Risk of Entry by Potential Competitors in Fast Food Industry
6. The common sense of principle that defines the generally observed relationship between demand, supply, and prices: as increases the price goes up, which attracts new suppliers who increase in supply bringing the price back tom normal. However, in the marketing of high price (prestige) goods, such as perfumes, jewellery, watches, Cars, Liquor, a low price may be associated with low quality, and may reduce demand. Demand is how much desire consumer have for de product or service is available .
When demand is great and supply is low the price of a product or service increase when demand is low and supply is great . The price of a product or service decreases. The effect on price is the quantification of supply and demand.
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Demand in many instances is driven by disposable income and free time. Henry ford recognized this in increasing the wages of his workers and decreasing their work time. 8. Relationship between risk and return The relationship between risk and return is a fundamental financial relationship that affects expected rates of return on every existing asset investment.
The Risk-Return relationship is characterized as being a “positive” or “direct” relationship meaning that if there are expectations of higher levels of risk associated with a particular investment then greater returns are required as compensation for that higher expected risk. Alternatively, if an investment has relatively lower levels of expected risk then investors are satisfied with relatively lower returns. This risk-return relationship holds for individual investors and business managers.
Greater degrees of risk must be compensated for with greater returns on investment. Since investment returns reflects the degree of risk involved with the investment, investors need to be able to determine how much of a return is appropriate for a given level of risk. This process is referred to as “pricing the risk”. In order to price the risk, we must first be able to measure the risk (or quantify the risk) and then we must be able to decide an appropriate price for the risk we are being asked to bear.