Final answer:
Consumers valuing fairness impact business decisions, leading firms to be cautious about raising prices in response to increased demand to maintain positive consumer relationships and a fair reputation.
Step-by-step explanation:
The fact that consumers value fairness can significantly influence the decisions that businesses make. Consumers may perceive a company more negatively if it raises prices in response to increased demand, as this could be seen as taking advantage of the situation rather than being fair. Thus, firms might avoid raising prices in such scenarios to maintain a positive relationship with consumers and uphold a reputation for fairness. This is especially relevant in markets with perfect competition, where long-run equilibrium means firms will earn zero economic profits, and where price is influenced by the intersection of the marginal cost curve and the average cost curve.
However, firms also need to cover the cost of production and make a profit, so if production costs increase, prices may still need to rise, which can be a delicate balance to strike while considering consumer perceptions of fairness. The decision on pricing and how a firm responds to demand can also be influenced by the level of competition in the market, as higher competition often leads to better prices and quality for consumers.