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Role of microeconomics in pricing a product
Role of microeconomics in pricing a product
Role of microeconomics in pricing a product
Role of microeconomics in pricing a product
Role of microeconomics in pricing a product
Role of microeconomics in pricing a product
Role of microeconomics in pricing a product
Role of microeconomics in pricing a product
Role of microeconomics in pricing a product
Role of microeconomics in pricing a product
Role of microeconomics in pricing a product
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Role of microeconomics in pricing a product

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Microeconomics mainly deals with an individual’s behavior and decisions that affect the demand and supply of goods and services. www.unitedworld.edu.in …

Microeconomics mainly deals with an individual’s behavior and decisions that affect the demand and supply of goods and services. www.unitedworld.edu.in

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  • 1. ROLE OF MICRO ECONOMICS IN PRICING A PRODUCT
  • 2. INTRODUCTION  Microeconomics mainly deals with an individual’s behavior and decisions that affect the demand and supply of goods and services.  In microeconomics actions of individuals, households and business are important.  A demand curve shows the relationship between the quantity of a good that consumers are willing to buy and the price of the goods.  A supply curve gives the relationship between the quantity of a good that producers are willing to sell and the price of the good.
  • 3. EQUILIBRIUM PRICE  Economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change. For example, in the standard text-book model of perfect competition, equilibrium occurs at the point at which quantity demanded and quantity supplied are equal. Market equilibrium in this case refers to a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. This price is often called the competitive price or market clearing price and will tend not to change unless demand or supply changes.
  • 4. DECREASE IN SUPPLY  When supply of the commodity falls in the market due to any particular reason, demand remaining constant, its price rises as the commodity would not be easily available in the market. This is an inward shift in supply. The supply curve may shift outwards if there is  A fall in the costs of production (e.g. a fall in labour or raw material costs)  A government subsidy to producers that reduces their costs for each unit supplied  Favourable climatic conditions causing higher than expected yields for agricultural commodities  A fall in the price of a substitute in production  An improvement in production technology leading to higher productivity and efficiency in the production process and lower costs for businesses  The entry of new suppliers (firms) into the market which leads to an increase in total market supply available to consumers  .
  • 5. INCREASING DEMAND  Now if a situation arises that there is an increase in income. This may lead to higher purchasing power of a consumer, demand for a commodity goes up and hence demand curve shifts to the right but the supply does not change.
  • 6. INSTANT IN INCREASE IN DEMAND  Palm oil is a derived demand as it is used as an ingredient (input) in the manufacturing of foodstuff like instant noodles, breakfast bars, doughnuts, margarine, crackers, crisps or French fries.  Hence, an increase in demand for these end- products will result in an increase in the demand for palm oil.
  • 7. SUBSTITUTE GOODS  A substitute good, in contrast to a complementary good, is a good with a positive cross elasticity of demand. This means a good's demand is increased when the price of another good is increased. Conversely, the demand for a good is decreased when the price of another good is decreased. If goods A and B are substitutes, an increase in the price of A will result in a leftward movement along the demand curve of A and cause the demand curve for B to shift out. A decrease in the price of A will result in a rightward movement along the demand curve of A and cause the demand curve for B to shift in.
  • 8. COMPLIMENTARY GOODS  Method in which one of the complementary products (shaving razor, for example) is priced to achieve maximum sales volume, (without cost or profit considerations) to stimulate the demand for the other product (razor blades). The objective is to generate a level of profit that adequately covers losses sustained by the first product.
  • 9. EFFECT OF COMPETITION  Perfect Competition - A large number of firms produce a good, and a large number of buyers are in the market. There is little room for differentiation between products, and individual firms cannot affect price . Market price is the price of the product.  Monopolistic Competition - A large number of firms produce a good, but the firms are able to differentiate their products. There are also few barriers to entry. Each firm has relative freedom to set its own price.  Oligopoly - A relatively small number of firms produce a good, and each firm is able to differentiate its product from its competitors. Barriers to entry are relatively high.  Monopoly - One firm controls the market. Because the firm controls the entire share of the market , it can charge any price.
  • 10. CONCLUSION This is how a economy can be analyzed through supply and demand curves.
  • 11. http://www.unitedworld.edu.in/ Campus Ahmedabad Campus: Karnavati Knowledge Village, A/907,Uvarsad, S.G.Highway, Gandhinagar Kolkata Campus: Infinity Benchmark Tower 10th Floor, Plot - G1, Block - EP& GP, Sec - V, Salt Lake, Kolkata. Reg. Office: 407, Zodiac Square, 4th Floor Opp. Gurudwara, S.G. Road, Bodakdev, Ahmedabad.

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