Question

When Smashburger founder Tom Ryan discusses the challenges the company had finding the right price​ point, he mentions that if the price was too​ high, there​ wouldn't be enough demand to justify the price point. This is known as​ __________.

Answer 1

The situation where a high price leads to a decrease in demand, which Smashburger founder Tom Ryan mentioned, is known as inelastic demand. A balance needs to be struck to ensure adequate demand without setting prices beyond what customers are willing to pay, maintaining a profit-maximizing equilibrium.

Step-by-step explanation:

When Smashburger founder Tom Ryan mentions the challenges the company faced in finding the right price point, he refers to a situation where if the price were too high, there wouldn't be enough demand to justify the price point. This is known as the price becoming inelastic, where the quantity demanded declines as the price reaches a certain threshold. In basic economic terms, this effect is contrary to the model of demand and supply. Businesses must find a profit-maximizing balance between price and quantity sold to maximize revenue without deterring customers due to high prices. Conversely, a price set too low might increase the quantity demanded but may not generate sufficient revenue, also known as the price being too elastic. The challenge for a company, especially a monopolist, is to find the equilibrium point that maximizes profit without exceeding the natural limits of what consumers are willing to pay.

Answer 2

This known as MARKET EQUILIBRIUM. A Market Equilibrium is an intersection where the demand and supply in a particular market meets. The prices of goods and services are set to the amount of supply that a company can provide. If the prices are too high, consumers are not encouraged to buy products, therefore the equilibrium will experience an imbalance.