulation system, quality of salesmen, marketing, type of wrapping, patron services, etc. also affects the price of manufactured goods. For instance, an organization will charge sky-scraping revenue if it is using the classy material for wrapping its product.
