Final answer:
Whether it is fair for companies to pass on rising business costs to consumers depends on the price elasticity of demand and consumer behavior. Businesses in markets with inelastic demand might increase prices, though this can be problematic. Consumers' focus on low costs has broader implications, including outsourcing and its impact on domestic employment.
Step-by-step explanation:
The question touches on a business's ethical consideration when passing costs on to consumers to cope with their own rising business costs. It is not uncommon for businesses to face increased costs due to various factors like rising prices for key inputs, such as petroleum for chemical companies or coffee for coffee shops, over which they have little control. Some of these costs inextricably make their way to consumer prices, but this practice lands in a gray area when considering the consumer's lack of attention to these changes.
Price elasticity of demand highly influences whether businesses can successfully pass on these costs. If a product is inelastic, meaning consumers will continue to buy it despite price changes, a company might be able to increase prices without significantly losing sales. However, for more elastic products, this could lead to a loss in sales volumes as consumers seek alternative solutions. On the other side of the coin, should businesses invent cheaper production methods, the competitive market could force them to reduce prices, passing on the savings to consumers, in hopes of maintaining or growing their market share.
In the wider context of consumer behavior, expensive goods such as flat screen televisions have seen prices drop due to various factors like outsourcing and economies of scale. Consumers, driven by a desire for low costs and discount shopping, have indirectly facilitated such market behaviors. However, there is an impact on domestic employment due to outsourcing and it raises further questions on the balance of benefits and drawbacks for a nation as a whole.
While it is illegal to set prices and carve up markets in many parts, the temptation to do so can be tempting for businesses who wish to secure higher profits despite legal risks.