Competitive Markets

Competitive Markets

The price of every commodity determines the rate at which the consumers buy that product in terms of the quantities or look for a close substitute of the same product if they consider the prevailing market price for the desired product to be higher. Thus it’s upon the business entity to set their prices for their products in a way that will earn them profit as well as make them retain their customers (Conrad, et al, 2019). In micro-economics, in the theory of demand and supply, the intersection of the demand and supply of goods provides the equilibrium quantity in the market and price. At such intercept of the two curves, all the products supplied or demanded in the market are availed censuring no surplus or shortage in the market. This is because the customers and suppliers find the price offered for a particular product to be favorable to them. The sale price in the market was not equivalent to the equilibrium price since the quantity supplied of three oranges was not sold. For example, when the prevailing market demand was three oranges, the number of oranges was two; implying one orange was not sold.

Price elasticity of demand affects the pricing decisions since a slight change in the price of the product affects the quantity supplied or sold in the market. If consumer price for the product is raised, the consumers will likely use less of the product or look for close substitutes. The demand price elasticity of the product will be determined by the nature of the product, the production cycle of the product, and the availability of close substitutes in the market (Shahi, Leitch, & Dia, 2020). If the product or service on offer is considered as necessary or essential to support living slight price change will not affect its demand in the market. However, if the product is not considered as a necessity, a slight price change upward will make the consumers consider looking for close substitutes or they buy goods of lesser quality to satisfy their needs. Also, if the production of goods takes more time before it is harvested and availed to a market’s slight change in price will have minimal effect on the quantity demanded. This is because the customers will not stay without the product due to the long production cycle.

Barbara Maddox Response

Good Morning Barbara. I feel sorry for the failed simulation but don’t worry, practice makes perfect. In every engagement in life, we keep learning a new way of doing the same or different things. I am very certain that you got an idea why it failed and you can do better in the future given the same task implying you are better than before having tried. On whether the sale price was the same as the equilibrium price, I would say no since at equilibrium price, there is neither shortage nor surplus (Shahi, Leitch, & Dia, 2020). In your case, you sold only one orange implying there was a surplus of two oranges. Thus it is possible that your sale price was higher than the equilibrium price for the market. I agree with Barbara’s sentiments that the price of elastic goods will be affected by the change in price, hence impacting business pricing decisions. Thus, increase in the price of the elastic product will result in reduced sales as the customers buy less.

The further price increase will result in customers of the product buying more of the substitutes and reducing the baskets of goods bought of the initial product. I hold the same view with Barbara that the determinants of price elasticity are the type of product, price level, and availability of substitutes (Conrad, et al, 2019). This is because if consumers consider a product as being inferior to their preferred product, change in price will not make them buy the item. The pricing level will influence the price elasticity since the availability of promotions will make customers buy the product. Substitutes are likely to be purchased in a case where the price rise is very high.

References

Conrad, Z., Johnson, L. K., Jahns, L., & Roemmich, J. N. (2019). Food price elasticity by the status of participation in federal food assistance programs: A laboratory-based grocery store study. Current Developments in Nutrition, 3(9), nzz096.

Shahi, S., Leitch, M., & Dia, M. (2020). Sustainable Wood Products as Substitutes in Building Construction: Evidence-Based on Price Elasticity of Demand in Canada (No. 3156). EasyChair.