7. Pricing policies.

Market prices are determined by the interaction of supply and demand. Companies’ pricing decisions depend on one or more of three basic factors: production and distribution costs, the level of demand, and the prices of current and potential competitors.

Pricing strategy must also consider market positioning: quality products generally require “prestige pricing” and will probably not sell if their price is thought to be too low.

Firms with excess production capacity, a large stock, or a falling market share, tend to cut prices. While firms experiencing cost inflation, or in urgent need of cash, tend to raise prices.

Demand is said to be elastic if sales respond directly to price variations. When sales remain stable after a change in price, demand is inelastic. Although it is an elementary law of economics that the lower the price, the greater the sales, there are numerous exceptions.

A potential customer seeing a price of $499 will register the $400 price range rather than the $500. This is a psychological effect known as “odd pricing”.

The “total cost” of a product can include operating and servicing costs, and so on. Since price is only one element of the marketing mix, a company can respond to a competitor’s price cut by modifying other elements: improving its product, service, communications, etc.

A products selling price generally represents its total cost (unit per cost plus overheads) plus profit or “risk reward”. Overheads are the various expenses of operating a plant that cannot be charged to any one product, process or department, which have to be added to prime cost or direct cost which covers material and labour.

Microeconomists argue that in a fully competitive industry, price equals minimum average cost equals break-even point.

8. Economic growth. Costs of economic growth.

It’s essential for people to know how economic growth is encouraged in a market system, about its advantages and disadvantages. It’s also vital to realize the costs that accompany the benefits of economic growth.

You realize that by saving some now, you will save more for the future. Societies also must save some of what they produce capital goods as well as consumer goods to meet future economic needs.

Long-range economic growth depends on the continued production of capital goods.

Everyone who works contributes to the growth of capital resources.

For example, when your manager bills customers for the work you did, the amount will be large enough not only to cover the company’s costs but also to invest in capital resources.

When your company uses this money to buy new equipment, it expects future returns from the equipment to justify the purchases.

In recent years, many people have argued that economic growth is a mixed blessing. The advantages of growth are fairly clear. As people produce more goods and services, the average standard of living goes up. Growth also keeps people employed and earning income. Growth provides the government with additional tax revenues, and it can spend more on programs for education, eater and air purification and so on.

But as for as we know there are the disadvantages same of them are use of natural resources that cannot be replaced; generation of waste products; destruction of natural environments; uneven growth among different groups of society, polluting air, land and waters.

If capital and natural resources are overused to promote economic growth now, future growth may be much slower.