APPLIED ECONOMICS
QUARTER 1 – WEEK 4 – MODULE 4 | SEM 1 2022 | Padayon!
• In case of inelastic demand, a variation
MARKET PRICING
in the prices does not really affect
demand.
• Market pricing refers to setting the price − That means consumers would still
of a product or service in relation to the buy despite changes in price.
prices of similar offerings on the market.
(Current price which can be sold or • Thus, firms cannot easily impose higher
bought in the market) prices on commodities with elastic
demand while they can change more on
• Also known as competition-based or products with inelastic demand.
market-oriented pricing.
MARKET COMPETITION
FACTORS AFFECTING PRICE
DETERMINATION
• It is important to consider the nature and
degree of competition in determining
1. Product Cost
prices.
2. The Utility and Demand
3. Market Competition • When competition is low, a firm may
4. Government Intervention impose a higher price for its product.
5. Pricing Objectives • “The higher the competition, the lower
6. Marketing Methods Used the price.”
PRODUCT COST GOVERNMENT INTERVENTION
• The price of a commodity is based on its • Some companies may monopolize and
total cost. industry or a sector in an economy.
• There are three types of cost to be • Firms usually charge high prices for their
considered; fixed, variable, and semi- products to make more profit.
variable. • However, in order to protect public
• These costs may be incurred during the interests, the government may intervene
production, distribution, and selling of by imposing price controls and taxes.
the products.
− FIXED COSTS - are those that PRICE CONTROL
remain unchanged at all levels of
transaction. Fixed costs may • Refers to the fixing of prices by the
include salary, rent of building, etc. government.
− VARIABLE COSTS - are directly • By restricting prices below or above their
related to the levels of production or equilibrium level, the government create
sales. Examples of these are costs shortage of surplus.
of raw materials, labor costs, etc.
• SURPLUS occurs when there is excess
− SEMI VARIABLE COSTS – are those supply than consumer demand.
that change with the level of
activity, but not in direct
proportion. Example: fixed salary
plus graded commission depending
on the volume of sales.
THE UTILITY AND DEMAND
• When a product has elastic demand, a
little change on its price may have a big
impact on its demand.
1 | NOT - 11 ABM - 1
APPLIED ECONOMICS
QUARTER 1 – WEEK 4 – MODULE 4 | SEM 1 2022 | Padayon!
• SHORTAGE occurs when there is less C. SURVIVING IN A COMPETITIVE MARKET
supply than consumer demanded. • If a firm is not able to compete with
strong rivals and is finding difficulties in
surviving, it may sell at discounted prices
or very low clearing prices.
D. ATTAINING PRODUCT QUALITY
LEADERSHIP
• Generally, firms that maintain good
reputation of providing high quality
products charges higher prices to cover
high production and maintenance costs.
MARKETING METHODS USED
TWO TYPES OF PRICE CONTROL
• Marketing methods used by a firm like
• PRICE CEILING - maximum price at advertising, packaging, distribution
which a good can be sold. system, quality of sales team, customer
− Example: Gasoline price is regulated service, etc., also affect pricing scheme.
in some countries. • “THE MORE EXPENSIVE THESE THINGS
• PRICE FLOOR - a legal minimum price at ARE, THE HIGHER THAN THE FINAL
which a product can be sold. PRICE WILL BE”
− Example: The minimum wage is the
legal lowest price for labor that any
employer may pay.
• Taxes “HIGHER DUTY AND TARIFF
INCREASE THE PRICE AND VICE
VERSA”
PRICING OBJECTIVE
A. PROFIT MAXIMIZATION
• This is the usual objectives of any
business
• During a short run, a firm may charge
high prices to earn maximum profit.
• During a long run, a business may reduce
• its prices to capture many buyers and
therefore earn more through increase
sales.
B. OBTAINING MARKET SHARE
LEADERSHIP
• A firm usually keeps its price low if its
objectives is to obtain a big market share.
• Low price would result to an increase in
sales.
• But if a firm has a specific target market,
for instance, the upper class, it will
surely sell at a high price.
2 | NOT - 11 ABM - 1
