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6 Cards in this Set
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- Back
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Price Elasticity of Demand
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A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. If a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or responsive to price changes). Conversely, a product is inelastic if a large change in price is accompanied by a small amount of change in quantity demanded.
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Cross-Price Elasticity of Demand
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measures the extent to which demand for one product responds to changes in prices for another product. (EX: if milk gets more expensive, demand for orange juice might go up.)
Tells you whether 2 products are completely unrelated, whether they’re complements that go together, or whether they’re substitutes (buying one product instead of the other) |
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Pricing Objectives (Proffesor will ask for 3 objectives on the test!)
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the most common pricing objectives are… (Pg. 172)
i) Pricing to achieve a target return on investment ii) Stabilization of price and margin iii) Pricing to achieve a target market share iv) Pricing to meet or prevent competition |
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Break-even Components
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a function of 4 different components… (Fixed costs, Variable cost of production, Selling Price, Quantity Sold)
Selling Price v. Variable Cost – the difference between the 2 is the contribution (how much each unit sold contributes to covering fixed cost.). The greater the gap between “Selling Price” and “Variable Cost” the fewer the company needs to sell in order to break-even. |
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Break Even Analysis
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determines the point at which a firm breaks even. The point at which Total Income = Total Expenses. This is the point at which there is no profit left over but the firm has covered all of their costs, including both fixed and variable costs of production.
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Markup pricing (cost vs. selling price)
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a cost-oriented pricing approach that involves adding a percentage to the invoice price in order to determine the final selling price. For example, if a retailer used a 50% markup on a product that was bought from a wholesaler for $1, the selling price to the consumer would be $1.50.
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