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Section 10.2 Price
charge more for the product because customers are likely willing to
pay more for it.
If only a few people want a product, demand is low. If there are
more products than there are people who want them, supply is high.
In this situation, the price for the product must be lower to encourage
customers to buy it. Pricing affects supply and demand as shown in
Figure 10-3.
A market is elastic when a small change in price produces a
relatively large change in the amount of the items demanded. A
market is inelastic when the price of a product has no effect on the
demand for it.
Pricing Objectives
Businesses set pricing objectives based on the short- and long-
term financial goals for the company. The mission statement may
also impact pricing objectives. For example, if the mission statement
says the business is a price leader, that in part determines pricing
objectives.
Keep in mind that pricing objectives are moving targets and will
be regularly revised. The price of a product must be at a level that
encourages customers to purchase the product. It must also be at a
level that generates enough profit for the business.
Figure 10-3. The effects
of pricing on supply and
demand.
Supply and Demand Curve
© Goodheart-Willcox Publisher
Quantity of goods 5
Price
0
$5.00
Demand Supply
Equilibrium