Question

In: Economics

Write two paragraphs explaining if you are in agreement or disagreement with the statement "Low prices...

Write two paragraphs explaining if you are in agreement or disagreement with the statement "Low prices are good for the economy."

Solutions

Expert Solution

  • According to me lower prices are not too good for the economy even though people prefer having lower prices for the goods and services they purchase.
  • Lower prices can spoil the brand image as those who purchase high quality products perceive that lower price for any good is because of its lower quality. This thought develops negatively in the minds of people and the producer's and suppliers are affected.
  • To maintain lower prices so as to attract more customers away from competitor's the firms often produce excess quantities by neglecting the externalities. Lower prices in the economy also leads to over consumption that can create negative externalities.
  • Lower prices also affect the firms and businesses because, they lower the prices to attract more customers, but this increases their cost of production which decreases their profits. To maintain their profits, these firms and businesses employ unfair means like adding low quality inputs during the production of goods and services instead of high end inputs.
  • When firms are forced to lower the prices of various goods and services, many workers loose their jobs as firms lay them off due to Falling profits.
  • Thus even if low prices are a boon for some section's of society, on other hand they are bane for others.

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