Basic Definitions

The price is the amount of money you need to pay to purchase the product.

The number of people who are willing to pay for a product is the product value, so the price is also a measure of the product value.

Price Functions

The price have important economic functions:

• to provide an economic mechanism whereby products (goods and services) are distributed among a large number of people;
• to indicate the level of demand for products and enable producers to respond appropriately.

This system is known as the price mechanism and is based on the principle that only free pricing provides that the supply of a product meets demand. If the supply is excessive, the prices will be low, and production will decline, so this will lead to the price increase until the balance of supply and demand is reached. Similarly, if the supply is not sufficient, the prices will be high, this will lead to an increase in production, that, in turn, will lead to the price reduction until supply and demand are balanced.

This price function can be divided into three separate functions:

• Prices determine the type and quantity of goods to be produced (WHAT)
• Prices determine the way the goods are produced (HOW)
• Prices determine customers (WHO)

[Encyclopedia Britanica]

The main factors affecting the price

• The cost of product
• The quality of the product, which affects the cost of product and product value for the consumers
• The number of customers
• The volume of single purchase, for example, the average quantity of product in one purchase

The following figure shows the main factors that influence pricing:

Choose the business model according to the parameters: