Question

• In our mixed economic system, who really decides prices? Producers or Consumers?

In answering this question, you may want to consider the following issues:

• Is it necessary for producers and consumers to sit down and discuss price levels?
• What role do brand names play in prices and your purchasing habits?
• Does the law of demand always hold true?
• Why do producers spend so much money on advertising, shaping our tastes and preferences?
• Are there markets where you see a need for price controls?

Answer 1

In a mixed economy,market situation decides the prices.Producers analyses market situation,observes the demand for the good and then determines the price.If consumers demand for the product at a high level then producer sells products at high cost.If demand is low then producer decides to sell products at low cost.

No,it is not necessary for consumers and producers to sit down and discuss price levels.Producers themselves observes behaviour of consumer and determines price level.There is no need for the consumers to sit with producers to discuss about the levels of price.

Brand role plays a significant role in prices and purchasing habits.Generally brand name and branded products carry immense reputation and value.Consumers tend to recognise branded products faster and they believe that such products are produced with high quality.Brand name attracts people and increases their trust.These aspects increases sales.As consumers prefer buying goods by looking at brand name,even producer increases the price the product as product is receiving great response from consumers.So it necessary for every product to have a brand name.Producer should try to gain trust from consumers.He should try to turn the product into a branded one.Once the product gains reputation then producer can sell products at high cost.Even consumers will get habituated to the product and brand name increases purchases.Therefore,brand name is important and plays a major role in price determination and in increasing purchasing habits.

In most of the cases law of demand has been successful.When price increases demand for the product decreases and when price decreases,demand rises.But in some cases,law of demand fails.It fails in the case of luxurious goods.As luxurious goods are sold at relatively high cost.Inspite of selling luxurious goods at high cost,demand for such has never decreased.Therefore,law of demand is true only in certain cases.

Producers spend so much in shaping our tastes and preferences.They think that profit is gained  when goods are produced according to the tastes and preferences.They conduct various researches to analyse what are consumers tastes'and what they usually like to prefer.Then producer shapes and changes the product accordingly.After producing goods by considering consumer's tastes and preferences,producer then concentrates on advertising the product.Advertisements are used to make consumers aware about the benefits of the products.If benefits and efficiency of product is communicated to the consumers correctly through advertisements,then consumers tend to buy the products.This increases sales rate and profit gets boosted.Therefore,producer need to spend much on advertisement,shaping tastes and preferences.

Yes,there are markets where price control is required.Usually,producers increase the price when demand is high.Increase in price leads to inflation.In case inflation,people might not be able to afford the most required.This destroys economy by decreasing sales level.So price control is required.Even in command economy or command market,price is controlled.In countries with command economy,price is controlled by government to maintain stability in the economy.

Hence ,producer does many things and ascertains the price of the goods to maximise profit.