The following formula is used to calculate the new price after a price increase:
\[ NP = OP \times \left(1 + \frac{i}{100}\right) \]
Where:
To calculate the new price from a price increase, multiply the original price by the sum of 1 plus the percentage increase over 100.
A price increase is defined as the change in the price of a good to a larger amount typically based on the percentage of the original price.
Why do prices increase?
Prices can increase for any number of reasons. The most common being a cost increase in raw materials, and increased demand, or a need for more profit.
Can price increase demand?
Demand can actually increase with an increase in price. The reason for this is that sometimes a consumer will think a product has a better quality if the price is higher than other products and may tend to purchase the more expensive item.
What happens when prices increase?
When prices increase there will be a change in demand. Most often this will decrease demand, but in rare cases, demand can also increase. When price increase supply will have to change to meet the change in demand. When price increases total revenue may increase if demand stays the same. This is known as the price elasticity of demand.
What is a reasonable price increase percentage?
The only way to measure a reasonable price increase is to determine the price elasticity of demand and determine the optimal price for a good or service. From a consumer’s perspective the smaller the percentage increase the better. From a business perspective, the largest percentage increase that doesn’t decrease demand is ideal.
Let's say you have a product that originally costs $50 and you want to increase the price by 10%. Using the formula:
\[ NP = 50 \times \left(1 + \frac{10}{100}\right) \]
\[ NP = 50 \times 1.10 = 55 \]
So, the new price of the product will be $55.