Question : Which factor affecting price determination is highlighted in the given statement?
Statement: It is affected by intensity or price elasticity of demand.
Option 1: Product cost
Option 2: Utility and demand of the product
Option 3: Extent of competition in the market
Option 4: Government and legal regulations
Correct Answer: Utility and demand of the product
Solution : Price is affected by intensity or price elasticity of demand. When demand is elastic relatively small change in price results in large change in the quantity demanded. In case of inelastic demand total revenue increases with increase in price that is if the demand is inlastic the firm is in a better position to fix higher prices.
Hence, option B is correct.
