Using The Economic Pricing Theory Economics Essay

It is clear that different monetary value and value theories have different significance and consequence on the pricing determinations of merchandises or services. For one thing, economic theory of pricing which is the jurisprudence of supply and demand, is sing as one of cardinal regulations to modulate the economic system. For case, when supply addition, monetary values of trade goods may diminish. Similarly, if demand goes up, the monetary values of goods or services may increase every bit good. It seems that if there is a balance between supply and demand, the equilibrium merchandising monetary value between the monetary value and measure of trade goods in the economic system is the monetary value that fringy gross peers fringy cost ( Adam, 2009 ) . Therefore, in this state of affairs, organisations will non lose money. However, there is no uncertainty that supply and demand is cardinal factors make up one’s minding the monetary values of trade good, there are other of import factors impacting the pricing determinations such as cost information.

On the other manus, it seems that there are some advantages and disadvantages for organisation when utilizing the economic pricing theory to make pricing determinations. Without uncertainty that one of benefits of this theory is that organisation can respond the alterations of supply and demand in the market so that to do accommodation instantly. Take IBM as an illustration, IBM use the Torahs of supply and demand to work out the supply concatenation by offering on-line gross revenues and other services, which non merely assist to cut down costs such as saved $ 5.6 billion in2002, but besides assist IBM to do accommodations on its capacity so that to run into client ‘s demands, which lead the steadfast addition gross revenues gross and market portion ( IBM, n.d. ) . However, there are some restrictions on utilizing economic theory. For one thing, it seems that organisation may be difficult to find the fringy costs if end product degrees are different. For case, harmonizing to Neate ( 2012 ) , due to high demand of Apple Iphone5, the cost of air cargo which transports Iphone5 from China to the West, increased 7 % to $ 3.56 per kg during the launch period. It is obvious that it is hard to gauge that the ‘huge ‘ air cargo costs will be occurred for Apple because Apple is difficult to foretell the demand of Iphone5. In add-on, another disadvantage with the economic theory is that demand may be influenced by other factors such as gustatory sensations and penchants of consumer. It is reported by Rosher ( 2012 ) that the demand of Samsung Galaxy S3 exceeds the expected demand by Samsung due to the fact that new particular characteristics such as high quality 4.8 inch show attracted more clients. It leads demand of Galaxy S3 addition dramatically because new characteristics attracted costumiers instead than the monetary value.

It is stated that economic pricing theory has different impact on different people such as concern proprietors, employees and the populace. First, harmonizing to Dowell ( 2012 ) , concern proprietors may concentrate on the Torahs of supply and demand because it shows the information such as the Numberss of people want a particular trade good ; how much of this peculiar trade good that can clients desire to pay. Taking Apple as an illustration, it controls the supply of merchandises in order to do certain they have high demand. However, economic pricing theory may act upon the rewards and labour costs of employees. For case, if labour supply exceeds demand, the rewards rate of employees may diminish. Similarly, rewards of employees may increase if labour demand higher than supply ( Zias, 2012 ) . In add-on, in footings of the populace, if demand of merchandises addition, monetary value of trade good may increase every bit good therefore clients may pass more on geting this trade good.

For another thing, in footings of accounting theories of pricing, it is of import on pricing determinations for monetary value takers and monetary value compositors in footings of short term and long term. Harmonizing to Drury ( 2008, p.248-263 ) , organisations may through taking into history of different pricing attacks such as cost-plus pricing, mark costing and other accounting pricing techniques in such pricing skimming, incursion pricing and merchandise life rhythm to make up one’s mind the monetary values of trade goods. It seems that different position between monetary value compositors and monetary value takers when making pricing determinations. For case, in the short term, there may be some excess cost of particular orders occurred such as excess parttime labour or excess stuff, those incremental cost should be considered for the monetary value puting house because the merchandising monetary values of trade goods should be cover those fixed costs and variable costs and incremental costs. On the other manus, in footings of long period, monetary value compositors may prefer utilizing cost-plus pricing scheme such as full cost plus a mark-up in order to cover all costs that occurred during production procedure, but some seems to utilize mark bing attack to do pricing determinations in order to cut down costs in the long-run ( Drury 2008, p.258-263 ) . However, it is evident that this type of theory may be utile to find selling monetary values of trade good due to the fact that it takes into consideration of a batch different unsure factors such as cost, client profitableness analysis and so on, which possibly suited for organisation to utilize.

However, there are some benefits and restrictions by using accounting theories of pricing. For one thing, it is stated that demand may be ignored by utilizing cost-plus pricing scheme. For case, if a company is selling a apparels is $ 50 where the demand will be 80,000 units, nevertheless, when the monetary value the apparels addition to $ 60, the demand lessening to 60, 000 units. Assuming that if the variable costs of this apparels is $ 40, therefore, the entire gross revenues gross will be $ 800,000 at the monetary values of $ 50, compared with the sale grosss of $ 1200, 000 at the monetary value of $ 60 ( Drury 2008, p.258 ) . In this state of affairs, it can demo that an wrong determination will be made by the company through utilizing cost-plus pricing scheme. In add-on, some other disadvantages of cost-plus pricing such as under-costing or over-costing, may act upon organisation whether make net income or non. However, cost-plus pricing besides is a popular method that most company usage to do pricing determinations. One of grounds is that it may assist to promote stabling the monetary value, which organisation can foretell other houses ‘ merchandising monetary value by utilizing this scheme ( Drury 2008, p.259 ) . For case, if a house has an mean mark-up of 30 % in the yesteryear, it may be possible for other houses to calculate that the rivals besides may add a 30 % mark-up to their costs of trade good ( Drury 2008, p.259 ) . Firms can utilize different pricing schemes to find the merchandising monetary values of trade goods in order to do net income. In add-on, it seems that some organisations may utilize mark bing attack to find the monetary value of trade good. One of benefits of this attack is that it helps organisation able to run in profitable state of affairs in competitory market by be aftering and cut downing costs of merchandise ( IMA, 1994 ) . Take Ford as an illustration, it is stated by IMA ( 1994 ) that Ford used mark bing attack to vie with some Nipponese auto companies, which Ford spent much clip on making market research in order to understand the maps that clients want and the monetary value they accept so that to find the monetary value of the new merchandise. However, the disadvantage of mark costing is that it may take organisation to pass big sum of money on researching informations. For case, Ford may pass a batch of money in making market research. Therefore, organisation should take this into history when utilizing mark bing to make up one’s mind the monetary value.

On the other manus, different people such as concern proprietors, employees and the populace may hold different effects by using accounting pricing theory when making pricing determinations. For case,

Furthermore, it is reported by Harvey ( 1999 ) that Marxist theory of value, which the usage value, exchange value and value will be reflected by utilizing trade good as stuff, but besides it embodies the societal and labour dealingss between these constructs. For case, it is stated that usage value of trade goods can be generated by human wants and demands, if the merchandises or services can run into societal wants and needs, it mean the merchandises or services may hold usage value. Additionally, Marx stated that trade goods may hold exchange value except usage value, which the exchange of trade goods reflects the societal relationship with others such as labour procedure, labour clip or labour power behind the money, but besides merchandises can interchange in different manner harmonizing to the fetichism of trade goods. Taking labour power as an illustration, it acts as trade good that both has usage value and exchange value because labourers may through selling their labour power to exchange rewards. Furthermore, the value of theory by Marx shows the societal dealingss between capital and labour. For case, during the fabricating procedure of trade goods, organisation non merely spends capital such as stuffs and others beginnings into the production procedure, labour besides plays an of import function because it needs labourers to run or command the procedure ( Harvey, 1999 ) .

However, there is no uncertainty that the disadvantage of Marx ‘s value theory is paying more attending on labour. Harmonizing to Tinker ( 1999 ) , Marx seems to be more concerned on the labour “ theory ” of value to reflect the monetary value and value of trade good and did non take into history of other factors such as the regulations of market economic system and the efficiency of human activity. However, the factors in such labour procedure, labour clip or labour power may be one of of import parts that reflect the value of trade good. Nevertheless, the benefit of Marx ‘s value theory seems to be successful to either reflect the category relation between pay labour and capital in the capitalist manner of production or through abstract labour, labour power to incarnate the usage value, exchange value and value ( Harvey, 1999 ) . For case, it has been mentioned by Harvey ( 1999 ) that labour power can be a trade good, has a usage value and exchange value which laborers through selling labour power to exchange rewards, and through sing the labour inputs to measure the comparative monetary values of trade goods.

Without uncertainty that using Marx ‘s value theory gives different people different positions. For case, in footings of concern proprietors,

In decision, for one thing, it is undeniable that pricing determination is an of import issue for each organisation because a just and right monetary value may pull clients which are willing to pass money on the merchandises or services. nevertheless, economic pricing theory and accounting pricing theory gives different strengths and restrictions to organisation to find the monetary values of trade good and at the same clip, both pricing theories all have different impacts such as on concern proprietors, employees and the populace. For another thing, Marxist theory of value non merely reflect the usage value and exchange value or value by trade good, but besides show the societal and labour power relationship between these constructs.

Therefore, organisations should pay attending on pricing or value trade good.