Question 1

According to the law of one price

Accepted Answer

The law of one price states that identical goods should sell for the same price everywhere, assuming transaction costs are zero. This is because in a competitive market, consumers will seek out the lowest price for a good, and suppliers will compete to offer the lowest price in order to attract customers. This competition drives prices towards equilibrium and prevents any one firm from charging significantly more than others for the same good. However, if transaction costs exist, such as transportation or tariffs, differences in price may arise due to differences in these costs.

Question 2

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 states that identical products should sell for the same price everywhere as long as transactions costs are zero. This means that if there are no barriers to trade, such as tariffs or transportation costs, the price of a product should be the same in all locations.

Question 3

The law of one price

Accepted Answer

The law of one price states that identical products should sell for the same price everywhere. This means that in a competitive market, the price of a good or service should be the same regardless of location, as there should be no difference in supply or demand that would cause the price to vary.

Question 4

Transactions costs refer to

Accepted Answer

Transactions costs refer to the costs incurred by parties while executing transactions, which may include information search and processing costs, negotiation and decision-making costs, and monitoring and enforcement costs. They are not related to the actual production or transportation of goods.

Question 5

Walt Disney began planning for Disneyland in the early 1950s.When he began to consider how the amusement park would be funded

Accepted Answer

The answer of Walt Disney began planning for Disneyland in...

Question 6

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

Accepted Answer

Harry engaged in arbitrage by taking advantage of the price difference between the New York City market and the Pittsburgh market. The profits he earned from this activity are called arbitrage profits.

Question 7

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

Accepted Answer

Walt Disney World uses price discrimination by charging different prices for admission based on factors such as age, residency, and time of year. This allows them to maximize revenue and target different segments of customers with different price sensitivities.

Question 8

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 9

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

Accepted Answer

This process is called yield management, which is a pricing strategy that involves adjusting prices according to changes in demand in order to maximize revenue. It is commonly used in industries such as hotels, airlines, and rental cars. Elasticity management is a similar concept, but it specifically refers to adjusting prices based on the price elasticity of demand for a particular product or service. Brand management and marketing are broader concepts that encompass a range of activities related to managing and promoting a company's brand and products.

Question 10

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

Accepted Answer

The profits Harvey earned from reselling the blue glass items are the result of arbitrage, which is the practice of buying low-priced goods in one market and selling them in another market where the price is higher. Harvey took advantage of the price discrepancy between the flea market and eBay to earn a profit without adding value to the items. The profits would not be subject to retail profits tax, and it is not necessarily true that Harvey took advantage of buyers who were not aware of his purchase price. The profits would be accounting and economic profits since Harvey was able to earn a return on his investment.

Question 11

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

Accepted Answer

The practice described in the question is called yield management. Yield management involves using data and technology to adjust prices based on consumer preferences and responses to changes in prices. This allows firms to maximize their revenue and profits by setting prices that are most likely to attract customers while still generating income. Price discovery refers to the process of determining the market price of a good or service, whereas empirical research and econometrics are broader terms that refer to the use of data and statistical analysis in economics and other fields.

Question 12

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

Accepted Answer

Arbitrage is the process of taking advantage of price differences in different markets. If firms engage in price discrimination, they would charge different prices to customers for the same product or service. Arbitrageurs would buy the product or service at the lower price and sell it at the higher price, eliminating the price difference and preventing firms from engaging in price discrimination. Yield management and odd pricing are pricing strategies that can be used for price discrimination, and transactions costs are unlikely to prevent price discrimination.

Question 13

When Disneyland opened in 1955,what prices were charged for admission and rides?

Accepted Answer

All customers paid the same low price of $1 for admission to Disneyland in 1955, and then they were also charged prices for rides.

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

Accepted Answer

This is an example of arbitrage, where sellers are able to buy goods at a lower price and sell them at a higher price due to market inefficiencies or differences in supply and demand. It is a legitimate and productive activity in the economy.

Question 15

Arbitrage refers to the act of

Accepted Answer

Arbitrage involves buying and selling the same asset simultaneously in different markets to take advantage of the price difference, resulting in a profit with little to no risk.

Question 16

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, and it is a common strategy used in financial markets to take advantage of price differences between markets.

Question 17

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

Accepted Answer

In a perfectly competitive market, prices are determined by the forces of supply and demand, and there are no barriers to entry or exit for firms. This means that if there were any arbitrage opportunities (i.e. buying low and selling high to make a profit), more firms would enter the market to take advantage of them, causing prices to adjust until there is no longer any profit to be made. Therefore, in the long run, any arbitrage profits will be bid away, making the market perfectly efficient.

Question 18

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

Accepted Answer

Transaction costs refer to the costs that parties incur in the process of agreeing to and carrying out an exchange of goods or services. This includes costs such as negotiation, contracting, and monitoring costs. Options A, B, and D are not correct as they refer to different types of costs. Exchange costs refer to the costs of actually exchanging the goods or services, implicit costs refer to opportunity costs, and selling costs refer to the costs associated with selling the product, such as advertising and sales commissions.

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

The law of one price states that identical products should sell for the same price everywhere. This concept is commonly applied in international trade and finance.

Quiz 16: Pricing Strategy