Prices

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Pricing is described in the lecture materials under “Pricing,” “Economic Theories of Pricing,” “Marketing Theories of Pricing,” and “Accounting Theories of Pricing.” Using this week’s lecture materials, write a one- to two-page research paper listing and discussing the main components and considerations of all three pricing theories. Please use the accounting theory to illustrate pricing an item. Economics has three theories that cover pricing. In each of the three theories, the outside market influences how goods are sold. Supply and demand: According to this theory, the supply of an item and its demand affect its price. An item that is in high demand will have a high price. An item that has a low demand will have a low price. Market structure is another economic pricing theory. This theory looks at how many outlets in a given area offer the same (or similar) products. Elasticity of demand measures how much someone will pay for a product before being forced to seek another alternative. There are a several accounting formulas for pricing. In the accounting formulas, the cost of a product has to be covered by its price. If the standard recipe cost for a portion is $1.70, then the price has to be more than $1.70 in order for the establishment to make money. Accounting theory is a continuously-evolving subject, as it must adapt to new ways of doing business, new technological standards and gaps that are discovered in reporting mechanisms. Setting a price in comparison with competitors. Really a firm has three options and these are to price lower, price the same or price higher. The organization sets an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer.

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