Microeconomic Pricing Model

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The Microeconomic Pricing Model is essentially a model wherein prices for a concerned good or service are determined within a given market. As per this model, the prices are determined based on the balance of demand and supply in a market.

While the demand related curve in this particular model is set on the basis of consumers making an attempt to enhance their utility on the basis of their budget, the supply related curve is determined by entities making an attempt to increase profits, in view of their production costs and the intensity of demand of the products manufactured by them. In order to increase profits, the price related model is designed on the basis of manufacturing a certain quantity of products/goods as per which the total revenue when deducted from total cost is maximum.

Thus, it is on the basis of supply and demand, within a market that helps in determining who will be setting the prices. For e.g. A monopolist (such as the utility entity) possesses a lot of power when it comes to setting prices in a manner that it brings a whole lot of advantage to the firm. However, in a market that is competitive in the most perfect way, like farming, entities have not many options but to give acceptance to the existing market prices, in case they really want to sell off their products/goods.

Demand and Supply Factors

As far as the Microeconomic Pricing Model is concerned, economists are of the opinion that the service or product price is one of the important factors that helps a consumer decided whether he actually needs that product/service or not. However, they also believe that price alone is not the determining factor.

But according to a microeconomics principle, in case all the other kinds of factors stand equal, then as and when the price of that particular service or product rise, the demand for the same falls/declines and if the price falls then the demand rises.

Thus, it is on the basis of the Microeconomic Pricing Model that economists can predict with some amount of accuracy, about the service or product that consumers would purchase and the quantity of that particular service or product that they would buy.

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