Task 5 – Key factors determining final product prices

~ adispblblog

What affect supply and demand of commodities and consumers’ goods?

Factors affecting supply of product:

  1. Price: As price increases firms have an incentive to supply more because they get extra revenue (income) from selling the goods.
  2. Cost of production
  3. Number of producers (will cost an increase in supply)
  4. Expansion in capacity of existing firms, e.g. building a new factory
  5. An increase in supply of a related good
  6. Climatic conditions
  7. Improvements in technology, (e.g. computers, reducing firms costs)
  8. Lower taxes reduce the cost of goods
  9. Increase in government subsidies will also reduce cost of goods

 

Factors affecting demand of a product:

  1. Price
  2. An increase in disposable income enabling consumers to be able to afford more goods. Higher income could occur for a variety of reasons, such as higher wages and lower taxes.
  3. An increase in the quality of the good e.g. better quality digital cameras encourage people to buy one.
  4. can increase brand loyalty to the goods and increase demand. For example, higher spending on advertising by Coca Cola has increased global sales.
  5. Substitutes and changes in their prices.
  6. A fall in the price of complements will increase demand. E.g. a lower price of Play Station 2 will increase the demand for compatible Play Station games.
  7. Weather: In cold weather there will be increased demand for fuel and warm weather clothes.
  8. Expectations of future price increases. A commodity like gold may be bought due to speculative reasons; if you think it might go up in the future, you will buy now.

 

Factors affecting demand and supply of commodities:

  1. Goals of the firm
  2. Price of the substitutes
  3. The price of factors of production: With the rise in the price of factors of production the cost of production rises. This result in decrease of supply and vice versa.
  4. Change in technology: A change in technique of production may lead to a change in supply if the technique of production improves, cost of production will fall. Even at the same prices, producers will like to supply more and vice versa.
  5. The price of the commodity: The supply of a commodity very much depends on its price. There is direct and positive relationship between the price of the commodity and its supply.
  6. Expected change in price: In case producers expect an increase in the price, they will withdraw goods from the market. Consequently, supply will decrease. If price is expected to fall in future, supply will naturally increase.
  7. Taxation policy: The production of the commodity is discouraged if heavy tax on its production is imposed. On the contrary, tax concessions encourage producers to increase supply.
  8. Number of producers: If the number of producers producing a commodity increases, its supply will increase. With the exit of producers, the supply would decrease.
  9. Internal peace and stability: Existence of internal peace and stability will increase the production and supply of a good. With political disturbances, labor unrest and wars production and supply of a good will be hampered.
  10. Natural factors: Natural calamities like flood, drought and cyclone reduce the supply of a commodity. If natural disasters are absent, production and supply of a good will increase.
  11. Means of transport: Goods transport and communication facilitates free and quick mobility of factors of production to the producing centers and the final products to the market. Presence of good means of transport and communication thus increases the supply of a good. The supply curve will shift to left.

 

References:

http://www.economicshelp.org/microessays/equilibrium/demand/

http://www.economicshelp.org/microessays/equilibrium/supply/

http://www.preservearticles.com/201103104455/factors-influencing-supply-of-a-commodity.html

 

What factors in production dictate final products’ prices?

The factors that affect the final products are:

  1. Cost of the product
  2. Variable costs
  3. Fixed costs
  4. Production Productivity: as productivity falls, the marginal cost of production will increase

The costs of the product include the amount spent on:

  1. product development
  2. testing
  3. packaging

the company’s total costs include both fixed costs and variable costs.

Fixed costs are costs that a company must pay regardless of its level of production or level of sales. A company’s fixed costs include items such as rent, leasing fees for equipment, contracted advertising costs, and insurance.

Variable costs are costs that change with a company’s level of production and sales. Raw materials, labor, and commissions on units sold are examples of variable costs.

The point at which total costs equal total revenue is known as the breakeven point (BEP). For a company to be profitable, a company’s revenue must be greater than its total costs. If total costs exceed total revenue, the company suffers a loss.

–

Also affecting: Costs related to promotion and distribution. For example, when a new offering is launched, its promotion costs can be very high because people need to be made aware that it exists. Thus, the offering’s stage in the product life cycle can affect its price. A product may be in a different stage of its life cycle in other markets.

 

References:

http://2012books.lardbucket.org/books/marketing-principles-v1.0/s18-02-factors-that-affect-pricing-de.html

http://www.economicshelp.org/blog/glossary/costs-of-production/

 

What are the effects of competition (manufacturing, retailing, consuming level) on the prices?

Competition Among Buyers

Buyers compete with one another. The producers are aware that their product is in high demand, and they use this knowledge to set the price of the product for consumers. Competition determines market price because the more that product is in demand (which is the competition among the buyers), the higher price the consumer will pay and the more money a producer stands to make.

Competition of Sellers

Not only does the demand of consumers for the product affect price, but so does the relationship among the different producers of the product. Competition among sellers usually deals with who has the best price. This will also help determine the price. Greater competition among sellers results in a lower product market price. If the same product has numerous producers instead of only one, the price would be lower because the producer knows the consumer could get the toy somewhere else.

 

The cycle of competition between sellers never ends. People are always battling for goods that the sellers have, and people’s wants are endless. As long as there are buyers wanting things, then there will be competition between sellers.

 

References:

http://study.com/academy/lesson/impact-of-competition-on-the-quality-quantity-price-of-goods.html

 

Pricing under monopolistic and oligopolistic competition:

http://www.jbdon.com/pricing-under-monopolistic-and-oligopolistic-competition.html

 

Leave a comment