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Assignment Nos.4 Demand Analysis and Optimal Pricing

This document discusses demand analysis and optimal pricing. It addresses how consumer behavior is responsive to price changes and why companies practice price discrimination. Price is a major factor in how much consumers are willing to spend and which products they choose. While price discrimination allows companies to maximize profits, it may not be considered fair as different consumers are charged different prices. The document examines these issues and their implications for setting prices.

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Kezia
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54 views3 pages

Assignment Nos.4 Demand Analysis and Optimal Pricing

This document discusses demand analysis and optimal pricing. It addresses how consumer behavior is responsive to price changes and why companies practice price discrimination. Price is a major factor in how much consumers are willing to spend and which products they choose. While price discrimination allows companies to maximize profits, it may not be considered fair as different consumers are charged different prices. The document examines these issues and their implications for setting prices.

Uploaded by

Kezia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment Nos.

4
Demand Analysis and Optimal Pricing

Please answer the following questions and submit on the deadline


date.

1. Why are changes of prices of commodities is very responsive to the needs


of the consumer?

The price that the company set for the product or service has a very significant
effect on how consumer response or behave. If the consumer thinks that the
price you’re changing is lower than the competitors it could cause an increase in
sales. But if the price you set is higher than expected the response of the
consumer can be disappointing. Before the company decide to raise the price
of the existing product or service they should understand how that could affect
the consumers. When the company decide to raise their price they are taking
risk. If the consumers decide to buy same product from the competitor at the
lower price the company could lose the consumer permanently because they
know that is the same product but cheaper. On the other hand, raising the price
could not affect at affect at all when your product is on demand and not available
at competitors. Lowering or initially setting a lower price or a promo than
expected can have a different effects on the consumers. First, a price-conscious
consumer will be grateful for the price break they will take advantage the lower
price to hoard. In the other case, the consumer could become suspicious of the
lower price and thinks that they selling that good on the lower price because of
low quality.

The consumers uses a criteria to determine how much they willing to expend, or
how much the price they willing to pay in order to satisfy they needs. Ideally the
consumers would like to pay as cheaper as possible, when they know that a
certain product is cheaper in the other brand they will choose the cheaper brand.
But then it depends on the product, for example, when the price of rice increase
they will still buy that because they need even the price hike. But then when a
product has an alternative they choose to buy the alternative than to buy a
product that has a higher price, for example, when the price of the chicken rises
the consumer can buy a fish or vegetables as an alternative.

It is important to set the right price from the start because when the consumer
thinks that the product or service of the business is expensive than usual they will
not patronize that product or survive. Making a change to the piece of product or
service is very risky because it can really affect the sales of the business, so do
so with caution and much consideration. It is helpful to set up some type of
tracking buyer behaviour at the price that the company will set. When the
economist set a wrong price in their product or services it may cause a decrease
in sales, so that the economist should think very carefully before deciding
because the consumers is very sensitive when the price change.

2. Is price discrimination considered as fair business practice. Why do


companies tends to sell commodity to different buyers at different prices?

In price discrimination, the seller will charge the buyer the maximum price that he
willing to pay for a product or service. Companies use price discrimination in
order to make the maximum revenue possible from every consumers. This allows
the producer to capture more of the total surplus by selling their product to the
consumers at the prices closer to the maximum willingness to pay.

Industries use price discrimination as a way to increase profit. It is possible to


some industries to offer retailers different prices based on the volumes of the
products purchased. Price discrimination can also be based on age, location,
desire for the product, customer wage and etc.

They are varies of industries that use price discrimination legally. For example,
coupons are used in retail to distinguish consumers by reversing the price.
Individuals who collected coupons are more sensitive to a higher price than those
who don’t. By offering coupons, the producer can charge a higher price to the
price insensitive consumers and provide a discount to a price sensitive
individuals.

In my opinion, price discrimination is not fair business practice but then I also
know that price discrimination is the strategy of the businesses to maximize their
profit. The company knows that by doing this strategy it can really help to
maximize their profit. The company have an ability to increase their price base on
the location, consumer financial status, product demand, and etc. For example,
when the business is in the location that the consumers can afford an expensive
price of product that is closer to the maximum willingness to pay of the
consumers they will take advantage of it, because as an economist they want to
maximize the profit of the business. Other example, the product demand when
the economist know that their product is on demand and the supply is limited they
will take advantage the situation to increase their price.

References:

https://courses.lumenlearning.com/boundless-marketing/chapter/introduction-to-
price/

https://bizfluent.com/info-7905922-effect-price-consumer-buying-behavior.html

https://www.investopedia.com/ask/answers/040615/how-does-price-elasticity-
affect-supply.asp

https://courses.lumenlearning.com/boundless-economics/chapter/price-
discrimination/

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