PRICE FLUXUATION

There are many factors that can cause the price of a product to fluctuate. The product that we are examining is a high quality mountain bike that has been set at a price of fifteen hundred dollars. This price was reached by taking into consideration all of the Laws of Demand. The need of a product to consumers greatly reflects the percent of markup over the initial cost of production. A product is not always sold at a specific percent above cost; many different factors are taken into consideration. There are numerous research teams whose job is to study the economy and provide advice to larger companies on how greatly their product is needed.

Although consumers may not approve, quite often prices increase without notice or explanation. The distance between where the product was manufactured and where it is sold has a minute effect on the price. For example, if the mountain bike were made in Sweden it would roughly cost fifty dollars for it to be sent over to the United States. Sometimes an event might occur and the popularity of a once unknown sport may increase and therefore the price increases with the consumerís wants. A two hundred-dollar increase in the price of a mountain bike would not be unheard of around the time of Tour de France. A much more serious increase, like a five hundred-dollar increase, occurs only in extreme circumstances and not as often as the less expensive price fluctuation. If the mountain bike became extremely popular and most of the stores were sold out and not expecting more until the next year, a dealer might hold a few a side with a very hefty markup.

A much more widely accepted price change is that of a price decrease. A fifty-dollar decrease could occur with competition between two businesses. Sometimes when a business is just beginning and they are trying to get their product out on the market they lower the price. Such a decrease of two hundred-dollars would be seen in such a promotion. The decrease in the price by five hundred-dollars doesnít happen as often as hoped. Such an event like a recall on a product could cause the price to decrease by one-third of the original price.

In the world market it is not unlikely for a productís price to increase and decrease rapidly due to many factors. However, the bigger the amount of increase or decrease the less often the occurrence. It should be highly evident that any event can cause a product to gain or loose value. For example, the increase in gas prices could cause more people to ride bikes, therefore increasing the need for bikes and increasing the price. The factors that effect prices of certain products are often not related.