Key Terms
Price
Exchange of value between buyer and seller Profit: Total Revenue
It takes different names depending on context
Tuition, fees, tolls, fares — same concept underneath.
Price is unique in the marketing mix
It's the ONLY element that generates revenue. Product, promotion, and place are all costs.
Fixed Costs
Don't change regardless of units produced (rent, salaries, insurance) Variable Costs: change based on units produced (ma
Perceived benefits
Quality, brand, convenience, status — varies buyer to buyer and situation to situation. Perceived costs: more than the p
BONUS
Some practitioners add a sixth C — Context. Prices shift based on external conditions like season, weather, or market ev
Demand
The buyer's desire and willingness to purchase at various prices. Basic rule: as price increases, demand decreases (the
PRESTIGE PRICING EXCEPTION
For luxury or status goods, higher prices can INCREASE demand because higher price signals higher value. This flips the
Elastic demand
Quantity demanded changes significantly with price changes. Examples: housing, name-brand groceries, airline tickets.
Inelastic demand
Quantity demanded stays roughly the same regardless of price. Examples: gasoline, essential medications, utilities.
Formula
% change in quantity demanded / % change in price
Substitutes
More substitutes = more elastic. Fewer substitutes = more inelastic.
Income Effect
When price rises, buyers have less real income left over; demand decreases. When price falls, buyers have more left over
Time
Demand adjusts over time, not instantly. A sharp price drop on cars won't spike sales tomorrow — buyers still need to sa
Cross-Elasticity of Demand
When price of Product A goes up, demand for its substitute Product B goes up. Coffee price increases -> tea demand incre