The of the service to the customer sets a ceiling to the price that may be charged
A price ceiling is a price control or limit on how high a price can be charged for a product, service, or commodity. Price ceilings are limits imposed on the price of a product, service, or commodity to protect consumers from prohibitively expensive items. These limits are usually imposed by the government but can also be set in the resale price maintenance (RPM) agreement between a product manufacturer and its distributors. Show
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Understanding a price ceilingLaws enacted by the government to regulate prices are known as price controls. These controls come in two types:
The supply and demand framework can be used to better understand price ceilings. When demand for a product or service outpaces supply, consumers sometimes lobby politicians to ensure prices do not increase to the point where they become unaffordable. When rent prices rise in a city because of gentrification or some other reason, for example, residents may press political leaders to enact laws that stipulate that rent prices can only be raised by a maximum percentage each year. Price ceilings and opportunity costPrice ceilings, like most concepts in economics, have various opportunity costs. When a control is placed on rent prices, some individuals may be evicted as landlords convert their premises into office space or holiday apartments. What’s more, landlords may spend less on maintenance such as heating, cooling, and hot water because the rental income on their property has been capped. Irrespective of the situation, price ceilings are enacted in an attempt to keep prices affordable for those who are demanding the product. However, these price controls can prevent the market from reaching an equilibrium point where supply equals demand. When this does not occur, demand will continue to outpace supply and a shortage of the good or service will ensue. Buyers who do manage to purchase below the price ceiling will benefit. But as we saw with the landlord example, sellers will tend to be disadvantaged and the quality of a product or service is also more likely to deteriorate. To compensate for lower prices, producers may also reduce their output or charge for previously free options or product features. Both strategies exacerbate problems the price ceiling was implemented to address. Price ceiling examplesHere are some real-world examples of price ceiling implementation:
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Connected Business ConceptsRevenue Modeling Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.Pricing Strategies A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.Dynamic Pricing Price Sensitivity Price sensitivity can be explained using the price elasticity of demand, a concept in economics that measures the variation in product demand as the price of the product itself varies. In consumer behavior, price sensitivity describes and measures fluctuations in product demand as the price of that product changes.Price Ceiling A price ceiling is a price control or limit on how high a price can be charged for a product, service, or commodity. Price ceilings are limits imposed on the price of a product, service, or commodity to protect consumers from prohibitively expensive items. These limits are usually imposed by the government but can also be set in the resale price maintenance (RPM) agreement between a product manufacturer and its distributors.Price Elasticity Economies of Scale In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and increase production, a subsequent decrease in the costs associated with it will help the organization scale further.Diseconomies of Scale In Economics, a Diseconomy of Scale happens when a company has grown so large that its costs per unit will start to increase. Thus, losing the benefits of scale. That can happen due to several factors arising as a company scales. From coordination issues to management inefficiencies and lack of proper communication flows.Network Effects A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.Negative Network Effects In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining.Main Free Guides:
What sets the ceiling for product price?A price ceiling is the highest price a company can charge buyers for a product or service. Governments set price ceilings when they believe the equilibrium price (market supply and demand) for an item is unfair. By law, the seller cannot charge more than the ceiling amount.
What is a price ceiling quizlet?A price ceiling is a government-imposed limit on the price charged for a product. Governments intend price ceilings to protect consumers from conditions that could make necessary commodities unattainable.
In which pricing strategy is the price charged for products and services is set low in order to acquire market share?Penetration pricing: price is set artificially low to gain market share quickly. This is done when a new product is being launched. It is understood that prices will be raised once the promotion period is over and market share objectives are achieved.
Which pricing strategy involves setting prices based on competitors strategies costs prices and market offerings?Answer and Explanation: Competition-based pricing is the setting prices based on competitor's strategies, prices, costs, and market offerings.
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