PRICE : Price plays an important role in the economy as it generates revenue to orgainzation . It is the value paid for a product or service in the market . It is one of the key element that can be quickly change to react market changes. So that decisions about price must be considered in the context of overall business objectives.
There are two kinds of decisions made on pricing :
1. Consumer surplus
2. Producer surplus
Consumer surplus: It is an economic measure of consumer benefit. It is measured by analyzing the difference between what consumers are willing and able to pay for good/service relative to its market price .
CONSUMER SURPLUS = WILLIGNESS TO PAY - ACTUAL PRICE
Example : Actual price of product is Rs.30 and he is willing to pay Rs.50. Here the consumer benefit is Rs.20 .
Producer surplus: It is a measure of producer welfare. It is measured as the differrnce between producers are willing and able to supply a good/service and the price they actually receive.
PRODUCER SURPLUS = WILLINGNESS TO PAY - AMOUNT A BUYER ACTUALLY PAYS
Example : Willigness to sell for a good is Rs.10; he is able to sell the good for Rs.15. Here the producer surplus is Rs.5 .
There are two kinds of decisions made on pricing :
1. Consumer surplus
2. Producer surplus
Consumer surplus: It is an economic measure of consumer benefit. It is measured by analyzing the difference between what consumers are willing and able to pay for good/service relative to its market price .
CONSUMER SURPLUS = WILLIGNESS TO PAY - ACTUAL PRICE
Example : Actual price of product is Rs.30 and he is willing to pay Rs.50. Here the consumer benefit is Rs.20 .
Producer surplus: It is a measure of producer welfare. It is measured as the differrnce between producers are willing and able to supply a good/service and the price they actually receive.
PRODUCER SURPLUS = WILLINGNESS TO PAY - AMOUNT A BUYER ACTUALLY PAYS
Example : Willigness to sell for a good is Rs.10; he is able to sell the good for Rs.15. Here the producer surplus is Rs.5 .
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