## What is 'Choke Price'

Choke price is an economic term used to describe the lowest price at which the quantity demanded of a good is equal to zero. At any price below the choke price, consumers will demand some quantity of the good. At any price equal to or above the choke price, consumers will not express any demand for the good.

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## BREAKING DOWN 'Choke Price'

The choke price is reached when the price rises to the level at which demand for that item (or commodity â€“Â the term is often used in commodities trading) reaches zero. The choke price is the exact point at which demand ceases. Buyers are also not interested in anything with a higher price, but the choke price is the lowest price atÂ which there is zero demand. Financial analysts use theÂ choke price to analyzeÂ demand and supply.

MostÂ often,Â a chokeÂ priceÂ isÂ associatedÂ withÂ naturalÂ resources.Â ForÂ example,Â economistsÂ mayÂ discussÂ theÂ priceÂ perÂ barrelÂ ofÂ oilÂ atÂ whichÂ consumersÂ simplyÂ noÂ longerÂ buyÂ oil.Â Colloquially,Â aÂ chokeÂ mayÂ referÂ toÂ aÂ priceÂ atÂ whichÂ demandÂ drops,Â but aÂ chokeÂ price isn't reached until there is noÂ demandÂ atÂ all.

By using a demand schedule and/or demand curve, a company can see where the choke price is as well as the differences in the quantity of a good that consumers will demand at different prices. For example, consumers might purchase 200 units of a good at \$40, 1,000 units of a good at \$20 and 2,500 units at \$10, but zero units at \$50. Therefore, \$50 would be the choke price.

## How a Shift in Demand Affects Choke Price

Suppose that the consumersâ€™ income rises. This causes demand for a normal good to rise. Demand typically becomes less elastic as well. This is a situation in which a aÂ firm should consider raisingÂ its prices.Â For example: with linear demand, an increase in income causes the demand curve for a normal good to shift to the right without changing its slope. Thus, the choke price rises and demand becomes less elastic; volume goes up at as well. Whether the firm has constant or increasing marginal cost, it should increase its price.

## How a Price Increase Affects Choke Price

A price increase on a complementary good will usuallyÂ lowerÂ demand for theÂ complementaryÂ good.Â Such an increaseÂ usuallyÂ makesÂ demand forÂ theÂ firmâ€™s good more elastic.Â For example: with linear demand, an increase in the price of a complementary good causes the demand curve to shift to the left without changing in slope. Thus, the choke price falls and demand becomes more elastic.

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