Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Firms can set higher prices regardless of consumer preferences.
B
Consumer demand elasticity affects how much a firm can raise prices.
C
Pricing power is solely determined by production costs.
D
Consumer behavior has no impact on pricing strategies.
Understanding the Answer
Let's break down why this is correct
Answer
Consumer behavior greatly affects a firm's ability to set prices in a competitive market. When consumers show a strong preference for certain products or brands, firms can increase their prices because people are willing to pay more for what they like. For example, if many customers prefer a specific type of smartphone because of its features, the company can charge higher prices compared to less popular models. However, if consumers are very price-sensitive and can easily switch to cheaper alternatives, firms may need to lower their prices to attract buyers. Therefore, understanding what consumers want and how they react to price changes is crucial for firms to effectively manage their pricing strategies.
Detailed Explanation
When consumers are sensitive to price changes, a firm can't raise prices too much. Other options are incorrect because Some might think firms can always charge high prices; It's a common mistake to think only production costs matter.
Key Concepts
consumer behavior
pricing power
Topic
Market Adjustments and Firm Behavior
Difficulty
medium level question
Cognitive Level
understand
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