THEORY OF PRICE DETERMINATION

 [2/12, 5:07 PM] Prof Godspower: The last time we met we discussed *solution to basic economics problem*

Today we will be considering *theory of price determination*

 The subtopics that we will be considering;

*Definition of price determination*

*Factor that determine price or fixation of price*

*Approach to price determination*

*Definition of price determination*

  The theory of price also referred to as *"price theory"*  is a microeconomic principle that uses the concept of supply and demand to determine the appropriate price point for a given good or service. The concept of price theory allows for price adjustments as market conditions change.

price is the (usually not negative) quantity of payment or

 compensation given by one party to another in return for one unit of goods or services. A price is influenced by production costs, supply of the desired item, and demand for the product.

The price of goods plays a crucial role in determining an efficient distribution of resources in a market system. Price acts as a signal for shortages and surpluses which help firms and consumers respond to changing market conditions. ... Falling price encourage people to buy, and cause firms to try and cut back on supply.

*Factor that determine price or fixation of price*  

7 factors that determine price or fixation of price 

*Cost of production

*Demand for product

*Price of competing firm

*Purchasing power of customers 

*Government regulation 

*Objective  and 

*Marketing method used

 *Types of price determination of prices*

*Kinked demand curve 

*Oligopoly

*Monopolistic Competition

*Price determination

*Monopolistic revenue curve 

*Monopoly market

*Long run equilibrium of competitive firm and industry

*Price determination under perfect competition