Systematically Quote Pricing Goods Services â€Myasignmenthelp.Com

Question: Discuss About The Systematically Quote Pricing Goods Services? Answer: Introduction: Globalization has improved the ways in which economic transaction takes place throughout the world by promoting more of international trade. Along with advancement in trade came the need to systematically quote pricing of goods and services. The concept of elasticity has helped the businessmen in doing so. International trade gave rise to the concept of absolute advantage and comparative advantage (Helpman Razin, 2014). The theory as put forwarded by Adam Smith talks about the deciding factor based on which any country chooses to produce goods and services. Here the concept of price elasticity and different types of advantages has been elucidated to answer the given question. Price of goods based on Price Elasticity of Demand Price elasticity of demand shows the changes in the demand of any goods and services due to the change in the price of the same, ceteris parebus. It is measured as the ratio of percentage changes of demanded quantity to that of price (Pigou, 2013). If the numerical value is greater than 1, then the good is price elastic in nature and if it is lesser than 1, it is inelastic. Price Quantity Elasticity = Elasticity = 1 Elasticity = 0 Figure 1: Price Elasticity of Demand Source: Created by the Author In the above figure the price elasticity has been shown. The point where elasticity is 0, the demand for goods does not depend on the price and the point where elasticity is , the demand fluctuates to a great level with minute change in price. The main motive of any producer is to maximize their revenue either by increasing the price or by increasing the quantity sold. If the good is necessary goods with no or very few substitute then increasing the price will not make a huge difference in the quantity purchased thereby maximizing the revenue (Mankiw, 2014). In other words, when demand is inelastic, the producer can quote higher price to maximize their revenue. On other hand, if the goods sold has easily available substitutes or is of luxurious type, then change in price will greatly affect the change in quantity demanded. In such a case the producer tries to keep price low so as to attract customer base towards their products and maximize profit through an increase in sales volume. Absolute versus Comparative Advantage The primary difference between absolute advantage and comparative advantage is that the former highlights the ability of a nation to produce goods and services at lower per unit cost than its competing nation. The later highlights a nations ability to carry on their production at lower opportunity cost. Another difference between these two concepts is that absolute advantage is beneficial for one trading partner and often nation might not be benefitted. Comparative advantage on other hand is mutually beneficial for both the nation engaged in international trade (Gopinath, Helpman, Rogoff, 2014). The example below illustrates the difference further: Country Trucks produced per day Cars produced per day India 3 3 United States 2 1 In the table above it can be seen that India has absolute advantage in producing both trucks (as 3 2) and cars (as 3 1). But if the opportunity cost is calculated, Country Truck Cars India 1 Car 1 Truck United States 0.5 Car 2 Truck Here it is seen that India has lower opportunity cost in producing Car than U.S. (as 1 2). On other hand U.S. has lower opportunity cost in producing trucks (as 0.5 1). Hence, if trade takes place, India would choose to produce cars and U.S. would produce trucks. Conclusion: The two different concepts briefly discussed above gives us only a glimpse of the ways in which interaction amongst different nation works in maintaining a global trade scenario. However, the international trade in itself is such a huge and complex procedure that to understand it requires a detailed study and research of the same References Gopinath, G., Helpman, E., Rogoff, K. (2014). Handbook of international economics (Vol. 4). Elsevier. Helpman, E., Razin, A. (2014). A theory of international trade under uncertainty. Academic Press. Mankiw, N. G. (2014). Essentials of economics. Cengage learning. Pigou, A. C. (2013). The economics of welfare. Palgrave Macmillan.