Microeconomics: Understanding the Concept of Price Theory

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This paper will throw light upon the price theory which is extremely important to understand. Demand and supply play the most pivotal role in deciding the price of a commodity or a service. The same will be elucidated further with the help of Euro star which is a fast-speed train, which covers areas in London, Brussels, and Paris. At the end of the paper, the reader will be clearly able to understand the concept of price theory.

Prices theory is one of the most important parts of Economics. Generally, the price of a commodity or service is decided by taking into consideration the production cost incurred on the production of the commodity or the service. Another important element, which decides the price is how easily or how difficult is it to get the commodity or the service. Scarce commodities are considered much more important than commodities available in abundance hence there is a significant difference between the prices of scarce commodities and the commodities which are available in abundance. Let us now consider the demand aspect of the price theory, the demand aspect of the price theory is driven by an important factor which is how desperately a consumer is in need of that commodity or service. If a consumer is urgently in need of a service or commodity, he/she wouldnt mind spending even double the amount of money, which they would have spent in normal circumstances. So the demand aspect of the price theory is all about the desire of the consumer to have that particular commodity or service at his/her disposal.

Another important aspect, which is very important is the demand curve; the demand curve gives a good enough indication of the will of consumers to buy the commodity or the service at that particular price. Demand curves and supply curves are studied by an organization to arrive at an equilibrium price. Equilibrium cost is the fixed cost and this changes only when the demand and supply are changed and it does not change unless the demand and supply change.

Let us now take into consideration the difference between luxury goods and necessities, the income elasticity of demand tends to be much higher in the case of luxury goods and this is because of a simple reason which is as people become wealthier there wants to increase and they tend to spend more money on buying themselves luxuries. The level of income of an individual goes on to decide what luxury is and what is a necessity? For instance, a rich person can stop buying bikes and as a replacement start collecting cars, this purely depends on the level of income of people. The word luxury has more meanings than one, one often mistakes luxury as a status symbol, for instance, a person can buy a Nike shoe considering it as a luxury knowing very little about how good the shoe is, so it depends on individuals on how they define luxury.

Euro Star and its Price Theory

The Euro Star is one of the fastest trains in the world. (Euro Star). Euro-star is a high-speed train that covers areas in London, Brussels, and Paris. The price theory of the high-speed train will be highlighted in the remainder of the paper. There are three different classes namely, the standard class, the Leisure select and the last one is Business Premier. The rates vary depending upon the class, for a journey from London to Paris it would roughly cost about £178 if one chooses to travel in Standard class, on the other hand, the fare is higher if one chooses to travel by Leisure select, it would cost roughly about £325 if one chooses a two-way journey from London to Paris and back. The third and the most expensive class is the Business Premier which would cost a person roughly about £328.50 for a one-way journey from London to Paris.

The demand factor of the price theory comes into effect here; people opt to travel by Euro-star because they have the willingness to pay for the service offered by the train. This is a very essential concept in price theory if people dont feel the willingness to travel by train they will stop traveling by train. This goes to show that the prices of the services offered by the train are quite reasonable and this is exactly why the people feel willing to travel by train. The tickets of the train vary depending on the time, this is again because of the demand factor of Price theory, the rates of travel are higher at night because the urgency generally is higher at night and this is why the rates are higher at night, the urgency factor is very important in price theory, price of a commodity or service rises with the rise of the level of urgency of the consumer.

What would happen if Euro star had a uniform price policy?

The occurrence of this event is highly improbable, the train will never have a uniform price policy because that would be a case in which all the principles of price theories will be defied. As discussed earlier, necessities and luxuries depend upon the level of income, and taking such a decision would mean treating all the people equally with regard to the services provided on the train. For this to become a reality, the staff will have to remove all the luxury seats from the train and make sure that all the seats on the train appear to be equal. If Euro Star adopts a uniform price policy then the services offered to the people who want luxury will surely be curtailed and this would not go down well with those people and they will certainly find an alternative mode of transport. It would not make sense to have a uniform price policy simply because people earn to make their lives comfortable and they choose luxuries depending on the level of their income and in such a case it would make no sense to those who prefer to travel by Business Premier class as this is the most luxurious class of Euro Star. If this price policy is adopted it will surely put off the people who earn more in order to afford luxuries and they would surely find an alternative arrangement of travels.

References

Euro Star. In Euro Star. 2009. Web.

Price Theory. In The Consumer. 2009. Web.

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Microeconomics: Understanding the Concept of Price Theory

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