Question

In: Economics

You’re finally ready to launch your first suite of services at your startup. You have no...

You’re finally ready to launch your first suite of services at your startup. You have no business or economic background and are unsure how to set the price. Your gut tells you to charge $700/year. Based on what we’ve learned in this course about the type of political and economic systems and price-setting strategies, explain how you would determine prices for your business. Be sure to mention the laws of supply and demand, the types of economic/political systems involved, and any key economic concepts involved. (one small paragraph in your own words)

Solutions

Expert Solution

Prices of products determine its demand and quantity supplied. Prices should be set carefully by the seller because of prices are too high, consumers will not but the product and if prices are too low then seller will not be able to earn profits. To set an efficient price following methods should be used:

  • Pricing strategies: price skimming and penetration pricing are two pricing strategies that help the seller to determine the prices. In price skimming, seller initially set high prices and then lower it later. In penetration pricing, seller set low prices in the beginning and increase the prices later.
  • Market forces: market forces like demand and supply should be kept in mind before setting the price. We know that demand and price has inverse relationship. This means that when the prices of goods and services are low, demand of goods and services increases and vice versa. Also, supply and price are directly related which means that as price of the product increases, it's supply also increases. Seller should consider these forces before setting the price of the product.
  • Political policies: policies like price celing price floor, taxes, and subsidies, all affect the prices of the product. Seller should analyse all of these government policies and then set an efficient price for the product.

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