Which of the following sets the upper limit of price which a buyer is ready to pay?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Utility and Demand
Option (1) Product Cost — Incorrect. Cost sets the lower limit (the floor price) of the price. The seller does not want to sell below cost.
Option (2) Utility and Demand — Correct. The utility (usefulness) of the product and the intensity of demand of the buyer set the upper limit of price which a buyer would be ready to pay. A buyer pays only up to the point where the product is worth at least the price.
Option (3) Extent of competition in the market — Incorrect. Competition decides where the price settles between the lower limit and the upper limit. It does not set the upper limit.
Option (4) Pricing Objectives — Incorrect. These are the firm’s own aims, such as profit or market share. They guide the seller’s price, not what the buyer is ready to pay.
NCERT (2026-27 Edition): “Product cost: One of the most important factor affecting price of a product or service is its cost. This includes the cost of producing, distributing and selling the product. The cost sets the minimum level or the floor price at which the product may be sold. …” “The Utility and Demand: While the product costs set the lower limits of the price, the utility provided by the product and the intensity of demand of the buyer sets the upper limit of price, which a buyer would be prepared to pay. In fact the price must reflect the interest of both the parties to the transaction—the buyer and the seller. The buyer may be ready to pay up to the point where the utility from the product is at least equal to the sacrifice made in terms of the price paid. …” “Extent of Competition in the Market: Between the lower limit and the upper limit where would the price settle down? This is affected by the nature and the degree of competition. …” |