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The Mechanics of Individual Prices

Thursday, October 27, 2011 Posted by Glenn Von Posadas

Prices of goods and services

  • Many individuals do not really understand how prices of goods and services are being determined. Many people think that prices are determined by the goverment. This is true in some basic goods such as rice,gasoline,or apartment rent. But if government prices are much lower or higher than real market prices, then both sellers and buyers are affected. the role of the price system has been crucial in the operations of the economy.
  • Price is the value of a produce or service. It is expressed in terms of monetary unit like peso, dollar or yen. This simply means that goods and services are being acquired by the people by paying them with their money.
Demand
  • It is the schedule of various quantities of commodities which buyers are willing and able to purchase at a given price, time and place.
Law of Demand
  • As price increases, quantity demanded decreases, and as price decreases, quantity demanded increases.
  • Such theory is only true if the assumption of ceteris paribus is applied. It means no change of income, taste or population.
  • People buy more goods and services as price decreases, and buy less goods and services as price rises. The rise in price of a certain product reduces the quantity demanded for such product.
Supply
  • It is the schedule of various quantities of commodities which producers are willing and able to produce and offer at a given price, place and time.
Law of Supply
  • As price increases, quantitiy supply also increases; and as price decreases, quantity supply also decreases.
  • Producers are willing and able to produce and offer more goods at a higher price than at a lower price.
Law of Demand and Supply
  • When asupply is greater than demand, price decreases. When demand is greater than supply, price increases. When supply is equal to demand, price remains constant. This is the market price or equilibrium price.
Determinants of Demand
  • Income-people buy more goods when income increases. Thus a change in income brings out a change in the demand for goods and services.
  • Population-more people means more demand for goods and services. More consumers in urban-that is why more buyers in the city stores than in barrio stores. The presence of American soldiers in Clark Base in Angeles, Pampanga has greatly increased the demand for goods and services in that area.
  • Taste and preferences-increases when people like them. Influenced by advertisement or fashion.
  • Price expectation-buy more goods if prices will rise in the next days, weeks or months. And decrease if the demand will fall.
  • Prices of related goods-people choose the competitor if the price of the product they want to buy increase. there are complementary products are those that go together like bow and arrow. If the price of arrow rises then the demand for bow decreases.
Determinants of Supply
  • Technology
  • Cost of Production
  • Number of Sellers
  • Price of other goods
  • Price expectations
  • Taxes and subsidies

glenn von

Author: Glenn Posadas

20 year old 5th year Computer Engineering Student, a blogger, photographer, programmer, and an electronics hobbyist; a Christian who loves God very much..

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