Question:
Explain the following factors affecting price determination of a product :
(i) Utility and demand
(ii) Government and legal regulations
Explain the following factors affecting price determination of a product :
(i) Utility and demand
(ii) Government and legal regulations
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Utility and demand tell how much buyers value the product, and government rules can cap or alter the price.
Updated On: Oct 26, 2026
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Solution and Explanation
Step 1: Factors from the buyer and from the state:
Two more factors that influence the price are explained here.
Step 2: (i) Utility and demand:
Utility is the satisfaction the buyer finds in the product. Demand is the quantity people will buy at a given price.
A product with high utility and strong demand can be priced higher.
Buyers will not pay more than the value they see in it. So the price must stay within that value.
Step 3: (ii) Government and legal regulations:
The government can control the price of some goods in public interest, such as essential medicines and some food items.
It can fix a maximum price or a minimum price, or tax the product.
A firm has to follow these rules while setting the price.
Final Answer:
Utility and demand show how much buyers will pay, and government rules can limit the price that the firm may charge.
Two more factors that influence the price are explained here.
Step 2: (i) Utility and demand:
Utility is the satisfaction the buyer finds in the product. Demand is the quantity people will buy at a given price.
A product with high utility and strong demand can be priced higher.
Buyers will not pay more than the value they see in it. So the price must stay within that value.
Step 3: (ii) Government and legal regulations:
The government can control the price of some goods in public interest, such as essential medicines and some food items.
It can fix a maximum price or a minimum price, or tax the product.
A firm has to follow these rules while setting the price.
Final Answer:
Utility and demand show how much buyers will pay, and government rules can limit the price that the firm may charge.
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