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In economics, market price is the economic price for which a good or service is offered in the marketplace. It is of interest mainly in the study of microeconomics. Market value and market price are equal only under conditions of market efficiency, equilibrium, and rational expectations.
On restaurant menus, "market price" (often abbreviated to m.p. or mp) is written instead of a price to mean "price of dish depends on market price of ingredients, and price is available upon request", and is particularly used for seafood, notably lobsters and oysters.
Measure of value
In classical economics, market pricing is primarily determined by the interaction of supply and demand. Price is interrelated with both of these measures of value. The relationship between price and supply is generally negative, meaning that the higher the price climbs, the lower amount of the supply is demanded. Conversely, the lower the price, the greater the supply is demanded. Market price is just the price at which goods and services are sold.
Price, the amount of goods for which a product is sold, may be seen as a financial expression of the value of the product. Setting the right price is an important part of effective marketing, being the only part of the marketing mix that generates revenue, as product, promotion, and place are all about marketing costs. Price is also the marketing variable that can be changed most quickly (e.g. to a competitor price change).
For a consumer, price is the monetary expression of the value to be enjoyed/benefits of purchasing a product, as compared with other available items.
The concept of value can therefore be expressed as:
- Perceived Value = Perceived Benefits − Perceived Costs
A customer’s motivation to purchase a product comes firstly from a need (e.g. "I need to eat") and a want (e.g. "I would like to eat out tonight."). The second motivation comes from a perception of the value of a product in satisfying that need/want (e.g. "I really fancy a McDonalds").
The perception of the value of a product varies from customer to customer, because perceptions of benefits and costs vary.
Perceived benefits are often largely dependent on personal taste (e.g. spicy versus sweet, or green versus blue). In order to obtain the maximum possible value from the available market, businesses try to ‘segment’ the market – that is to divide up the market into groups of consumers whose preferences are broadly similar – and to adapt their products to attract these customers.
In general, a product's perceived value may be increased in one of two ways – either by:
- Increasing the benefits that the product will deliver, or,
- Reducing the cost.
For consumers, the PRICE of a product is the most obvious indicator of cost - hence the need to get product pricing right.
Factors affecting demand
Consider the factors affecting the demand for a product that are
- within the control of a business and
- outside the control of a business:
Factors within a businesses’ control include:
- Price (assuming an imperfect market – i.e. not perfect competition)
- Product research and development
- Advertising & sales promotion
- Training and organisation of the sales force
- Effectiveness of distribution (e.g. access to retail outlets; trained distributor agents)
- Quality of after-sales service (e.g. which affects demand from repeat-business)
Factors outside the control of business include:
- The price of substitute goods and services
- The price of complementary goods and services
- Consumers’ disposable income
- Consumer tastes and fashions
Price is, therefore, a critically important element of the choices available to businesses in trying to attract demand for their products.
- Equilibrium price (the market price typically equals the equilibrium price, although sometimes there may be delays as the price slowly adjusts towards the equilibrium)
- Supply and demand
- Market clearing
- "Supply & Demand on Price". Retrieved 17 January 2006.