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Impact of Price Drop on Business Demand and Profit- Project Report

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Added on  2019-11-26

Impact of Price Drop on Business Demand and Profit- Project Report

   Added on 2019-11-26

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Running head: IMPACT OF PRICE DROP ON BUSINESS DEMAND & PROFIT IMPACT OF PRICE DROP ON BUSINESS DEMAND & PROFIT Name of Student:Name of University:Author Note:
Impact of Price Drop on Business Demand and Profit- Project Report_1
1IMPACT OF PRICE DROP ON BUSINESS DEMAND & PROFIT TABLE OF CONTENTINTRODUCTION......................................................................................................................2DISCUSSION............................................................................................................................2DEMAND HABITS OF GIFFEN GOODS...............................................................................3DEMAND HABITS OF VEBLEN GOODS.............................................................................3SPECULATIVE DEMAND......................................................................................................4ADVERSE FUTURE EXPECTATION....................................................................................4DEMAND HABITS OF ESSENTIAL GOODS........................................................................5DEMAND HAHBITS NORMAL GOODS...............................................................................5CONCLUSION..........................................................................................................................5REFERENCE.............................................................................................................................6
Impact of Price Drop on Business Demand and Profit- Project Report_2
2IMPACT OF PRICE DROP ON BUSINESS DEMAND & PROFIT INTRODUCTION The base of the microeconomic theory stands upon the law of demand that states priceand demand has inverse relation. That is for increase in price of good, the quantity demandedwill fall when other factors of demand are constant. But the theory also has exceptions to thelaw that depicts positive relation between price and goods subject to specific factors andmode of demands. For example, demand for Giffen goods and Veblen goods or luxuriousgoods can be such example backing the exceptions (Firat et al. 2013). Real world functioning are always different from the suggestions of theoreticalmodels due to various factors that remain unidentified in the theories but do have impactfulexistence in real economic transactions (Kubler et al. 2013). The paper aims to discusswhether modern day business operations follow the theoretical assumptions and conclusionsof law of demand or it deviates from it with assessing the consequent impact on profit.DISCUSSIONA business is able to drop its price only if it can make reduction in the operationalcost it bears in the production process. The lowered cost stems from various factors likelower input cost like cheap labor and raw material, lower cost of capital in terms of rate ofinterest and so on (Shephard 2012). Application of technology in the production process canalso lead to lower cost of production. These are supply side factors determining the low pricein the market for any goods. Now whether this low price would attract the consumer evokingtheir demand of them depends totally on their willingness to pay which in turn depends onvarious factors like income, individual taste and preference, social preferences andperceptions, speculation, future expectation, snob effect and so on. Even if the business dropsits prices, if the society is inflicted with some preferential attributes like falling demand for
Impact of Price Drop on Business Demand and Profit- Project Report_3

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