PRICING THEORY PART I

On (Wednesday, 27th of January), we start to learn a new chapter which is pricing theory.

DEMAND

• DEFINITION OF DEMAND

Demand is refer to ability and willingness to buy specific quantities of goods in a given period of time at a particular price.

Willingness + ability to buy

(consumer must have money to buy the product)

• LAW OF DEMAND

Negative relationship between product and quantity demanded.

When the price of the product increase,quantity demanded of that product will be decrease.

When the product decrease, the quantity of that product will be increase.

• DEMAND SCHEDULE AND DEMAND CURVE

INDIVIDUAL DEMAND AND SCHEDULE FOR ORANGE

COMBINATION	PRICE (RM)	QUANTITY (UNITS)
A	P1	Q1
B	P2	Q2
C	P3	Q3

DEMAND CURVE FOR ORANGE

• INDIVIDUAL DEMAND AND MARKET DEMAND

Individual demand- Relationship between the quantity of a product demanded by a single and its price

Market demand- Relatiomship between the total quantity of a product demanded by additional all quantities damanded by all consumers in the market and its price.

DEMAND MARKET IS THE COMBINATION OF INDIVIDUAL DEMANDS

Individual 1 + Individual 2 = MARKET DEMAND

• DETERMINANT OF DEMAND

v  PRICE OF RELATED GOODS

                                I.            SUBSTITUTE GOODS-GOODS OR SERVICES THAT CAN BE USED IN PLACE ANOTHER PRODUCT OR SERVICES.

                              II.            COMPLEMENTARY GOODS-GOODS THAT ARE USED IN CONJUNCTION WITH ANOTHER PRODUCT

	PRICE (A)	QUANTITY DEMANDED (B)
SUBSTITUTE GOODS	INCREASE	INCREASE
COMPLEMENTORY GOODS	INCREASE	DECREASE

SUBSTITUTE GOODS

v  CONSUMER’S INCOME

-WHEN INCOME INCREASE, CONSUMER’S DEMAND FOR GOOD AND SERVICE INCREASE.

v  TASTE AND FASHION

-CHANGE SIGNIFICALLY

-AS TASTE AND FASHION CHANGE, DEMAND WILL ALSO CHANGE.

-IF A PRODUCT BECOME MORE FASHIONABLE, THE DEMAND FOR IT WILL INCREASE

-BUT IF THE SAME PRODUCT BECOMES OUTDATED, THE DEMAND FOR IT WILL FALL.

v  POPULATION

-A LARGE NUMBER OF POPULATION WILL CREATES A GREATER DEMAND FOR GOODS OR SERVICES.

v  FESTIVE SEASONS AND CLIMATIC CONDITION

-DURING FESTIVE SEASON, DIFFERETNT PRODUCTS WILL BE IN HIGH DEMAND.

-FOR EXAMPLE, DURING CNY, THE DEMAND FOR MANDARIN ORANGE WILL BE GREATER.

v  PRICE EXPECTED

-IF THE PEOPLE THINK THAT THE PRICE ARE GOING TO RISE IM THE FUTURE, THEY ARE LIKELY TO BUY MORE NOW BEFORE THE PRICE DOES GO UP.

PRICE (EXPECTED)	QUANTITY DEMAND (NOW)
INCREASE	INCREASE