ASIAN BUSINESS CABLETOW COOPERATIVE ACADEMY, INC.

A TECHNICAL-VOCATIONAL INSTITUTION
2nd Floor Consuelo Bldg., Corrales Ave., Cag

Contact Nos.: (088) 881 1186; 0917 329 0494

www.abcca.edu.ph

BROADCASTING
MARIE MAHOGANY B. DALMAN
PROFESSOR:

SUBJECT: APPLIED ECONOMICS

LESSON NO.: 5

IMPLICATIONS OF MARKET PRICING ON ECONOMIC DECISION-

LESSON TITLE:
MAKING

INTRO DIALOGUE: Hello, dear learners. This is your Broadcasting Professor, Marie
Dalman. Welcome to our lesson in Applied Economics.

PREPARATION DIALOGUE: >Before we begin with our discussion, please do the following:

>Make sure that you are seated comfortably in front of the television
in a place where you will not be disturbed for the next 30 minutes.

>Prepare a pen and paper so you could take down notes.

>Prepare a glass of water near you so you could take a sip whenever
you feel thirsty.

>Listen well to prepare yourself for a quiz after this lesson.

OBJECTIVES: >After this lesson, you as learners should be able to:

>Determine the implications of market pricing on economic decision-

making

>LESSON PROPER:

>Have you observed that the price of chicken remains stable during Christmas season despite the
increase in demand?

>What may be the factors affecting the determination of price of goods such as chicken?

>The main factors affecting price determination of products are:

>1. Product Cost

>2. The Utility and Demand

>3. Extent of Competition in the Market

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 ASIAN BUSINESS CABLETOW COOPERATIVE ACADEMY, INC.
A TECHNICAL-VOCATIONAL INSTITUTION
2nd Floor Consuelo Bldg., Corrales Ave., Cag

Contact Nos.: (088) 881 1186; 0917 329 0494

www.abcca.edu.ph

>4. Government and Legal Regulations

>5. Pricing Objectives; and

>6. Marketing Methods Used.

>Let’s discuss each one of them.

> 1. Product Cost (pop up)

>The most important factor affecting the price of a product is its cost.
>Product cost refers to the total of fixed costs, variable costs and semi variable costs incurred during
the production, distribution and selling of the product.

>Fixed costs are those costs which remain fixed at all the levels of production or sales.

>For example, rent of building, salary, insurance etc.

>Variable costs refer to the costs which are directly related to the levels of production or sales.

>For example, costs of raw material, packaging costs, labor costs in producing the product, etc.

>Semi variable costs are those which change with the level of activity but not in direct proportion.

>For example, fixed salary of 22,000 pesos + up to 5% graded commission depending on sales.

>2. The Utility and Demand (pop up)

>Utility function describes the amount of satisfaction a consumer receives from a particular product
or service.
>Demand is an economic principle referring to a consumer's desire for a particular product or
service.
>Usually, consumers demand more units of a product when its price is low and vice versa.
>When the demand for a product is elastic, a small change in the price may result in huge changes in
quantity demanded.
>An example would be soft drinks.
>Soft drinks are not a necessity, so a big increase in price would cause people to stop buying them or
look for product alternatives.
>How about you? What do you normally drink instead of soft drinks?
>If demand is elastic, the business should not set high prices rather it should set lower prices than
that of the competitors.
>When a demand is inelastic, a change in the price does not have a significant effect on the demand.
>Gasoline is an inelastic demand because the amount people buy remains almost the same, even

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 ASIAN BUSINESS CABLETOW COOPERATIVE ACADEMY, INC.
A TECHNICAL-VOCATIONAL INSTITUTION
2nd Floor Consuelo Bldg., Corrales Ave., Cag

Contact Nos.: (088) 881 1186; 0917 329 0494

www.abcca.edu.ph

when prices increase.

>Likewise, they don't buy much more even if the price drops.
>So, a business can charge higher price in case of inelastic demand.
>In the case of the buyer, he is ready to pay up to that point where he perceives utility from product
to be at least equal to price paid.
>Having said that, both utility and demand for a product affect its price.
>3. Extent of Competition (pop up)
>The next important factor affecting the price for a product is the nature and degree of competition
in the market.
>A company can fix any price for its product if the degree of competition is low.
>However, when the level of competition is very high, the price of a product is determined on the
basis of price of competitors’ products, their features and quality etc.
>An example would be Coca-cola and Pepsi.
>Because these two soft drink brands are direct competitors, their pricing do not differ greatly from
each other since they have the same target market.
>4. Government and Legal Regulations (pop up)
>The firms which have monopoly in the market, usually charge high price for their products.
>In order to protect the interest of the public, the government intervenes and regulates the prices of
the commodities.
>For this purpose, it declares some products as essential products.
>As a measure to stabilize prices of basic commodities, the government may impose price controls.
>This can be done through price ceiling and price floor.
>Price ceiling means the price of the commodity cannot go higher than what is mandated.
>During times of natural calamities, the government often imposes price ceiling measures and even
rationing.
>On the other hand, price floor means the price of a commodity cannot go lower than the set price.
>The imposition of price floor is designed to protect certain stakeholders in the market.
>For example, to support tobacco farmers in achieving a reasonable income, the government sets a
floor price of tobacco in the market.
>To avoid intentional manipulation of supply and other poor business practices that may affect the
market price, the Department of Trade and Industry (DTI) regularly monitors commodity prices.
>They evaluate production processes to come up with consumer purchase guides in the form of
suggested retail price (SRPs).
>SRPs provide benchmark for consumers with which to compare market prices.
>5. Pricing Objectives (pop up)

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 ASIAN BUSINESS CABLETOW COOPERATIVE ACADEMY, INC.
A TECHNICAL-VOCATIONAL INSTITUTION
2nd Floor Consuelo Bldg., Corrales Ave., Cag

Contact Nos.: (088) 881 1186; 0917 329 0494

www.abcca.edu.ph

>Another important factor, affecting the price of a product or service is the pricing objectives.

>The following are the pricing objectives of any business:

>(a) Profit Maximization:

>Usually, the objective of any business is to maximize the profit.

>During short run, a company can earn maximum profit by charging high price.

>However, during long run, a business reduces price to capture bigger share of the market and
increase sales.

>b) Obtaining Market Share Leadership:

>If the firm’s objective is to obtain a big market share, it keeps the price per unit low so that there is
an increase in sales.

>(c) Surviving in a Competitive Market:

>If a firm is not able to face the competition and is finding difficulties in surviving, it may offer
discounted prices or clearance sale.

>(d) Attaining Product Quality Leadership:

>Normally, a business charges higher prices to cover high quality and high cost of producing and
selling the product.

>An example would be top of the line vehicles which are always sought after due to their quality.

>The last factor is 6. Marketing Methods Used (pop up)

>Various marketing methods used also affect the price of a product.
>These could be the distribution system, quality of salesmen, advertising, type of packaging,
customer services, etc.
>For example, a business will charge high price if it is using expensive material for packing its product.
>Perfume brands with iconic packaging is an example.
>The manufacturers spend a substantial amount to make its packaging attractive and even worth
displaying.
(https://www.youtube.com/watch?v=LHJSzXVyEsI Play video until 0:16)

>Now, isn’t that a keeper?

Credits: (flash on screen)

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 ASIAN BUSINESS CABLETOW COOPERATIVE ACADEMY, INC.
A TECHNICAL-VOCATIONAL INSTITUTION
2nd Floor Consuelo Bldg., Corrales Ave., Cag

Contact Nos.: (088) 881 1186; 0917 329 0494

www.abcca.edu.ph

1. Tullao, T. Jr. (2016). Applied Economics for A Progressive Philippines. Phoenix Publishing
House, Inc.

2. Boado, S. (2017). Applied Economics. DIWA Learning Systems Inc.

3. Kalpana, R. (n.d.). Price determination: 6 factors affecting price determination of product.

Business Management Ideas. https://www.businessmanagementideas.com/pricing/price-
determination-6-factors-affecting-price-determination-of-product/2267

4. Barone, A. (2021, October 28). Learn to distinguish demand function from utility function.
Investopedia. https://www.investopedia.com/ask/answers/042115/how-can-you-find-
demand-function-utility-function.asp#:%7E:text=Demand%20is%20an%20economic
%20principle,a%20particular%20product%20or%20service.

ENDING DIALOGUE:

>That concludes this lesson in Applied Economics.

>Let me close with a quote from Warren Buffet, American business magnate, investor, and
philanthropist.

>"Price is what you pay. Value is what you get."

>Stay safe, stay healthy, and let your learning continue.

ASSESSMENT: ESSAY. You are a co-owner of an eatery. You sell at least one of each
viand – chicken, beef, fish, and pork – in your daily lunch. Each meal is
typically served with a side dish of vegetables. However, there has been
an increase in the price of all meat products lately. How will you cope
with the higher cost of your main ingredients? Propose at least one
solution.

ANSWER KEY: ANSWERS VARY. HIGHEST POSSIBLE SCORE: 10 POINTS

PREPARED BY: Marie Mahogany B. Dalman

REVIEWED BY: Dr. Soc Anthony M. Del Rosario