Can Businesses Pass Costs on to Consumers?

Most businesses face a day-to-day struggle to figure out ways to produce at a lower cost, as one pathway to their

goal of earning higher profits. However, in some cases, the price of a key input over which the firm has no

control may rise. For example, many chemical companies use petroleum as a key input, but they have no

control over the world market price for crude oil. Coffee shops use coffee as a key input, but they have no

control over the world market price of coffee. If the cost of a key input rises, can the firm pass those higher

costs along to consumers in the form of higher prices? Conversely, if new and less expensive ways of producing

are invented, can the firm keep the benefits in the form of higher profits, or will the market pressure them to

pass the gains along to consumers in the form of lower prices? The price elasticity of demand plays a key role

in answering these questions.
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