Price Determination

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  • Created by: April15
  • Created on: 30-01-20 13:40

Price Determination - The interaction between the demand and supply in the free market that is used to determine the costs for a goods or service.Consumers have a desire to acquire a product, and producers manufacture a supply to meet this demand. The equilibrium market price of a good is the price at which quantity supplied equals quantity demanded. Graphically, the supply and demand curves intersect at the equilibrium price.

Effect of Prices on Demand - consumers are willing to pay a particular price for a product depending on their income levels and intensity of desire to own the product (demand curve),  if the price of a good goes up, consumers will buy less of it. Conversely, consumers will purchase more of a product if the price goes down. Other factors come into play to influence the equilibrium price as determined by the supply-demand equations of economics.

Factors That Shift the Demand Curve - When a change increases the desire of consumers to purchase a good, the demand curve shifts to the right. If the change decreases consumers' willingness to acquire a product, the demand curve shifts to the left.

Changes in demand-related factors that affect the quantities demanded at every price along the demand curve:

  • Consumer preferences (consumer tastes are constantly changing as new technology comes out or clothing fashions change)
  • Income of consumers (changes in consumer incomes

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