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Free «Price changes and price takers» Essay Sample

This topic is very relevant when it comes to demand theory. From the discussion, it is clear that the price of a commodity significantly influence the level of demand. As the price increases, people tend to demand less of the product. On the other hand, decline in price significantly enhance the level of demand of the product. This is more so common in regard to normal goods. From the discussion, a typical demand and price relationship is as indicated in the diagram below

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Source: Mankiw, Taylor, & Taylor (2006).

From this discussion, it is clear that change in price of a commodity significantly affects the purchasing power of individuals in an economy. As the price goes up, the amount of goods that individuals are able to purchase declines significantly. A decrease in prices increases consumers’ real income. Income effect is as presented in the diagram below

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From the discussion, it’s clear that individuals switch from one product to another whenever price changes. This is nevertheless not always the case. For Veblen goods, consumers demand for the product increases as the price goes up. On the other hand, demand for basic commodities such as salt is not likely to be affected by change in price. Consumers would still demand the same level of the product as it lacks perfect substitutes. The discussion presents the effect of price on demand for educational facilities. Nevertheless, the indication that an increase in fees in for private universities would compel individuals to seek education from public universities may not always hold. It depends on the perceived quality of education that private and public universities provide. If private universities are perceived to offer higher quality of education, demand for such universities would remain high in spite of increase in prices. Nevertheless, if such universities offer largely same quality of education, the demand for public universities would increase once private universities increase their fees at higher levels than that of public universities.

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In the discussion, it is clear that sellers have little influence on price of their commodities, especially when such goods are readily available. They are forced to sell their products at the prevailing market prices. To influence the level of market prices, they normally join unions, thus enhancing their bargaining power. Nevertheless, whenever such sellers have a high level of market share, their ability to influence market prices is enhanced even if they do not join unions.

In spite of this, it is clear that organizations may not always be willing to present their products in the market at the prevailing prices. For instance, if the unit cost of production by a firm is higher than the prevailing price of commodities in the market, the organization would rather stop production instead of presenting the product in the market at current prices. Equally, firms do differentiate their products in an effort to present their products in the market at higher margins. Consumers are willing to pay a premium price for commodities that are perceived to be of higher quality than what the other sellers are presenting to them. In this particular discussion, sellers can differentiate their products through repackaging as well as additional of other attributes to the product such as minerals. The discussion indicates that price of some services can be consistent. This may not always be the case as economic variables change across time (Baumol, & Blinder, 2011).

   

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