1. Price

2. Pricing Strategies Psychological Pricing Loss Leaders
Competitive Pricing
Full-cost (absorption-cost) pricing
Marginal-cost Pricing
Predatory Pricing
Pricing Strategies
Creaming / skimming
Cost-plus pricing
Discrimination Pricing
Premium Pricing
Penetration Pricing
Going-rate Pricing

3. Exam questions
What is meant by price elasticity of demand? [2]
The responsiveness for demand for a product when there is a change in price.

4. Price elasticity
The percentage change in quantity demanded is greater than the percentage change in price
Price P2 P1 D Q2 Q1
Quantity

5. Price inelasticity P1 P2
The percentage change in quantity demanded is less than the percentage change in price
Price D Q1 Q2
Quantity

6. Price elasticity of demand
PED is usually negative because a fall in price (-ve) usually results in a rise in demand (+ve)
% ∆ QD
% ∆ P
Calculate the % ∆ P
Calculate the % ∆ QD
Example: PED=10/25 = 0.4
Old price
New price
Old demand
New demand
100 80
3,000
2,000
456
430 88
300
299
243
130
If it is <1 is it negative

7. Old price
New price
Old demand
New demand
Answer
Elastic / Inelastic

8. June 2005 paper 1
Jomo manages a small printing business. One of his customers asked Jomo to quote a price for a sales leaflet that they needed. Jomo investigated the costs of the order and his results are shown in Figure 1. Jomo add a 50% mark-up to the average cost per unit to calculate the selling price. $
No of copies
Total cost
64,000
10,000
1. Do you think that the pricing method Jomo uses is the best one for his business? Explain your answer. [6]
2. Suggest an alternative pricing method for Jomo to use. Justify your answer. [6]

9. Activity 27.7 Levis & Tesco Mark scheme –
Attempt at evaluative comment in context, eg. Likely outcome if Tesco are allowed to sell Levi jeans. [11-12marks]
Analysis of how Tesco’s pricing strategies could harm Levi’s reputation
[8-10]marks]
Shows a good understanding of the effects of different pricing strategies
[3-7 marks]
Show some understanding of the effects of different pricing strategies
[1-2marks]

10. Homework –
Explain:
Income elasticity
Cross elasticity
Advertising elasticity
Use graphs to help you explain your answers.
[12]

11. Lower Level Higher Level
Q1 - Explain 2 pricing methods a business could use when introducing a new product to the market [4marks]
Q1 - Explain 3 pricing methods a business could use when introducing a new product to the market [6marks]
Q2 - What factors should a business take in to account when determining its selling price? [4marks]
Q2 - Define full cost pricing & contribution pricing. Give an example for both. [4marks]
Information for Q 3/4/5/6
The costs of production for a new toy are $10. The price of competitor’s products are : product A = $25, Product B = $20, Product C = $23, Product D - $22.
Q3 - Explain one situation in which contribution pricing would seem more appropriate than full cost pricing. [8marks]
Q3 - What price should the company sell the new toy at if they want to make a 100% mark up on how much it costs to produce [2marks]
Q4 – What is meant by the term ‘collusion’ and why is it illegal in most countries? [4marks]
Q4 - What price should the company sell the new toy at if uses competitive pricing [2marks]
Q5 - Evaluate whether consumers benefit from a destroyer pricing strategy? [8marks]
Q5 – What price should the company use if it uses penetration pricing [2marks]
Q6 – What price should the company use if it uses a creaming pricing strategy [2marks]