Consumer Resistance, Producer Resistance and The Determination of Discount.

What is Consumer Resistance?

It is a common phenomenon that we as consumers want to purchase goods and services at the lowest possible price without a compromise on price. It is usual for us to engage in an argument for the sake of getting a price cut. For example we go to a fruit shop and are always on the look for a good bargain. So, we as consumers resist on the payment of high prices. We want to bring down the prices as much as we can without compromising on utility.

What is Producer Resistance?

The producers are individuals that seek to maximize their profits by charging higher prices. The producers resist the consumers’ desires for price cuts. The producers are willing to keep the price as high as possible in relation to maximizing profits. Continuing from the example where we left we can add that the fruit seller won’t like to bring down the prices (lower his profits) but may have to do that in a bid to sell the desired quantity of fruit.

The Consumer Surplus and Consumer Demand

The consumers demand curve is a downward sloping curve showing the negative relation ship between demand and price. Other things remaining constant, this means the lower the price, the greater the demand.

Now, the consumer surplus is the excess of what the consumer was willing to pay over what he actually pays in the form of the price being charged. So, the lower the price the greater the consumer surplus. That supports the fact that consumers would be on the look out for lower prices.

The Producer Surplus and Producer Supply

The supply curve is an upward sloping curve that shows a positive relation between the quantity supplied and the price. This means that other things remaining constant the higher the price the higher would be the quantity supplied. The producer surplus is the excess of what the producer actually receives over what he was willing to receive. That necessarily means that the greater the price he receives the greater his surplus. Thus that supports his bid of charging a higher price.

What is Discount?

We usually refer to discount as cash or trade discount. Cash discount is the discount that is awarded on the basis of prompt payment in order to encourage debtors to pay off their debts quickly. Trade discount on the other hand is awarded to buyers on the basis of bulk purchases. In our study we consider discount as a part of the producer surplus that the producers forego in order to sell desired quantity of goods and services. A discount in simple words is a negative price, a contra price, reduction in the consumer surplus or an addition to the consumer surplus.

Relationships Between Discount and Consumer Demand

As mentioned earlier that discount is a contra or a negative price. So, the greater the discount, the lower the price. Now looking at the demand aspect, consumers demand more at low prices. So, the greater the discount, the lower the price, the greater the consumer surplus and thus a higher consumer demand. Moreover we can infer that there exists a positive relation ship between discount and demand. The relation can be shown by a positively sloped curve.

Relationships Between Discount and Producer Supply

As the discount is a contra price, so the greater the discount, the lower the price. At lower prices producer supply is low and ultimately their surplus is lower. Thus, the relationship between discount and supply can be shown by a negatively sloped curve.

Equilibrium Devised Through the Discount, Consumer Demand and Producer Supply Relation

Now if we combine the two curves constructed above we can get the equilibrium.

Relationship Between Discount and Consumer Resistance

We can infer that discounts are good for the consumers, thus a consumer would never resist against higher discounts. So, we can say that, the higher the discounts, the lower the level of consumer resistance. The relationship between the two can be represented graphically by a downward sloping curve showing a negative relation between the two.

Relationship Between Discount and Producer Resistance

On the other hand the discounts are bad for the producer. The producers desire the charging of higher prices, so they would resist against the demand of high discounts. Thus, the higher the discounts, the higher the producer resistance. The relationship can be summed up by an upward sloping curve that depicts a positive relation between the two.

Equilibrium Devised Through the Discount, Consumer Resistance and Producer Resistance Relation.