What is Discount and Markup?

S3-SA1-0226

Grade Level:

Class 8

AI/ML, Data Science, Physics, Economics, Cryptography, Computer Science, Engineering

Definition

What is it?

Discount is a reduction in the original price of an item, making it cheaper for the buyer. Markup is the amount added to the cost of an item by a seller to determine its selling price, ensuring they make a profit.

Simple Example

Quick Example

Imagine you see a new cricket bat priced at ₹1000. If the shop offers a '10% discount', you pay ₹100 less. So, you get the bat for ₹900. On the other hand, if the shop bought the bat for ₹700 and wants to make a profit, they might 'markup' the price by ₹300 to sell it for ₹1000.

Worked Example

Step-by-Step

A mobile phone has a marked price of ₹15,000. The shop offers a 20% discount. What is the selling price? If the shop bought it for ₹10,000, what was their markup percentage?

1. Calculate the Discount Amount: Discount = 20% of ₹15,000
2. Discount Amount = (20/100) * 15,000 = ₹3,000
3. Calculate the Selling Price (after discount): Selling Price = Marked Price - Discount Amount
4. Selling Price = ₹15,000 - ₹3,000 = ₹12,000
5. Calculate the Markup Amount: Markup Amount = Selling Price (before discount) - Cost Price
6. Markup Amount = ₹15,000 (original marked price) - ₹10,000 (cost price) = ₹5,000
7. Calculate the Markup Percentage: Markup Percentage = (Markup Amount / Cost Price) * 100
8. Markup Percentage = (₹5,000 / ₹10,000) * 100 = 50%

Answer: The selling price after discount is ₹12,000. The markup percentage was 50%.

Why It Matters

Understanding discount and markup is crucial for managing money and making smart financial decisions, whether you're buying a new gadget or starting a small business. In fields like Economics and Data Science, these concepts help analyze market trends and pricing strategies. Even in AI/ML, algorithms use these ideas to optimize pricing for products and services, like dynamic pricing for flight tickets or e-commerce sales.

Common Mistakes

MISTAKE: Calculating discount on the selling price after discount. | CORRECTION: Always calculate discount on the original Marked Price (or List Price).

MISTAKE: Confusing markup percentage with profit percentage. | CORRECTION: Markup percentage is usually calculated on the Cost Price, while discount is on Marked Price. Profit percentage is also calculated on Cost Price.

MISTAKE: Adding discount instead of subtracting it. | CORRECTION: Discount always reduces the price, so you subtract the discount amount from the original price.

Practice Questions

Try It Yourself

QUESTION: A pair of shoes originally priced at ₹2500 is on sale with a 15% discount. What is the discount amount? | ANSWER: ₹375

QUESTION: A vendor buys a saree for ₹800 and wants to make a 25% profit. What should be the selling price? | ANSWER: ₹1000

QUESTION: An electric fan is marked at ₹3000. A shopkeeper offers a 10% discount, but still makes a profit of 20% on the cost price. What was the cost price of the fan? | ANSWER: ₹2250

MCQ

Quick Quiz

A book has a marked price of ₹400. If a 5% discount is offered, what is the final selling price?

₹380

₹395

₹405

₹375

The Correct Answer Is:

The discount amount is 5% of ₹400, which is ₹20. Subtracting this from the marked price (₹400 - ₹20) gives a selling price of ₹380. Options B, C, and D are incorrect calculations.

Real World Connection

In the Real World

Whenever you see 'Sale!' signs at your local market or on apps like Myntra and Amazon, you're looking at discounts. Shopkeepers and e-commerce platforms use markup to set prices, ensuring they cover costs and earn profit. Even your local chaiwala applies a markup to the cost of tea leaves and milk to decide the price of a cup of chai.

Key Vocabulary

Key Terms

Discount: A reduction in the original price of an item | Markup: The amount added to the cost price to determine the selling price | Marked Price (or List Price): The original price of an item as displayed | Selling Price: The price at which an item is actually sold | Cost Price: The price at which a shopkeeper buys an item

What's Next

What to Learn Next

Great job understanding discount and markup! Next, you should explore 'Profit and Loss' and 'GST (Goods and Services Tax)'. These concepts build directly on what you've learned and will help you understand how businesses calculate their earnings and how taxes affect prices in India.