Understanding the Economics of the Market Place

Topics: Barriers to entry, Supply and demand, Anti-competitive practices Pages: 11 (3613 words) Published: March 16, 2011
Microeconomics basically associated with retail sales where goods or services being bought and sold. The main factors influencing the price of goods or service in the market are Supply and Demand, Opportunity cost and Elasticity, and Extraneous Factors and Marketing. Let’s discuss this matter in sales of television.

The affecting factors
Not only the price but also the other factors are influencing the product or service in the consumer decision-making process, as the price goes high the demand for the product or service goes down and on the contrary the price goes down the demand goes up. Depends on pricing microeconomics can more or less predict the taste of a consumer, in more detail lets say, they can assume what a consumer may buy, and how much of that product or service will be bought. For example if we are selling a Plasma Television with a low price it is sure that the sales of it will be very high but as the price of it is very high the sales is not that much in the market. Let's say a competing company offers LCD Television that is bigger and cheaper than the PLASMA Television, The demand for the LCD TV goes high than the Plasma TV. Consumer demand for both Plasma TV and LCD TV is based on the prices, even though the Plasma TV is much better than LCD TV the consumers are first giving the importance for the price. So if the price of Plasma TV and LCD TV is almost equal it is no doubt that the consumers give the first preference to the Plasma TV as its features and qualities are better than LCD TV. So from this we can analyze that the demand and supply, which related to the price is very much affecting the sales of the product or services. An additional price or cost to the purchaser, which must be calculated as part of consumer buying strategy is called opportunity cost in microeconomics. The “expense” or cost, which force consumer to sacrifice his wish or need when purchase something and this is called as tradeoff factor. We consider the same Television case above mentioned. Nowadays people like to have big screen television set at home with a home theatre which gives a complete entertainment while watching movies or sports. But what is happening, when they go to purchase television forcing to buy latest model with better options. The cost of the one item is more or near to his total budget for TV and home theater so the consumer quench with their TV and cutting down the desire to have a home theater at home. Like this the consumer relinquishes or trades off to take one and avoiding another is the opportunity cost. The variations in the cost of a product or service also affect the opportunity cost to the consumer. An increase in the monthly subscription charge for TV programs for a regular viewer will not stop watching programs but a casual viewer of TV programs will be selective for his subscription, means he will avoid some channels and manage his desire according to the money wallet. So the changes in monthly subscription charge forced the customer to reduce to view the channels is called demand elasticity. This is like a rubber band when the price goes high the demand is contracts and when the price is down the demands expands, this is reflecting the elasticity of consumer. We can narrate this elasticity by using a formula: Elasticity = % Change in Quantity Demanded / % Change in Price

The above equation shows the broad influence of consumer decision-making, price, utility and opportunity costs. There are other economic factors also influencing consumer in buying choices. One of the economic factors which can influence consumer spending pattern is consumers’ financial status. Financially sound consumers don’t give much attention on spending as like as the ordinary consumers. In very few occasions the consumer with average income may be ready to spend more money for quality on a product or service rather than its high price. There are some other elements other than the factors...
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