Question

Suppose two seemingly similar goods or services with significantly different prices. Discuss a minimum of three different possible explanations of why those price differences might exist. Be specific about your assumptions. Be clear in why those goods or services have different prices and whether or not those price differences might disappear over time. Give examples of two goods that might fit each of your explanations. What generalizations about how prices relate to one another can you make?

Answer 1

The prime reasons because of which similar goods and services are sold at diffeerent prices are

The differences in the taxes and import duties,Perceived value or the brand value, cost of doing business,market structure etc.

Let's begin with examples , compare the prices of a MacBook Air,an ipad,and an iphone.The three items combined are cheapest in Tokyo at 2225$ ,in New York it is 2745$ but in Brazil it would cost 4160$.

A standard jeep Grand Cherokee sells for around 32000$ in U.S. and costs around 90000$ in Brazil ( when converted from BRL to USD)

One of the most important factor that affect the price difference of similar goods is the differences in import taxes and local taxes,for example India may have a high import duty and high sales tax than Japan making the prices significantly different.

The prices of goods like cars and electronics are not often determined on the basis of cost of production but on the basis of brand value or perceived value.Certain brands have high perceived value in some countries than the other.So the companies charge a high premium.

The cost of doing business also can be a price differentiating factor.The cost of labour, transportation,the cost of raw meterials,fuel etc vary from countries to countries,places to places, making the price significantly different.

The price differences will remain depending upon the factors affecting them,and in the long run if the factors change in favour ,the prices might be similar.

These price differences are the huge gain for companies and governments,the real loser is the consumer.