What factors must a firm consider when deciding to raise or lower its price?

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Deciding to Raise or Lower Prices


Answer the short answer question. 

What factors must a firm consider when deciding to raise or lower its price? In other words, what are the factors a price change would have impacts on? In answering this question think about the content of price elasticity of demand and use a real-world example that helps illustrate your answer.

Additional information below to help with your answer:

First, a firm needs to consider the price elasticity of demand of its product because demand elasticity allows the firm to analyze the impact of a price change on its sales revenue. The price elasticity of demand of a product represents the responsiveness or sensitivity of consumers to a price change in the product. The more responsive consumers are to a price change, the higher elasticity of the demand for the product. While some products have elastic demand, others have inelastic demand. The most important factor that determines a product’s demand elasticity is the availability of substitute goods. Other factors that help determine a product’s demand elasticity include time and the product’s share of the consumer’s total budget. By time, I mean that over the long term, a product’s demand tends to become more elastic due to the emergence of substitute goods and consumers’ adjustment of consumption behavior.

Depending on the elasticity of demand, same price change can have a totally different impact on total revenue. Managersneed to know the demand elasticity of their products in order to understand the effects of a price change. In addition to price elasticity of demand, you may have thought about other factors that firms need to consider when deciding to change the price of an existing product. Please keep in mind that for this assignment, we are not talking about setting the price for a new product, which is a different topic, nor are we talking about the causes for changing the price of an existing product. 


Deciding to Lower or Raise Prices Student Name: Institutional Affiliation Date: As a firm, having pricing policies is not enough to warrant rising of commodities price. There are a significant number of factors to be put into place; carrying out research on the market for the customers, and the external environments in either lowering or raising prices. It is crucial for firms to have the knowled


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