Explain the role of demand, variable cost, and perceived benefits/value in pricing and discuss how does...

Explain the role of demand, variable cost, and perceived benefits/value in pricing and discuss how does price influence perception of quality.

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Expert Solution

Price of any goods or services depends on many factors. It is mainly determined by the demand and supply of that particular good or service but there are many other factors which affect price of a good.

Demand is the main determinant of price of a commodity, higher is the demand higher is the price and vice versa.
Variable cost is the cost incurred in production if a good other than the fixed cost. It comprises of cost of raw materials, labour wages etc. It is also one of the determinants of the price because the price of a good can't come below the variable cost because it will lead to economic loss and hence production will not take place.
The perceived benefit or value which the consumer of a good gets from the consumption of a good also determines the price of a good. This is because if the consumer gets a large benefit in consumption of a particular good, he will be ready to pay a higher price for it.

Price influence the perception of a quality because it has a psychological effect on the mind of the consumer. Consumer thinks that if the price of a product is high than its quality must be high and vice versa.

Rahul Sunny answered 1 year ago

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