Question 1

The key to successful pricing is to match the product with the consumer's perception of value.

Accepted Answer

Successful pricing involves setting a price that aligns with the consumer's perceived value of the product. If the price is too high, it can deter customers, while a lower price may lead customers to perceive the product as low quality. Therefore, identifying the consumer's perception of value and pricing accordingly can lead to a successful pricing strategy.

Question 2

A demand curve shows the relationship between income and demand.

Accepted Answer

A demand curve shows the relationship between price and quantity demanded of a good or service, not income and demand.

Question 3

A gray market employs irregular but not necessarily illegal methods of distributing products.

Accepted Answer

The statement is correct. A gray market refers to the distribution of products through channels that are not authorized by the manufacturer or trademark owner, but the methods used are not necessarily illegal.

Question 4

At the break-even point, profits are maximized.

Accepted Answer

At the break-even point, profits are zero, not maximized. Maximized profits occur at a point beyond the break-even point where total revenues exceed total costs.

Question 5

The Robinson-Patman Act does NOT apply to end consumers, at which point many forms of price discrimination occur.

Accepted Answer

The Robinson-Patman Act applies only to price discrimination between different purchasers or customers at the wholesale or retail level, and not to price discrimination at the end consumer level. Therefore, many forms of price discrimination can occur without violating the Robinson-Patman Act.

Question 6

Firm A has set very low prices for its products in an attempt to drive its competitor, Firm B, out of business. This is known as monopolistic pricing.

Accepted Answer

This is incorrect. The statement describes predatory pricing, not monopolistic pricing. Monopolistic pricing is a situation where a firm has control over the price of its own product due to lack of competition, while predatory pricing is an anticompetitive tactic where a firm temporarily lowers prices below cost to drive competitors out of business.

Question 7

Proving that a company has engaged in the deceptive bait and switch practice is easy.

Accepted Answer

Proving that a company has engaged in deceptive bait and switch practices can be difficult, as it often requires evidence that the company knowingly and intentionally made false or misleading claims to attract customers. Additionally, companies may use tactics that are technically legal but still deceptive, which can make it challenging to prove deceptive practices.

Question 8

Brands that have developed loyal customers have a higher price elasticity of demand.

Accepted Answer

Brands with loyal customers often have a lower price elasticity of demand because their customers are less sensitive to price changes and more likely to continue purchasing the product even if prices increase.

Question 9

Odd prices suggest low quality.

Accepted Answer

Odd prices are often used to create the illusion of a discount or to make a product seem more exclusive. However, there is no evidence to suggest that odd prices are indicative of low quality.

Question 10

Diana owns a boutique specializing in ball gowns. Sales are stable and Diana feels it is time she had a 20 percent increase in her salary. If Diana takes this increase in compensation, it will decrease the break-even quantity of gowns she needs to sell on a monthly basis.

Accepted Answer

Increasing Diana's salary will increase her fixed costs, which will raise the break-even quantity of gowns she needs to sell.

Question 11

Cheryl wants to quickly establish a dominant market share for her new line of ergonomic pens. To do this, she will likely use a market penetration pricing strategy.

Accepted Answer

A market penetration pricing strategy aims to establish a dominant market share quickly by setting low prices for a new product. This strategy can help attract customers away from competitors and establish brand loyalty.

Question 12

The demand curve for prestige products generally slopes downward due to higher prices.

Accepted Answer

The demand curve for prestige products often slopes upwards at certain ranges because higher prices can increase the perceived value and desirability of these products, leading to increased demand.

Question 13

Rarely is the lowest-price product offering the dominant brand in a given market.

Accepted Answer

In many markets, other factors such as quality, brand reputation, and customer service are important to consumers and may lead them to choose a more expensive product over a lower-priced one.

Question 14

If a firm is engaged in monopolistic competition, it should seek a way to differentiate itself.

Accepted Answer

In monopolistic competition, firms differentiate themselves through product differentiation to create a perceived difference in the minds of consumers. This helps them maintain some level of market power and a degree of price-setting ability.

Question 15

When Sony released its PlayStation 3 game machines, it charged a high price, attracting the most avid game players. This was a market penetration pricing strategy.

Accepted Answer

The answer of When Sony released its PlayStation 3 game...

Question 16

Price is the only part of the marketing mix that does not generate costs.

Accepted Answer

Price generates revenue rather than incurring costs, unlike product development, distribution (place), and promotion, which all involve costs.

Question 17

Because consumers are generally more sensitive to price increases than to price decreases, it is easier to lose current customers with a price increase than it is to gain new customers with a price decrease.

Accepted Answer

This is known as the "asymmetry of price sensitivity" and has been studied by economists and marketers. Consumers tend to be more attuned to price increases and may seek out cheaper alternatives or simply choose to forego the product or service altogether. In comparison, price decreases may not necessarily attract new customers as they may perceive the product or service as lower quality or less valuable. Therefore, companies need to carefully consider the potential impact of a price increase on their customer base.

Question 18

In U.S. markets, there are many substitute products for Fruit Loops cereal, suggesting the price elasticity of demand for Fruit Loops is high.

Accepted Answer

The presence of many substitute products suggests that consumers have options and are likely to switch to another product if the price of Fruit Loops increases, indicating a high price elasticity of demand.

Question 19

When a retail store rarely sells deeply discounted or sale products, it is known as everyday low pricing.

Accepted Answer

Everyday low pricing refers to a pricing strategy where a retailer sets its prices lower than its competitors and rarely offers deep discounts or sales.

Question 20

Price is the cash expenditure plus taxes that consumers have to pay for a good or service.

Accepted Answer

The answer of Price is the cash expenditure plus taxes...

Quiz 14: Pricing Concepts for Establishing Value