The suggestion that a seller will try to set price based on "what the market will bear" is explicit recognition of the constraint imposed by:
A)the firm's marginal cost of production.
B)the price elasticity of demand for that item.
C)the firm's competitors.
D)the need for most firms to earn positive economic profits over time if they are to remain in business.

Question

Quizplus · Accepted Answer

The concept of "what the market will bear" implies that the seller is trying to set the highest possible price that the customers are willing to pay. This depends on the price elasticity of demand for the item, which measures how much the quantity demanded responds to changes in price. If demand is elastic, meaning that customers are very sensitive to price changes, the seller will have to set a lower price to sell a reasonable quantity. If demand is inelastic, meaning that customers are not very sensitive to price changes, the seller can set a higher price and still sell a decent amount. Therefore, the seller's pricing decision is constrained by the price elasticity of demand.

The Suggestion That a Seller Will Try to Set Price