The first goal of every business is to make profit and every business owner or business entity has to set their prices such that the business is profitable at the end of the day.
The concept of price cap is used by government on general commodities like agricultural products and petroleum products that are always in demand in every industry and household.
This concept is usually to enable the end consumers to afford products and services at an affordable amount so the government sets a price range which every distributor or sales organization are to sell within.
To stabilize the product or service, because in the grand scheme of things a business owner is supposed to calculate the cost of goods and transport, running cost, operational cost, and a lot of other costs into the price of a commodity, and when this is done, the prices begin to vary from one organization to another and from one location to another.
In the concept of a price cap, market stability is the main focus, which is aimed at protecting both sellers and buyers, but the government bears the transportation cost to enable its effect.
The concept of price cap cannot be used on every commodity because every good and service has a target audience, apart from the very general commodities like food.
And since the purpose of every business is to make profit, a price cap is not a good concept for most businesses because they would have to factor in their cost of production, amongst all other costs, to arrive at the final price of a commodity.
Even farmers now do proper accounts to ensure that the business is making profit because when you place a market cap that is lower than the cost of production, it becomes an issue for producers to sell.
Furthermore, the cost of production may differ from one environment to another, and you cannot get a commodity for less than the cost of production.
And this is why every business must have a particular target audience that they know can afford the product they are selling.
Also, people buy commodities for different reasons, and based on this, the prices differ. For example, some people buy some goods because of status; a good example of this is the iPhone—it is not for everybody.
Some people also buy for comfort; this tells me that beyond the commodity that a brand is selling, the feeling consumers get from purchasing such commodities also influences pricing.
This is the reason there are varieties of products and services out there so every consumer knows what they can afford, the producer knows their target audience, and everybody is happy.
Once a business is able to figure out their target audience, they can set their price as they wish, and the people who know the value of such products and services will patronize such a business.
When a customer is satisfied with the quality of a product or service, the pricing becomes favorable to them, provided they can afford it, so businesses should not be restricted by price caps because there are regular goods and services and there are premium ones, and it depends on what the consumers can afford.
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The image used is AI generated.
Posted Using INLEO
