Question

In: Economics

1. What is the correct price for a good or service? Here’s a working example: Suppose...

1. What is the correct price for a good or service? Here’s a working example: Suppose you go to a yard sale and see a dish for sale for $1. You like the dish, so you pay $1 for it and take it home. Later you happen to be on eBay.com, and you notice that dishes exactly like the one you bought are selling for $20. Question: Was the price you paid for the dish a fair price? If so why

Solutions

Expert Solution

1) the correct price for a good or service is determined according to the demand and supply of the good in a particular market. suppose there are two markets, online market and local market, the same product is being sold in both the places but the price varies with a large margine and this happens because of the demand situation in both the market. other factors are also reated here along with the demand situation like in the local market a customer as to go in person and buy the product but in online market they deliver the good to your door step so the shipping and handling charges are also involved here which makes the product costlier some times. economies of scale is also another factor which is responsible for varying price. if you buy the same product from direct manufacturer and in a large amount then it costs less than buying it from a middle man or retailer.

here in the example same dish bought from the yard sale which is way cheaper than the ebay one because these are two different markets. the demand and supply sitution as well as cost are different for each market so price varies there. one thing to remember here is that a product which is being sold involves both producer profit and cost so as in the example is the person pays $1 for the product it involves both cost and profit so the price paid for the dish is a fair price.


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