Identify and Explain the Main Economic Factors That Determine the Price of a Good or Service

1761 WordsMay 31, 20138 Pages
Determining the price of a product is important for a product’s and a company’s success. This essay identifies and explains that demand, supply, elasticity/inelasticity, product life cycle, competition, equilibrium / disequilibrium and Tax are the main economic factors to determine the price of a good or service. As an example, this essay also analyses the economic factors which have led to rises in the prices of such crops in the past 5 years. The main economic factors that determine the price of a good or service We have learnt from the lecture and text book that the market has the forces to determine the price and quantity of a product traded in a market [1]. The main forces are: demand, supply, elasticity/inelasticity, product…show more content…
In this situation, some producers won 't be able to sell all their goods. This will induce them to lower their price to make their product more appealing. A Market Shortage occurs when there is excess demand- that is quantity demanded is greater than quantity supplied. In this situation, consumers won 't be able to buy as much of a good as they would like. In response to the demand of the consumers, producers will raise both the price of their product and the quantity they are willing to supply. • Competition As more or fewer producers enter the market this has a direct effect on the amount of a product that producers (in general) are willing and able to sell. In large market structure knowing the price of competitor is important while determining the price of the product. Thus the availability and the price of complements affect the demand and finally drive the prices. • Tax Taxes have significant effect on shifting supply and demand curves, which changes the market equilibrium price and quantity. The economic factors which have led to rises in the prices of cereals; corn(maize), soyabeans and wheat in the past 5 years. • The price trend of cereals, corn(Maize), soyabeans and wheat in the past 5 years Beginning in 2006, international prices for basic agricultural commodities rose to levels not experienced in nearly three decades (see Fig.4 [3][4]). Corn prices began rising in the third quarter of

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