Question 1

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

Harry earned arbitrage profits by exploiting the price difference between the baseball card market in New York City and in Pittsburgh.

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 statement is true. Arbitrage is a common practice in finance and involves exploiting price differences between markets or securities.

Question 3

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 refers to the practice of buying a product in a low-priced market and selling it in a high-priced market, thereby exploiting price differentials. If a firm engages in price discrimination, it runs the risk of customers participating in arbitrage, which eliminates the profitability of price discrimination. Yield management is a strategy that facilitates price discrimination by varying prices for the same product based on demand in different time periods whereas odd pricing is a marketing strategy that involves setting prices that end in digits such as .99 or .95, and can be used in conjunction with or independent of price discrimination. Transaction costs refer to the costs associated with conducting a transaction, such as payment processing fees, shipping, and handling charges, and cannot prevent firms from engaging in price discrimination.

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 refer to the costs incurred by parties involved in the process of exchanging goods or services, such as negotiation costs, enforcement costs, and information costs. The other options are not specifically related to this concept.

Question 5

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 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,identical...

Question 7

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 a fundamental economic principle that states that identical goods sold in different countries should have the same price when currency exchange rates are taken into account, assuming that transaction costs are zero. This concept is also referred to as the law of price parity.

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

Yield management is the practice of using data and analytics to adjust prices in real-time based on consumer demand and market conditions. This allows firms to maximize revenue and profitability by charging higher prices during peak demand periods and lower prices during off-peak periods. This process requires the use of technology to gather and analyze data on consumer behavior, preferences, and responses to changes in prices. Price discovery, empirical research, and econometrics all involve gathering data and conducting research, but they do not specifically involve using data to adjust prices in real-time as in the case of yield management.

Question 9

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 involves buying a product or asset in one market at a lower price and reselling it in another market at a higher price to make a profit from the difference in price. It is a common practice in financial markets, where traders exploit price discrepancies between different markets to earn profits. Options A, C, and D are not related to arbitrage.

Question 10

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. It is a basic economic principle that holds that in a competitive market, the price of a particular good will be the same in all markets where the product is being sold, adjusting for transport costs and other factors that may affect the cost of delivering the product to different markets.

Question 11

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

The process described in the question is yield management, which involves adjusting prices based on consumer behavior and demand in order to maximize profits. Elasticity management and brand management are not accurate descriptions of this process, and while marketing may involve price adjustments, it is a broader concept that encompasses many different strategies and tactics.

Question 12

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 term "big data" refers to the collection and analysis of massive datasets, often using advanced technology and algorithms, with the goal of identifying patterns and insights in human behavior, among other things. Marginal utility is the additional satisfaction or usefulness gained from consuming an additional unit of a product or service. Mega processing is not a commonly used term in relation to data analysis. The Internet of Things refers to the network of physical objects (such as devices, vehicles, and buildings) that are connected and able to exchange data with each other. While big data may be involved in collecting and analyzing data from IoT devices, the two terms are not synonymous.

Question 13

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

Accepted Answer

In a perfectly competitive market, there is no possibility of making arbitrage profits in the long run. This is because in the long run, new firms can enter the market and existing firms can leave the market, which will increase or decrease the supply of the product, respectively. This will result in a change in the market price such that there will be zero economic profit for all firms, including those that were making arbitrage profits in the short run. Thus, these profits will be bid away in the long run, leaving all firms earning only a normal rate of return.

Question 14

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 if transaction costs are zero, identical goods should sell for the same price everywhere. This means that in a perfectly competitive market, without any transportation or other transaction costs, the price of a good should be the same in all locations as suppliers would be forced to sell at the same price in order to remain competitive.

Question 15

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 in a competitive market, identical goods and services should have the same price everywhere. This law assumes that there are no barriers to trade or transportation costs that would prevent arbitrage opportunities.

Question 16

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

These transactions are examples of arbitrage, where the seller takes advantage of price differences between different markets or platforms. The seller may have acquired the goods at a lower price in one market and is selling them at a higher price in another market, in this case, eBay. It is a legitimate form of trading that helps to equalize prices and can be a profitable business model for sellers.

Question 17

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. It includes search and information costs, bargaining costs, and enforcement and legal costs. It is different from the raw material cost of production or the cost of transporting goods. Implicit costs are also different as they refer to the opportunity costs of resources used in production that could have been used for other purposes.

Question 18

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

The answer of Harvey Morris bought dishes and pitchers made...

Question 19

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 a product is identical across different markets and there are no restrictions on trade between the markets. If there are transaction costs involved in buying and selling the product, then the law of one price may not hold exactly, but it can still hold approximately.

Question 20

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 prices to different customers based on factors such as age, residency, and length of stay. This allows the company to maximize revenue by charging the highest price that each customer is willing to pay.

Quiz 16: Pricing Strategy

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.

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

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

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

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

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

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

Arbitrage refers to the act of

The law of one price

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

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

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

According to the law of one price

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

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

Transactions costs refer to

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

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.

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