1. What Determines Price?
Part Two

2. Consumer Demand of Product
Prices is influenced by:
The Nature of the Market
Consumer Demand of Product
Production and Marketing Costs
Consideration of Channel Members

3. Price Elasticity of Demand
The number of consumers in a target market and the demand they have for a product have a drastic bearing on price
Essentially, there are two common principles at work:
Consumers purchase higher quantities of products at lower prices
The effects of a price change on volume must be factored into pricing strategy
In other words:
If a price change drastically lowers the quantity of product sold, higher sales revenue or profit will not be met
This is known as the price elasticity of demand

4. Two Types of Demand: Elastic Demand
There are two types of demand in marketing: Elastic Demand and Inelastic Demand
Elastic Demand
Describes a situation in which a small change in price results in a large change in volume
Example: Price increases by 5%, volume drops by 20%
If demand is elastic, total revenues go up as prices go down and revenues go down when prices go up

5. Two Types of Demand: Inelastic Demand
There are two types of demand in marketing: Elastic Demand and Inelastic Demand
Inelastic Demand
Describes a situation in which a rise in prices does not change the quantity purchased
In this scenario, total revenues go up when prices go up
Example: Traditionally Toronto Maple Leaf tickets have increased in price every single year yet they always sell every ticket. Since the demand is strong and the product is always sold there is no fear of losing revenue

6. Factors that Contribute to Elasticity
Proportion of income spent on the good
The lower the proportion of income spent, the more inelastic the good will tend to be
The number of substitutes
The more substitutes a good has the easier it is for consumers to switch to another product if the price goes up
The length of time since the price change
The longer the time period that has elapsed since the price change, the more elastic demand will be
The level of necessity or addiction
The more necessary or addictive something is, the more inelastic it will be