How is the price of goods and services determined?

The price of goods is determined in different ways and their definition is sometimes very difficult, since it depends not only on the cost price, but also depends on a number of factors that affect their future existence, including weather, perishable, wars, competition, forecasts of future production and so on.


Definition of the term “Price”.

         Question: What is the price?

          Answer: Price is the money supply by which one sells or purchases a particular product / service. The price is considered a border, on which it is advantageous to make a transaction for the sale of goods or services.

The price expresses the value of the commodity, and the higher it is, the more expensive and rare it is. Sometimes in the price not all factors are considered as it has its own reasons. For example, the goods are sold at a reduced price with the goal of getting rid of the goods or withdrawing competitors from the market.

It is not always a high price to talk about its high quality and usefulness, and therefore it is better for everyone to know how the price of goods and services is being formed as outlined in this article.

As is known, the calculation and formation of prices in organizations and enterprises are carried out by specialists with economic education, including analysts, accountants, economists, and sometimes managers / managers themselves.

The main factors affecting the cost – the price

The determination of prices for goods / services for each sector of the economy, including the type of enterprises and organizations, is determined, individual, and all this depends on the type of expenditure, locations, period, policies and other nuances. In production, the price is more difficult to determine, but in trade this clarification has no special effort. Thus, the most basic factors affecting the price are listed below:

  1. Cost - This peculiar term means what was spent for the production of a particular product. That eats the list of expenses in money terms aimed at obtaining the final goods (services). The lion’s share in the price of the goods is the cost price of the goods, although this situation applies to about half the situations on the market.

The cost price of the goods is mainly affected by such expenses as:

  • The cost of raw materials for production (for example, for the production of sausage you need meat);
    Salary, bonuses and various fees to the maximum;
  • Fixed assets. Here is the building in which the goods are produced or the service is provided. It also includes machinery, transport, furniture and other assets leased or owned by the organization itself;
  • Credit / loan. This factor sometimes has so much a large share in the price of the goods, which is even very bad. The share of the loan in the price of the product is superimposed, and it can reach up to 30-50% depending on the level of inflation.
  • Working capital. This includes all other production costs, including electricity, water and so on.
  • Advertising. Without advertising, selling a new product is very difficult and therefore many through the media, friends of officials spend money to bring consumers information about the product.
  • Taxes. There is an order of at least 2 types of taxes, which significantly affects the formation of prices for goods.
  1. Margin (Margin). This is the second factor that affects the price of the product and its volume depend on the wishes of the seller – the producer of the product / service.

Some margins are called “Own lodging” or profit. For example, the plant produced canned food for $ 5 and wishes to earn $ 1 from selling it. In this case, $ 5 cost price and here 1-dollar is the extra charge.

The mark-up level in turn depends on:

  • Level of competition in the market,
  • The desire of the businessman himself at what level wants to get a margin,
  • The country’s policies are influenced by special departments including the Ministry and the Antimonopoly
  • Service to regulate prices in the market.
  • The company’s strategy is based on its further intentions on the return on business and future investments.
  1. Mediation fees. By this, the word means those expenses that are formed in stores, supermarkets, Internet portals, agency services and so on which are engaged in intermediary affairs for the sale of goods and services. Usually in such intermediary services the price increases about 5-10%, although it happens less or more. For example, a collective farmer grows an onion whose cost is $ 3 and does not add a surcharge of $ 1 and then wants to sell through stores. These stores sell onions at a price of $ 4 50 cents, where the intermediary fees in this example are 11% of the final price.
  2. Mood and situation. Sometimes the price changes from the mood of the seller, which also affects the price. For example, in Asian countries, including India, Iran, Turkey, Egypt, Uzbekistan and other countries in the market, sellers look at the buyer and then say the price. The richer the buyer looks, the higher the premium is placed and the price is announced.
  3. Supply and demand. As you know, the greater the demand for a particular product, the higher the price, and vice versa. For example, in the harvest season, an apple costs less than in the spring. Or new brands of the phone are more expensive, since at the beginning of its production are very in demand.
    Importance. Usually the more important and necessary for the people, the higher the surcharge on it, and the price increases and vice versa. For example, a medicine is very important, or a kidney operation, but it takes a lot of money for this.
  4. Uniqueness. The uniqueness of the product gives it an advantage and it has very few competitors or is completely absent and thus in the market it will take advantage of overstating the price of a service or product. For example, the services of a better lawyer who can solve the problem cost more because difficult work is not understood by all. Although there are a lot of lawyers working on the market, it’s better of them as the best car in the world.
  5. Time. The next factor that affects the price is that this time. This character is due to the fact that “The faster a product or service is provided”, the higher it has a price. For example, in the banking system tariffs are provided in terms of service time.
  6. Methods of implementation. As is known, there are a number of methods for providing goods or services to the end user. Eating methods of wholesale, retail, online sale, sale through partner agencies and others.
  7. Service. Delivery, packaging of goods, installation, training of personnel, after-sales service – all this affects the price. It is clear that the more expensive the service, the greater the reasons for the price increase.
  8. Competition. This factor is a unique tool and affects both positively and negatively. The more goods and participating in the market, the more difficult it is to sell the product and therefore sellers will have to give in to some extent the position.


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