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Questions and Answers
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?
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What is the result of government policies that promote healthy competition?
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What is a key characteristic of external factors that affect a firm's pricing decisions?
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What happens to the price of a product when demand is inelastic?
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Why might a firm fix a higher price for a product if buyers perceive it as a symbol of prestige or utility?
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What is a key objective of a seller in a highly competitive market?
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Why might a firm increase the price of a product if the supplier charges a higher price for raw materials?
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What is an example of a factor that affects pricing decisions due to buyer behavior?
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Why might a firm offer a lower price for a product if demand is elastic?
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Who are the three parties considered in pricing decisions related to raw material suppliers?
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Study Notes
External Factors Affecting Pricing Decisions
- 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.
Competition and Pricing
- 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.
Supply Chain and Pricing
- 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.
Economic Conditions and Pricing
- Favourable economic conditions (boom period) allow firms to set higher prices, while unfavourable conditions (slump period) require lower prices to maintain business.
Regulatory Environment and Pricing
- Government regulations and policies can restrict price increases or promote competition, influencing firms' pricing decisions.
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Description
Learn about external factors that affect a firm's pricing decisions, including demand, and how they impact business strategies.
