Question

Economist say price determines demand. Marketing people know different. Analyze/ evaluate

Answer 1

Price is the money someone charges for a good or service. For example, an item of clothing will cost a certain amount of money.

It is true that price determines demand and demand determines price. The price level affects the demand of a good. The price elasticity of demand can be used to measure the sensitivity of a change in the quantity demanded of a good or service relative to a change in its price. The price elasticity of demand is calculated by dividing the percent change in the quantity demanded of a good or service by its percent change in its price level. A change in the price level of a good or service determines the elasticity of the good.

The availability of substitute goods affects the demand elasticity of goods or services. Hence, the demand for goods or services with many substitutes is highly elastic. A small increase in the price levels of goods causes consumers to buy its substitutes.

Marketers have their own say, sure. Everybody in this country has their own views but as economics seekers, we know for sure that it is price which is the prime factor that determines demand.

Taking about the models,

Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers, resulting in an economic equilibrium of price and quantity.

The four basic laws of supply and demand are:

1. If demand increases and supply remains unchanged, then it leads to higher equilibrium price and higher quantity.
2. If demand decreases and supply remains unchanged, then it leads to lower equilibrium price and lower quantity.
3. If supply increases and demand remains unchanged, then it leads to lower equilibrium price and higher quantity.
4. If supply decreases and demand remains unchanged, then it leads to higher equilibrium price and lower quantity.

Economics assumes that the consumer is a rational decision maker and has perfect information. Therefore, if a price for a particular product goes up and the customer is aware of all relevant information, demand will be reduced for that product. Should price decline, demand would increase and vice versa.

Demand-oriented pricing focuses on the nature of the demand curve for the product or service being priced. The nature of the demand curve is influenced largely by the structure of the industry in which a firm competes. That is, if a firm operates in an industry that is extremely competitive, price may be used to some strategic advantage in acquiring and maintaining market share. On the other hand, if the firm operates in an environment with a few dominant players, the range in which price can vary may be minimal.