Final answer:
Suppliers who can demand higher prices or reduce input quality show they are powerful, reflecting their market influence. Consumer demand and price elasticity also affect supplier decisions and market dynamics. Option 2 is correct..
Step-by-step explanation:
When suppliers can demand higher prices for their inputs or reduce the quality of the input factor delivered, they demonstrate that they are powerful. This power comes from their ability to influence market conditions or input costs to their advantage. In contrast, when consumers demand more goods than are available on the market, it drives prices higher, which in turn can bring more suppliers into the market, balancing supply and demand. The price elasticity of demand determines whether a business can pass on higher input costs to consumers or must absorb these costs to maintain competitive pricing in the face of market competition.
In the context of business, when suppliers can demand higher prices for their inputs or reduce the quality of the input factor delivered, they demonstrate that they are powerful. This is because they have the ability to exert influence and control over the terms of the business transaction.