2021 BTEC Business Level 3:
Unit 1 - Exploring Business
(DISTINCTION*) Assignment
2
D3: Pricing and Output
When demand exceeds supply, prices tend to rise. There is an
inverse relationship between the supply and prices of goods and
services when demand is unchanged. However,
when demand increases and supply remains the same, the
high demand leads to a higher equilibrium price and vice versa.
The law of demand states that, if all other factors remain equal,
the higher the price of a good, the less people will demand for
that product or services. In other words, the higher the price, the
lower the quantity demanded. The amount of products that
buyers purchase at a higher price is less because as the price of a
good goes up, so does the opportunity cost of buying that
product. As a result, people will naturally avoid buying a product
that will force them to forget the consumption of something else
they value more.1
Nike has a moderate pricing power, this is because there are
many similar firms with a close substitute of shoes, clothing and
equipment. Because Nike have a higher availability of products,
this affects the pricing of their goods due to their intense
competition. Therefore, Nike might decide to charge lower prices
for their goods to build a competitive advantage and gain more
1 https://www.investopedia.com/terms/l/law-of-supply-demand.asp
, customers, leading to an increase in sales resulting in Nike
breaking even quicker and also building a market leadership
within the sports industry. If Nike sell their goods for a lower price
than this would attract a wide range of customers globally,
resulting in a higher revenue therefore increasing the market
share of Nike. Nike need to have a good supply of raw materials
such as cotton and rubber, if there is less supply than there would
be less purchases of Nike goods such as shoes due to limited
quantity. This would not benefit Nike as their consumers might
switch to their rivals such as Adidas. To avoid this risk, Nike
should have a good relationship with their suppliers, this would
allow them to have a regular supply. If Nike don’t have a good
relationship with their suppliers, then they may receive less raw
materials leading them to sell less units of goods for a higher
price as there will be a higher demand for their goods. This will
lead Nike customers to be unsatisfied due to high prices and this
may result Nike customers to switch to their rivals such as Adidas
and Puma to getter cheaper goods such as shoes, clothing and
equipment. This would result in a decrease in revenue and profit
also lead to slow growth and take a longer time to breakeven.
Nike demand would increase depending on supply and price,
when the price is low the demand for goods will increase. This
would lead Nike to have an increased purchase volume.
Therefore, Nike should increase their supply of goods due to the
raising demand. This would enable Nike to charge lower prices.
Furthermore, even if there is enough supply the demand would
still stay high due to their good quality and brand image. This
would allow Nike to increase their premium prices leading Nike to
have a higher revenue and profit.
Nike have a monopolistic market structure which means they
have many similar sellers with close substitutes available
therefore firms change similar prices. There will be a dominant
firm with a large market share. This is a price leader and the
Unit 1 - Exploring Business
(DISTINCTION*) Assignment
2
D3: Pricing and Output
When demand exceeds supply, prices tend to rise. There is an
inverse relationship between the supply and prices of goods and
services when demand is unchanged. However,
when demand increases and supply remains the same, the
high demand leads to a higher equilibrium price and vice versa.
The law of demand states that, if all other factors remain equal,
the higher the price of a good, the less people will demand for
that product or services. In other words, the higher the price, the
lower the quantity demanded. The amount of products that
buyers purchase at a higher price is less because as the price of a
good goes up, so does the opportunity cost of buying that
product. As a result, people will naturally avoid buying a product
that will force them to forget the consumption of something else
they value more.1
Nike has a moderate pricing power, this is because there are
many similar firms with a close substitute of shoes, clothing and
equipment. Because Nike have a higher availability of products,
this affects the pricing of their goods due to their intense
competition. Therefore, Nike might decide to charge lower prices
for their goods to build a competitive advantage and gain more
1 https://www.investopedia.com/terms/l/law-of-supply-demand.asp
, customers, leading to an increase in sales resulting in Nike
breaking even quicker and also building a market leadership
within the sports industry. If Nike sell their goods for a lower price
than this would attract a wide range of customers globally,
resulting in a higher revenue therefore increasing the market
share of Nike. Nike need to have a good supply of raw materials
such as cotton and rubber, if there is less supply than there would
be less purchases of Nike goods such as shoes due to limited
quantity. This would not benefit Nike as their consumers might
switch to their rivals such as Adidas. To avoid this risk, Nike
should have a good relationship with their suppliers, this would
allow them to have a regular supply. If Nike don’t have a good
relationship with their suppliers, then they may receive less raw
materials leading them to sell less units of goods for a higher
price as there will be a higher demand for their goods. This will
lead Nike customers to be unsatisfied due to high prices and this
may result Nike customers to switch to their rivals such as Adidas
and Puma to getter cheaper goods such as shoes, clothing and
equipment. This would result in a decrease in revenue and profit
also lead to slow growth and take a longer time to breakeven.
Nike demand would increase depending on supply and price,
when the price is low the demand for goods will increase. This
would lead Nike to have an increased purchase volume.
Therefore, Nike should increase their supply of goods due to the
raising demand. This would enable Nike to charge lower prices.
Furthermore, even if there is enough supply the demand would
still stay high due to their good quality and brand image. This
would allow Nike to increase their premium prices leading Nike to
have a higher revenue and profit.
Nike have a monopolistic market structure which means they
have many similar sellers with close substitutes available
therefore firms change similar prices. There will be a dominant
firm with a large market share. This is a price leader and the
