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Understanding Price Setting and Competition in Business Administration

This document outlines key concepts related to price setting and market competition, emphasizing the relationship between supply and demand. It defines demand as the number of units purchased at a given price and supply as units offered for sale. Supply shocks and factors influencing demand, such as natural disasters and demographic changes, are discussed. The document also highlights the equilibrium price in competitive markets, stressing that competition fosters improved quality, innovation, lower consumer prices, and efficient resource allocation.

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Understanding Price Setting and Competition in Business Administration

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  1. Business Administration & Management Mr. Bernstein Notes, pp 67-69 Price Setting and Competition March 7, 2014

  2. Business Administration & ManagementMr. Bernstein Supply and Demand Demand = # of units that will be purchased at a given price Supply = # of units that will be offered for sale at a given price In general, prices changes drive changes in supply and demand

  3. Business Administration & ManagementMr. Bernstein Supply Supply shock = sudden change in supply not driven by change in price. Example: Oil Example: Opening of a new store in same target area

  4. Business Administration & ManagementMr. Bernstein Demand Demand changes can also be driven by factors other than price Example: Natural disaster Example: Influx of new residents

  5. Business Administration & ManagementMr. Bernstein Equilibrium Price In a competitive market, prices will be the point where supply equals demand

  6. Business Administration & ManagementMr. Bernstein Competition Leads To: Improved Product Quality Product Innovation Lower Prices to Consumers Efficient Allocation of Resources

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