Price and cost of goods and services in the market is shaped by the various forces that are within a given market at a particular time. Price and cost analysis is in most cases done by entrepreneurs in the market and governments that are involved in the granting of tender to various firms that are bestowed with the responsibility of the provision of goods and services to the people. There are various factors that affect the reasonability of pricing of various factors.
First of all, the cost of production by various firms determines the final pricing of goods produced by the company. The ultimate goal in the opening of any business is to make profit. Therefore, the prices of goods and services are dependent of the total cost incurred in the production of a good. The higher the production cost of a good or service, the higher the pricing is likely to be. Using exhibit 3.2 as an example, the total cost in the construction of an office is $4,385,000 (Murphy, 2009, p.36). This cost of production is based on the cost of both construction and the acquisition of building materials. If the cost of a particular building material goes up, this would mean that the total cost of building this office would higher. If the construction company decides to sell the constructed office, the pricing would be higher due to the increase in the pricing of the construction materials that are used in the assembly of the office as a finished good.
Second, it is important to note that pricing is dependent on the laws of supply and demand. In this case when the demand of a good is high, the price of a particular good is likely to go up. On the contrary, when the suppliers of a good in the market increase, the price of that particular good is likely to go down. As a tactic of realizing larger profit margins, suppliers tend to reduce their level of supply in the market, when the demand of a given product is high. This causes a scarcity in a given product. The scarcity of a given price leads to the increase in prices for a particular good. This principle of pricing is the best method for performing pricing analysis in business transactions such as government contracting. For example, if a give government is a net importer of a given good. It has to make tenders with different governments for the importation of a particular good. The more suppliers willing to sign a contract with the government, the more likely the government is likely to have a lower pricing for the contract. This means that the principle of law and demand is an effective methodology of analysis market trends because governments and business enterprises can be able to secure reasonable and fair pricing based on the prevailing market dynamics.
In conclusion, it is worth to note that unlike business enterprises, governments can be in a position to directly affect the outcome of a given market. For example, government can protect domestic producers and contractors for competition that is posed on them by foreign firms. Some of the ways in which the government can be in a position to realize this is by the imposition of tariffs on importers of goods and services to the country. Tariffs increase the direct costs incurred by the importers as they try to conduct business in a given country. Due to the presence of tariffs imported goods tend to be more expensive compared to domestic goods and services that are not subject to tariffs. The fact that domestic companies can sell their goods and services to the general public at a cheaper pricing compared to foreign firms is meant to make sure that domestic companies remain competitive in the market. As much as the imposition of tariffs and other trade blocks by government leads to cheap pricing of goods and services in the country, the fact remains that the imposition of these trade blocks can lead to counter measures by other governments.
References
Murphy, J. E. (2009). Guide to contract pricing cost and price analysis for contractors, subcontractors, and government agencies (5th ed.). Vienna, VA: Management Concepts.
