2 Responses 07/31

Sharan Work:

The law of supply and demand describes how supply and demand are related to one another and how that relationship affects the price of goods and services. When the supply of a good or service exceeds the demand for that good or service, the price of that good or service falls. When demand outstrips supply, prices tend to rise as a result (Peter & Donnelly, 2019). When demand remains constant, there is an inverse relationship between the supply of goods and services and the prices they command. When the supply of goods and services increases while the demand for those goods and services remains constant, prices tend to fall to a lower equilibrium price and a higher equilibrium quantity of goods and services, respectively (Oumar, 2019).

When the supply of goods and services decreases while the demand for those goods and services remains constant, prices tend to rise, resulting in a higher equilibrium price and a lower quantity of goods and services. "If consumers or organizational buyers perceive a price to be too high, they may purchase competitive brands or substitute products, leading to a loss of sales and profits for the firm" (Peter & Donnelly, 2019, pp.172). The demand for goods and services follows the same inverse relationship as the supply of goods and services. On the other hand, if demand increases while supply remains constant, the increased demand leads to an increase in the equilibrium price and vice versa (Marwala, 2017).

Example: Cigarette. Manufacturers across all industries frequently face difficulties in balancing the demands of customers and suppliers in a competitive environment. It is a constant challenge for manufacturers to decide what to make, how much to make, and when to make it, and this challenge is never-ending. The failure of businesses to effectively meet this challenge has a wide range of consequences for the organization. There are products like cigarettes and tobacco where even there is an increase in price, customers won’t stop buying the product (Axmedova, 2018).

References

Axmedova, S. T. (2018). ECONOMIC DEMAND AND SUPPLY. Мировая наука, (4), 3-4.

Marwala, T., & Hurwitz, E. (2017). Supply and Demand. In Artificial Intelligence and Economic Theory: Skynet in the Market (pp. 15-25). Springer, Cham.

Oumar, S. B. (2019). Rethinking the Geometry of the Demand and Supply Functions. Romanian Economic Journal, (74).

Peter, J. P., & Donnelly, Jr., J. H. (2019). A preface to marketing management (15th ed.). Columbus, OH: Irwin/McGraw-Hill.

Shravya Work:

Pricing of a product is an important strategic decision for an organization as it has to balance the expectations of the customers as well as the profitability. According to Peter & Donnelly (2019), demand, supply, and environmental influences must be considered to derive a conclusion on pricing matters (p. 161). Demand influences include demographic factors, psychological factors, and price elasticity. The demographic factors help in determining the potential customers and the economic strength of them while psychological factors help in determining the reaction of the buyers to changes in the prices (Peter & Donnelly, 2019, pp. 161-162).

Supply influences on the other hand include pricing objectives, cost, and the quality and shelf life of the product.  As described by Peter & Donnelly (2019), the pricing objectives of an organization are to achieve long- term profits, stabilization of the profit margin and avoid competition (p. 163). The cost incurred in the production of this supply also integrates the cut-off margin at different levels of distribution and rate of return. All these factors have an influence on the pricing of the products along with the perishability of the product (Dowell, 2016). When the demand for the product is assumed constant, the supply and the price are usually inversely proportional to each other (Kramer, 2020).

To understand the relation between demand and pricing better, one must consider the price elasticity. Price elasticity is used to analyze how sensitive the customers react to variations in the price of the product. It is measured by dividing the percentage change in the quantity of product sold by the percentage change in the price (Basu, 2016). An increase in price may usually decrease the demand however, there are exceptions in a few cases. For example, when the prices for gasoline go high, the customers may not avoid purchasing the gas but reduce the consumption until there is an alternation in the prices. The demand, in this case, is not completely zero but there is a downfall in the percentage of demand depending on the percentage of increase in price, availability of other substitutes like public transportation, duration of the increase in price.  

 

Reference:

Basu, C. (2016, October 26). Price Elasticity & Optimal Pricing Policy. Small Business - Chron.com. https://smallbusiness.chron.com/price-elasticity-optimal-pricing-policy-36020.html.

Dowell, D. (2016, October 26). How Supply and Demand Impacts Decisions in Business. Small Business - Chron.com. https://smallbusiness.chron.com/supply-demand-impacts-decisions-business-23316.html.

Kramer, L. (2020, August 28). How Does the Law of Supply and Demand Affect Prices? Investopedia. https://www.investopedia.com/ask/answers/033115/how-does-law-supply-and-demand-affect-prices.asp.

Peter, J. P., & Donnelly, J. H. (2019). A preface to marketing management. McGraw-Hill Education.