Microeconomics: Understanding External Factors

When would a manufacturer absorb additional costs instead of increasing prices?

What happens to prices during a slump-period in the economy?

Why might a company not fix higher prices?

What is the term for a period of economic growth and price increases?

What is the result of government policies that promote healthy competition?

What is a key characteristic of external factors that affect a firm's pricing decisions?

What happens to the price of a product when demand is inelastic?

Why might a firm fix a higher price for a product if buyers perceive it as a symbol of prestige or utility?

What is a key objective of a seller in a highly competitive market?

Why might a firm increase the price of a product if the supplier charges a higher price for raw materials?

What is an example of a factor that affects pricing decisions due to buyer behavior?

Why might a firm offer a lower price for a product if demand is elastic?

Who are the three parties considered in pricing decisions related to raw material suppliers?

Demand affects pricing decisions, and firms should consider factors like buyer income, tastes, and preferences when setting prices.
Inelastic demand (e.g., necessity goods) allows for higher prices, while elastic demand requires lower prices to capture market share.
Buyers' behavior influences pricing, with habitual buyers accepting higher prices, and prestige or utility perception affecting product value.

Market competition drives firms to offer maximum utility at minimum prices, with each firm trying to outsell others with better quality products at lower prices.
Firms must consider competitors' prices and possibilities for increasing or decreasing prices.

Raw material suppliers' prices affect manufacturing costs, which can be passed on to consumers, increasing the final product price.
Large manufacturer profits can lead to higher raw material prices, and manufacturers may absorb additional costs rather than increasing prices further.

Favourable economic conditions (boom period) allow firms to set higher prices, while unfavourable conditions (slump period) require lower prices to maintain business.