Final answer:
To determine a customer price range for an item, analyze production costs and consumer spending patterns, using a weighted average approach based on a basket of typical purchases. This considers the varying importance of items in the overall cost of living.
Step-by-step explanation:
The most effective way to determine a customer price range for an item involves analyzing both consumer behavior and production costs. Suppliers of economic products must decide on the quantity to offer at various price levels, accounting for what is cost-efficient for production. In parallel, consumers consider what they value and what they're willing to pay for goods and services, essentially helping to determine a fair market price.
To effectively calculate a price level, economists use a weighted average approach based on a basket of goods and services. This basket represents typical purchases by individuals, businesses, or organizations. Economists track how the prices of these items change over time. Since some items hold a greater financial significance to consumers (like housing versus carrots), their prices are given more weight in determining the overall price level or inflation.
When advising Sam or any individual on establishing a price range for items, these principles apply. One must consider not only the average of prices but the weighted importance based on consumer spending patterns and the cost of production. This holistic view optimizes price setting in a competitive market.