Economic factors that determine the price of goods

If the country has a relatively high rate of inflation, domestic households and firms are likely to buy a significant number of imports. This will be likely to increase the value of its exports and lower the amount spent on imports. The amount of exports sold is influenced not only by their quality and price but also by the effectiveness of domestic firms in marketing their products.

Economic factors that determine the price of goods

The degree to which demand or supply reacts to a change in price is called elasticity. Elasticity varies from product to product because some products may be more essential to the consumer than others.

Demand for products that are considered necessities is less sensitive to price changes because consumers will still continue buying these products despite price increases. On the other hand, an increase in price of a good or service that is far less of a necessity will deter consumers because the opportunity cost of buying the product will become too high.

A good or service is considered highly elastic if even a slight change in price leads to a sharp change in the quantity demanded or supplied.

Usually these kinds of products are readily available in the market and a person may not necessarily need them in his or her daily life, or if there are good substitutes. For example, if the price of Coke rises, people may readily switch over to Pepsi.

On the other hand, an inelastic good or service is one in which large changes in price produce only modest changes in the quantity demanded or supplied, if any at all. These goods tend to be things that are more of a necessity to the consumer in his or her daily life, such as gasoline. To determine the elasticity of the supply or demand of something, we can use this simple equation: If it is less than one, the curve is said to be inelastic.

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As we saw previously, the demand curve has a negative slope. If a large drop in the quantity demanded is accompanied by only a small increase in price, the demand curve will appear looks flatter, or more horizontal. People would rather stop consuming this product or switch to some alternative rather than pay a higher price.

A flatter curve means that the good or service in question is quite elastic. Meanwhile, inelastic demand can be represented with a much steeper curve: Elasticity of supply works similarly.

If a change in price results in a big change in the amount supplied, the supply curve appears flatter and is considered elastic. Elasticity in this case would be greater than or equal to one. The elasticity of supply works similarly to that of demand.

Economic factors that determine the price of goods

Remember that the supply curve is upward sloping. If a small change in price results in a big change in the amount supplied, the supply curve appears flatter and is considered elastic. The good in question is inelastic with regard to supply. This means that coffee is an elastic good because a small increase in price will cause a large decrease in demand as consumers start buying more tea instead of coffee.

However, if the price of caffeine itself were to go up, we would probably see little change in the consumption of coffee or tea because there may be few good substitutes for caffeine. Most people in this case might not willing to give up their morning cup of caffeine no matter what the price.A market is a medium allowing buyers and sellers of a specific good or service to interact in order to facilitate an exchange.

Published: Mon, 5 Dec Price determination depends equally on demand and supply; it is truly a balance of two market component. This essay will first explain key economic price determinant factors such as demand and supply drives and relationship between demand and supply. What are 'Consumer Packaged Goods - CPG' Consumer packaged goods (CPG) are items used daily by the average consumer.

The goods that make up this category are ones that need to be replaced. Economics (/ ɛ k ə ˈ n ɒ m ɪ k s, iː k ə-/) is the social science that studies the production, distribution, and consumption of goods and services..

Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes basic elements in the economy, including individual agents .

Economic factors that determine the price of goods

In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, finished goods and services.

The utilized amounts of the various inputs determine the quantity of output according to the relationship called the production ph-vs.com are three basic resources or factors of production. The eight factors that influences the value of a country ‘s exports and imports are as follows: i.

The country’s inflation rate: If the country has a relatively high rate of inflation, domestic households and firms are likely to buy a significant number of imports.

Economic Definitions