The following sets upper limit of price which a buyer is prepared 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 of price. A firm must at least cover its costs over time.
Option (2) Utility and Demand — Correct. The utility a buyer gets from the product and the strength of his demand fix the upper limit of price. This is the most he is prepared to pay.
Option (3) Extent of Competition in the market — Incorrect. Competition decides where the price settles between the lower and the upper limit. With less competition the price moves towards the upper limit, but competition does not set that limit.
Option (4) Pricing Objectives — Incorrect. Objectives such as profit or market share guide the firm’s choice of price within the limits. They do not decide what the buyer will pay.
NCERT (2026-27 Edition): “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. …” |