1.INCENTIVES:
Incentive
motivates people to work harder to satisfy their needs and wants. Incentives
drive sales and purchases. People respond to incentives. Incentive increases
the productivity of people.
Incentive
which attracts buyers are as follows:
Price,
quality, quantity, satisfaction, discount, service, brand review, location,
income levels, needs, attractiveness, resale value, trends etc.
Example: Last weekend I went to Reliance
fresh to buy some grocery items. There was a discount on fruits items. Though I
did not plan to buy apples but I ended up buying them because of the discount I
got.
Incentive
which attracts sellers are as follows:
Profit, more
sales, problem solving, goodwill, higher footfall, product uniqueness,
competition, interaction between buyer and seller, transportation etc.
Example: whole sellers give more preference
to retailers who are their regular customers. They give them some extra
discounts and offers like free delivery.
Incentive=
price: quantity
2.DEMAND
Demand is
consumers desire, ability and will to purchase goods at various price.
Factors
affect Demand are as follows:
-
Price
of goods.
-
Price
of substitute goods.
-
Income
of consumers.
-
Advertisement
or promotions.
“When supply
of a product goes up, the price of product goes down and demand of the product
can rise because cost will fall down”.
Example:
1. when supply of fruits increases, its
demand also increases and price decreases.
2. During festival like Diwali, price of
electronics goods decreases and its demand increases. So it shows an inverse
relation between demand and price.
3.Opportunity cost:
Opportunity cost is also known as alternative cost. It is
cost of something what we give up to get it.
A choice need to be made among best alternative options. We
have to choose such type of alternative from which we can get benefit. While
making a decision, person should be aware of the opportunity costs that
accompany each possible action.
Example:
1. I got job offers from TCS and IBM. I
know both companies are excellent in their respective fields. But I chose TCS
over IBM because I wanted to stay in Bangalore and TCS is giving me this
option. So the sacrifice which I did to choose TCS is my opportunity cost.
2. Idea is giving 30gb data for one
month plus free outgoing calls and Airtel is giving 30gb data per month plus
free outgoing calls plus free 100 messages. So we will go for Airtel. so here
Idea is my opportunity cost.
4.PRICING DECISIONS:
Pricing decision is
considered as “mind game” in economics.
How much to charge for a product
or service depends on multiple factors such as competition, costs, advertising
and sales promotion.
The best price for a
product or service is the one that maximizes the difference between total
revenue and total cost.
Consumer surplus:
It is difference between
the price consumer is willing to pay and the consumer actually pays.
Example:
I went to sarojini nagar
Delhi for shopping. I chose one top of rupees 1000. I wanted to pay 600 for
that top so I started bargaining with shop keeper. But surprisingly he got
ready to sell it for rupees 450 only. So this 150 rupees which I saved is
called consumer surplus.
Producer surplus:
Difference between the
price producer is willing to sell and the price he actually got is known as
producer surplus.
Example:
Imagine you go to buy a
second hand car. So price of the car decided by seller is around 2 lakhs and
you paid 1 lakh 80 thousand. But seller was expecting around 1 lakh 50 thousand
for the same car so here the 30 thousand extra which seller got is called producer
surplus.
5.UTILITY:
Utility is the
satisfaction people derive from their consumption activity.
Or, satisfaction derive
from hobbies is known as utility.
Assumptions:
-
tastes
and preferences are fixed and given a large role.
-
People allocate their income to maximize
their satisfaction or total utility.
Types of utility:
1. Cardinal utility: it can be quantified and it assigns
number. Cardinal utility is associated with “ratings”.
Example:
When you go to a
restaurant, can you give it a number like how much you enjoyed the food like
100 or 1000. The answer is “no”, u cannot. But you can rate it. As out of ten
you can give it a number like 6 or 8 as rating.
2.Ordinal utility: it is associated
with “ranking”. It assigns ranks.
Example:
Top ten
songs of the week.
Top 100 B
schools in India.
Top three
companies in the world.
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