Question 1

The collection and analysis of massive amounts of data, with the goal of measuring aspects of people's behavior is referred to as
A)marginal utility.
B)big data.
C)mega processing.
D)the Internet of Things.

Accepted Answer

The collection and analysis of massive amounts of data is generally referred to as "big data" and is used to measure aspects of human behavior, among other things. Choices A, C, and D do not accurately reflect this concept.

Question 2

The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.

Accepted Answer

This is the definition of arbitrage.

Question 3

The law of one price
A)states that consumers can only buy one good or service at a time.
B)is a law passed by Congress that prohibits firms from selling a product at two different prices in the same market at the same time.
C)states that consumers will pay any price for a product that has a perfectly inelastic demand curve.
D)states that identical products should sell for the same price everywhere.

Accepted Answer

The law of one price states that identical products should sell for the same price everywhere. This principle holds in competitive markets where there are no transportation costs or trade barriers. If the same product is sold at different prices in different markets, arbitrage opportunities arise where buyers can buy the product where it is cheaper and sell it where it is more expensive, driving prices towards equality.

Question 4

The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services are called
A)exchange costs.
B)implicit costs.
C)transactions costs.
D)selling costs.

Accepted Answer

Transactions costs are the costs associated with agreeing to and carrying out an exchange of goods or services. These costs can include the time and effort spent negotiating and enforcing contracts, as well as any other resources devoted to the transaction. Exchange costs, implicit costs, and selling costs are all different concepts that do not specifically refer to the costs of an exchange.

Question 5

Arbitrage refers to the act of
A)resolving a dispute in front of an arbitrator instead of a court of law.
B)buying a product in one market at a low price and reselling in another market at a higher price.
C)trading in the foreign exchange market.
D)suing a producer for illegal business practices.

Accepted Answer

Arbitrage refers to the practice of buying a product or asset in one market at a low price and simultaneously selling it in another market at a higher price to make a profit. It involves taking advantage of price discrepancies between different markets.

Question 6

According to the law of one price, identical products should sell for the same price everywhere if
A)consumers have knowledge of the prices charged for products in different markets.
B)transactions costs are zero.
C)firms can prevent consumers from engaging in arbitrage.
D)there are no tariffs or other restrictions on imports or exports.

Accepted Answer

The answer of According to the law of one price,...

Question 7

Differentiating products to suit customers' tastes is a form of price discrimination.

Accepted Answer

The answer of Differentiating products to suit customers' tastes is...

Question 8

Many firms use technology to gather information on the preferences of consumers and their responses to changes in prices.This information is then used to adjust prices of the firms' goods and services.This practice is called
A)price discovery.
B)empirical research.
C)yield management.
D)econometrics.

Accepted Answer

This practice is called yield management, which involves using data and technology to adjust prices based on consumer behavior and market conditions in order to optimize revenue. Price discovery refers to the process of determining the market price of a good or service based on supply and demand. Empirical research and econometrics are related to quantitative analysis and statistical modeling in economics, but do not specifically refer to this practice of adjusting prices based on consumer behavior.

Question 9

According to the law of one price
A)if transaction costs are zero, identical goods should sell for the same price everywhere.
B)if transactions costs are zero, firms must sell a product at a price equal to its marginal cost.
C)if transactions costs are zero, all firms must earn the same profit margin.
D)there must be no differences in the cost of producing identical goods by different producers.

Accepted Answer

The law of one price states that in the absence of transaction costs, identical goods should sell for the same price everywhere. This is because any price difference would create an opportunity for arbitrage, where people could buy the good in the cheaper market and sell it in the more expensive market, earning a profit from the price difference. Therefore, in a frictionless market with zero transaction costs, prices for identical goods should be the same everywhere.

Question 10

Which of the following will prevent firms from engaging in price discrimination?
A)yield management
B)arbitrage
C)transactions costs
D)odd pricing

Accepted Answer

Arbitrage is the process of buying a good or service at a low price in one market and selling it for a higher price in another market. If firms engage in price discrimination, they will charge different prices to different groups of consumers. However, if the price difference between these groups is significant enough, consumers may be incentivized to engage in arbitrage and resell the product to the group being charged the higher price. This would eliminate the price discrimination and prevent firms from engaging in it.

Question 11

Transactions costs refer to
A)the implicit costs of production.
B)the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services.
C)the raw material cost of production.
D)the cost of transporting goods from one destination to another.

Accepted Answer

Transactions costs refer to the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services. This includes costs such as negotiating prices, drafting contracts, and dealing with any disputes that may arise.

Question 12

In a perfectly competitive market, in the long run, arbitrage profits will be bid away.

Accepted Answer

In a perfectly competitive market, all firms have the same information and there are no barriers to entry or exit. This means that if there are any short-term arbitrage opportunities, they will be quickly exploited by market participants, leading to increased supply and decreased demand, which will ultimately drive down prices and eliminate any profits. Therefore, in the long run, there will be no arbitrage profits available in a perfectly competitive market.

Question 13

Harvey Morris bought dishes and pitchers made of blue glass during the Great Depression at a flea market.He later resold these items on eBay.The profits Harvey earned from these sales are
A)subject to a retail profits tax.
B)not economic profits because Harvey did not add value to the items but took advantage of the buyers who were not aware of how much Harvey paid for the items.
C)the result of arbitrage.
D)accounting profits but not economic profits.

Accepted Answer

Harvey's profits are the result of arbitrage, which is the act of exploiting price differences in different markets. In this case, Harvey found undervalued items at the flea market and sold them for a higher price on eBay, taking advantage of the market inefficiencies. Since he did not add value to the items himself, this is not considered economic profit, and he is not subject to a retail profits tax. However, he did make accounting profits from his sales.

Question 14

Many people sell goods through eBay at prices that are higher than the prices they paid for these goods.Economists consider these transactions as
A)examples of zero-sum games, since the value of the goods sold is exactly equal to the prices paid for them.
B)unproductive since the goods sold have been produced in the past.
C)examples of exploitation of buyers of the goods by the sellers.
D)examples of arbitrage.

Accepted Answer

This is an example of arbitrage, which is the practice of buying goods or assets in one market and selling them in another market at a higher price to make a profit. The sellers on eBay are taking advantage of price differences between the market where they bought the goods and the market where they are selling them.

Question 15

The law of one price holds exactly only if there are transactions costs associated with buying a product in one location and selling it in another location.

Accepted Answer

The law of one price holds exactly when there are no transactions costs associated with buying a product in one location and selling it in another location. If there are transactions costs, then there may be price differences that prevent the law of one price from holding exactly.

Question 16

The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called
A)yield management.
B)elasticity management.
C)brand management.
D)marketing.

Accepted Answer

Yield management is a pricing strategy where businesses adjust their prices based on consumer behavior and demand in real-time. It involves analyzing market demand, historical trends, and competitor pricing to determine the optimal price for a product or service at any given moment. This strategy is commonly used in the travel and hospitality industry, but it can also be used in other industries where prices are flexible, such as retail and e-commerce. Elasticity management, brand management, and marketing are all important aspects of pricing strategy, but they do not specifically refer to the process of rapidly adjusting prices based on consumer behavior.

Question 17

What is meant by the "law of one price"?
A)Identical products should sell for the same price everywhere.
B)A law was passed in 1913 that made it illegal to sell the same good or service to different people for different prices.
C)This is a section of the Sherman Act that forced trusts (for example, the Standard Oil Company)to charge the same price for the same good or service in different states.
D)Foreign companies should not be allowed to sell a product in the United States for prices different from prices these companies charge in other countries.

Accepted Answer

The law of one price states that identical products should sell for the same price everywhere, assuming no transaction costs or trade barriers exist.

Question 18

Today, Walt Disney World charges different customers different prices for admission.This pricing strategy is called
A)arbitrage.
B)odd pricing.
C)cost-price pricing.
D)price discrimination.

Accepted Answer

Walt Disney World uses price discrimination by charging different customers different prices for admission. This pricing strategy allows the company to maximize profits by charging customers with a higher willingness to pay a higher price and by offering discounts to those with a lower willingness to pay. This approach is common in many industries, including airlines and hotels, where prices can vary based on factors such as time of booking, demand, and customer characteristics.

Question 19

Harry attended a baseball card show in New York City where he bought a number of rookie cards of Pittsburgh Pirates baseball players from the 1950s and 1960s.Harry then sold the cards in Pittsburgh, Harry's hometown, where he knew the cards sold for higher prices.The profits Harry earned from these transactions are called
A)arbitrage profits.
B)normal profits.
C)accounting profits.
D)implicit profits.

Accepted Answer

The profits Harry earned are arbitrage profits because he bought the cards in one market where they were priced lower and sold them in another market where they were priced higher. This is a classic example of taking advantage of market inefficiencies to earn a profit.

Question 20

The law of one price states that identical products should sell for the same price everywhere as long as transactions costs are zero.

Accepted Answer

The law of one price is an economic theory that states that identical goods and services should be priced the same in all markets if transaction costs are zero, assuming there are no barriers to trade such as taxes or tariffs. This is because if two markets have different prices for the same good, then traders could buy low in one market and sell high in the other, with the difference in prices serving as profit. However, in reality, transaction costs exist, and thus the law of one price may not always hold, even for identical products.

Quiz 16: Pricing Strategy

The collection and analysis of massive amounts of data, with the goal of measuring aspects of people's behavior is referred to as

The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.

The law of one price

The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services are called

Arbitrage refers to the act of

According to the law of one price, identical products should sell for the same price everywhere if

Differentiating products to suit customers' tastes is a form of price discrimination.

Many firms use technology to gather information on the preferences of consumers and their responses to changes in prices.This information is then used to adjust prices of the firms' goods and services.This practice is called

According to the law of one price

Which of the following will prevent firms from engaging in price discrimination?

Transactions costs refer to

In a perfectly competitive market, in the long run, arbitrage profits will be bid away.

Harvey Morris bought dishes and pitchers made of blue glass during the Great Depression at a flea market.He later resold these items on eBay.The profits Harvey earned from these sales are

Many people sell goods through eBay at prices that are higher than the prices they paid for these goods.Economists consider these transactions as

The law of one price holds exactly only if there are transactions costs associated with buying a product in one location and selling it in another location.

The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called

What is meant by the "law of one price"?

Today, Walt Disney World charges different customers different prices for admission.This pricing strategy is called

The law of one price states that identical products should sell for the same price everywhere as long as transactions costs are zero.