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Price, value and utility
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Price Determination
ECO01 UNIT 7
| Term | Definition |
|---|---|
| Price | An offer, a suggestion or an experiment to test the pulse of the market |
| Price, value and utility | 3 related concepts in economic theory |
| Utility | Attribute of an item that makes it capable of satisfying wants. |
| Value | Quantitative expression of the power a product has to attract other products in exchange |
| Money | Common denominator of value |
| Price | Money value of an item |
| Price | Expressed in terms of pesos and centavos, or whatever the monetary medium may be in the country where the exchange occurs. |
| Price | Amount of money (plus possibly some goods) which is needed to acquire, in exchange some combined assortment of a product and its accompanying services. |
| Price essential function | Tell producers what and how much to produce. |
| Price essential function | movements of prices automatically keep supplies coming forward approximately in line with consumer’s demands |
| ration or allocate productive resources to where | to the production of goods and services that consumers demand |
| Price essential function | perform an internal rationing and allocating function within each producing farm. |
| Prices of the productive resources or factors of production | tell farmers how to combine them in proportions that will keep their costs at a minimum and result in the most efficient productio |
| Factors of production | land, labor, capital and entrepreneurship |
| Productive resources | hectares of land, manpower, feeds, machinery, etc. |
| Price essential function | Guide them through the channels of trade so they end up where consumers want them, when they want, and in the form they want them. |
| Price essential function | Ration the goods and services to those who demand them most urgently and in proportions that will all be consumed |
| Perfect Market | A market wherein prce serves the dual role of informing producers of consumers’ wants and informing consumers of the varying conditions of production. |
| Perfect Market | A market assuming that producers, consumers and all handlers have complete knowledge of demand and supply, and that this information is used without distortion in making all purchasing and production decisions. |
| Supply and demand | Purely determines price |
| Time, location and form of product | Differences causing of price differentials |
| Time | Price differential: cost of storing |
| Location | Price differential: transporting |
| Form | Price differential: processing |
| Uniform price | No other differences in price existing throughout the perfect market |
| Market price | Determined by forces of supply and demand |
| Demand | What buyers are willing to take from a market at a given price |
| Supply | What producers or sellers are willing to offer. |
| Price will tend to rise | Demand increases with no change in supply |
| Price will tend to rise | Supply-decreases with no change in demand. |
| Price will tend to rise | A higher price will occur when supply decreases and demand increases simultaneously |
| Price will tend to fall | Demand decreases with no change in supply |
| Price will tend to fall | Supply increases with no change in demand |
| Price will tend to fall | A relatively large decline will occur if supply increases and demand decreases simultaneously |
| Equilibrium price will tend to remain unchanged. | Supply and demand change in the same directions in equal magnitudes, |
| Monopoly | In single firm industries, the seller will attempt to set a price that will maximize his profit |
| Marginal cost is equated with marginal revenue. | Price would be determined without regulation from the demand curve, corresponding to the quantity where? |
| Full cost | Under regulation, the monopoly would probably be forced to reduce his price, a price at which he isjust able to recover _____ including a fair return to factor inputs. |
| Monopolistic competition | A competitive market structure but with product differentiation. |
| Monopolistic competition | Products involved are close but imperfect substitutes, and by definition there are many substitutes. |
| Elastic | Demand curve faced by the firm operating in an industry characterized by monopolistic competition is likely to be very? |
| Cost structures | It is usually assumed that the firms have similar? |
| Firms with higher costs than others in the industry | Presumably could not exist in the long run in a competitive industry. |
| Equilibrium price (and output) | The basis is on equating marginal revenue and marginal cost. |
| Similar, identical | Since the products are good substitutes and since similar cost structures are assumed, the prices of the various firms are expected to be _____ but not necessarily _____ |
| Marginal revenue | Increase in revenue that results from the sale of one additional unit of output. |
| Perfectly competitive | In economic theory, _____ firms continue producing output until marginal revenue equals marginal cost. |
| Law of diminishing returns | While marginal revenue can remain constant over a certain level of output, it follows from the ______ and will eventually slow down as the output level increases. |
| Change in total revenue / Change in total output quantity | Marginal revenue computation |
| Marginal revenue falls below marginal cost | When do firms typically do a cost-benefit analysis and halt production as it may cost more to sell a unit than what the company will receive as revenue? |
| Marginal cost | Change in total production cost that comes from making or producing one additional unit. |
| Change in production cost / Change in quantity | Marginal cost computation |
| Gain profit | If the marginal cost of producing one additional unit is lower than the per-unit price, the producer has the potential to? |
| Marginal cost analysis purpose | Determine at what point an organization can achieve economies of scale to optimize production and overall operations. |
| Price competition / wars | Firms operating under conditions of monopolistic competition tend to avoid _____ _____because of the threat of retaliation by other firms. |
| Relatively little profit | If competing firms also lowered their prices to meet the competition, each would gain? |
| Profit-maximizing | _____ price is likely to be similar among firms in the industry and relatively stable as long as cost remain constant. |
| Price cutting | Often leads to retaliation |
| Gain profit | If an individual reduced its own price, provided others did not, it would? |
| Oligopolistic conditions | Pressures to avoid direct price competition prevail in industries where a few firms produce or market identical or similar products. |
| Price decisions | In making _____ _____, each firm must take into account the possible reactions of its competitors. |
| Price change | A _____ _____ initiated by one firm is likely to be followed by other firms. |
| Oligopolistic conditions | Market where there is often a recognized “price leader” in the industry. |
| Pure monopoly conditions | If there is a tacit agreement to maintain market shares and to avoid open price competitions, the price established may approximate prevail in? |
| Purely competitive conditions | If an aggressive firm is seeking to enlarge its market share, the price established may be very close to that which would prevail under? |
| Oligopolistic conditions | Condition where it is difficult to generalize about pricing performance without specific knowledge about the behavior of individual firms. |
| Oligopolistic conditions | Competition for sales may take the form of offering more favorable credit terms, advertising or promotion allowance, or even secret discounts or rebates. |
Created by:
jisoos
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