pricing Flashcards
Price elasticity of demand meaning
how sensitive is the quantity demanded of a good or service is to its price change
Mid point formula of price elasticity of demand
avg quality ( new+old/2)
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New price - old price
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avg price (new+old/2)
elastic, inelastic and unitary elastic
Elastic greater than 1
unitary elastic equal to 1
inlastic less than 1
elastic unitary elastic in elastic relation with total revenue
elastic
Price📈⬆️ - Total revenue ⬇️📉
price📉⬇️ - total revenue ⬆️📈
unitary elastic
price⬆️ - total revenue ⛔
price⬇️ - total revenue ⛔
Inelastic
price⬆️ - total revenue ⬆️
price⬇️ - total revenue ⬇️
elastic unitary elastic in elastic diagram
elastic upper diagram
unitary elastic mid line demand curve
inelastic very low slanting line
factors affecting price elasticity of demand
elasticity increases there are more number of substitutes
elasticity increases when the length of time increases
elasticity is higher for luxury goods
elasticity is lower for necessity
Meaning of demand curve
Shows the quantity of a product that would be demanded at various prices
Price on y axis
quantity demanded on x axis
Shifts in demand curve
Positive shift right side
negative shift left side
Factors resulting in positive shifts in demand curve
Direct relationship
1 price of substitute good
2 consumer income in wealth normal goods
3 size of market new consumers
4 expectation of price increases
Factors resulting in negative shift in Demand curve
Inverse relationship
1 Price of complement goods
2 Consumer income and wealth inferior goods
3 Group boycott
Factors resulting in positive shift in supply curve
Direct relationship
1 Number of producers
2 government subsidiaries
3 price expectations- If prices are expected to be higher for the goods in the future, production of goods will increase
4 technological advances
Factors resulting in negative or left word shift in supply curve
Inverse relations
1 Changes in production cost taxes
2 Price of other goods- If other products can be produced with greater returns, produces will produce those goods
meaning of cost plus pricing
Cost-Based Pricing:
Definition: Cost-based pricing is a pricing strategy where the selling price of a product or service is determined by adding a markup to the cost of producing or acquiring that product or service.
SP= unit cost +(markup %on unit cost x unite cost )
meaning of target pricing
Target Pricing:
target cost = competitive price - unit profit
meaning of market based pricing
This approach involves setting the price of a product or service based on what similar products or services are priced at in the marketplace.
Used in situation where
1 product differentiation is very less.
2 People will not pay more than the market. 3 Strong influence of the market
concurrent engineering
approach where different stages of the design and manufacturing process are carried out simultaneously rather than sequentially, promoting collaboration and efficiency.
value engineering
Value engineering is a systematic approach to improving the function and performance of products, processes, or systems while minimizing costs.
Lifecycle costing
approach that considers the total cost of owning and operating a product or system throughout its entire lifespan, including initial purchase, maintenance, and disposal.
Target costing process techniques
1 Market assessment tools -to use to assess the market and consumers wants and needs Service focus groups, interviews
2 Reverse engineering or tear down analysis
3 Industry competitive analysis
4 Financial planning and analysis
5 Internal cost analysis
6 Cost tables
Peak load pricing
Wearing the price of a product or service based on the demand and physical capacity limits.
Example, airlines, hotels
-When demand approaches capacity limits price go up
- when slack or excess capacity is available, prices go down
market structure
competitive – 1 perfect competition
2 monopolistic competition
less competitive– 3 oligopoly
4 monopoly
