Question 1

Ivan runs a bakery. He has lots of bills to pay: electricity, rent for the shop, the staff's wages, flour for bread, cakes and pastries, spelt for his special spelt loaf etc. His accountant says it is important to classify these costs correctly so that he can set the right prices for his products. How would you classify the cost of the spelt?

A) Fixed and direct
B) Variable and direct
C) Fixed and indirect
D) Variable and indirect
E) Marginal

B

Accepted Answer

The cost of spelt is variable because it changes based on the amount of spelt loaf Ivan produces. It is direct because it is directly associated with the production of the spelt loaf.

Question 2

What type of cost is 'mark-up' pricing based on?&#10;A) Fixed cost&#10;B) Variable cost&#10;C) Direct cost&#10;D) Indirect cost&#10;E) Marginal cost

Accepted Answer

C

Question 3

What is the term for the volume of products sold that, at a given price, will cover the company's costs?&#10;A) Equilibrium point&#10;B) Target profit&#10;C) Maximum profit&#10;D) Breakeven point&#10;E) Match point

Accepted Answer

The breakeven point is the volume of products sold at which total revenues equal total costs, meaning the company neither makes a profit nor incurs a loss.

Question 4

Miranda owns a chain of handbag shops across England and Wales. She has spotted a good location to set up a shop in Edinburgh but her handbags aren't well known in Scotland and there is quite a lot of competition. She thinks it's worth a try anyway and decides to undercut the competition, at least until she gets known. What pricing strategy is Miranda following?

A) Market skimming
B) Loss leader
C) Market penetration
D) Price discrimination
E) Export pricing

Accepted Answer

Miranda is using a market penetration pricing strategy, which involves setting a low price to enter a competitive market and attract customers quickly.

Question 5

Under which conditions would market skimming be likely to be a viable strategy?&#10;A) There is insufficient market capacity and competitors cannot make more of the product&#10;B) There are no competitors&#10;C) The demand for the goods in question is relatively price inelastic&#10;D) All of these&#10;E) None of these

Accepted Answer

Market skimming is viable when there is insufficient market capacity and competitors cannot easily enter the market (A), when there are no competitors (B), and when the demand for the goods is relatively price inelastic (C), meaning consumers are willing to pay a higher price. All these conditions (A, B, C) support the feasibility of a market skimming strategy.

Question 6

Marie is a software developer who works freelance. She wants her customers to really value her work and so she consistently sets her prices higher than the competition. Sometimes she loses work because of this, but often she wins the contract. What kind of pricing is she using?

A) Prestige pricing
B) Pre-emptive pricing
C) Product line pricing
D) Placement pricing
E) Price discrimination

Accepted Answer

Marie is using Prestige pricing, which involves setting higher prices to give the appearance of a high-value, premium product. This strategy can attract customers who associate higher prices with higher quality, even if it means losing some customers who are looking for lower prices.

Question 7

Woods and Co is one of the largest office furniture suppliers in the UK. They outsource manufacturing overseas, sell direct and keep their prices low. New firms who don't have Woods' economies of scale find it impossible to compete. What kind of pricing are Woods and Co using?

A) Prestige pricing
B) Pre-emptive pricing
C) Product line pricing
D) Placement pricing
E) Price discrimination

Accepted Answer

Pre-emptive pricing is used by Woods and Co by setting prices low enough to deter new entrants into the market, leveraging their economies of scale to maintain competitive advantage.

Question 8

Matt has some great Christmas gifts for sale but not enough people come into his shop and see them. They tend to shop at bigger retailers instead. He can't afford media advertising and so he decides to offer Christmas crackers for one penny each (well below what they cost him) to draw customers in. He puts a notice in the window advertising this bargain. What tactic is he using here?

A) Predatory pricing
B) Psychological pricing
C) Retail pricing
D) Discounts
E) A loss leader

Accepted Answer

Matt is using a loss leader strategy by selling an item at a loss to attract customers into his shop, hoping they will buy other items at regular prices.

Question 9

What is parallel importing?&#10;A) Trade customers buy goods cheaper abroad, import them and undercut the manufacturer&#10;B) A manufacturer piggybacks on another manufacturer's distribution channel&#10;C) A manufacturer imports and prices two product lines together&#10;D) Distributors put together a large shipment of different goods to cut costs&#10;E) An agreement between two companies to swap shipments of goods without any money changing hands

Accepted Answer

Parallel importing involves trade customers purchasing goods in a country where they are sold at a lower price, then importing them into their own country to sell at a price that undercuts the official manufacturer's price in the local market. This practice is common in markets where price differences exist for the same product across different countries.

Question 10

If a product is said to have a price inelastic demand curve, what does this mean?&#10;A) If you put the price up, sales will stay the same&#10;B) If you the price down, sales volume will fall&#10;C) If you change the price, sales volume will change very little&#10;D) To sell more products, you should raise the price&#10;E) To make more sales revenue, you should lower the price

Accepted Answer

When a product has a price inelastic demand curve, it means that changes in price do not significantly affect the quantity demanded. Therefore, if the price changes, the sales volume will change very little, indicating consumers' relative insensitivity to price changes for that product.

Deck 10: Price