TABLE OF CONTENTS 
In the real world it is often difficult to relate prices to the simple demand and supply analysis presented in Chapter 3. For example, we find leisure centres and fitness centres offering similar services at vastly different prices. It has been said that an airline running a jumbo jet carrying 350 passengers will charge 100 different prices. A simple T-shirt can cost as little as $5. Print the word Evisu or Versace on it and its price can rise to more than $50. Some shops have as many sale and offer days as normal trading days. This chapter investigates how prices are determined in the real world.
By studying this chapter students will be able to:
understand how and why firms come to be price takers, price makers or price shapers;
analyse the pricing strategies that result from different market situations.
Private sector organizations which seek to maximize profits will attempt to minimize their costs and maximize their revenue. Revenue is composed of price multiplied by quantity sold, and the price that an organization can charge for its product depends largely on the type of market within which it is operating.
At one extreme, economic theory describes the model of perfect competition. In this model there are many buyers, many sellers, identical products, freedom of entry and exit in the market, and perfect knowledge...
