Question 1

Which of the following shows the number of units the market will buy in a given time period, at different prices that might be charged?

Accepted Answer

The demand curve shows the relationship between the price of a product and the quantity of the product demanded by consumers in a given time period. It illustrates the number of units the market will buy at different prices, and is a crucial tool for businesses to determine their pricing strategy.

Question 2

If demand hardly changes with a small change in price, the demand is ________.

Accepted Answer

Inelastic demand means that a change in price does not have a significant effect on the quantity demanded. Therefore, if demand hardly changes with a small change in price, it is likely to be inelastic.

Question 3

When companies set prices, the government and social concerns are ________ affecting pricing decisions.

Accepted Answer

Government and social concerns are external factors that can influence pricing decisions. Economic factors, cultural factors, and organizational factors can also be external factors, but they may not necessarily have as significant an impact on pricing decisions as government and social concerns. Internal factors refer to factors within the company, such as costs and profit margins, and may also play a role in pricing decisions, but are not as directly related to government and social concerns.

Question 4

________ refers to a measure of the sensitivity of demand to changes in price.

Accepted Answer

Price elasticity of demand measures the percentage change in quantity demanded of a good or service in response to a percentage change in its price. It reflects the degree of responsiveness of buyers to changes in the price of a good or service.

Question 5

When the price of a pack of Crispo potato wafers was increased from $4 to $5, the quantity demanded by local retail stores went down by 50%. Hence, the price elasticity of demand for Crispo is ________.

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the quantity demanded decreased by 50% and the price increased by 25% (from $4 to $5). Thus, the elasticity is -50% / 25% = -2.

Question 6

Dips in the economy and the instant price comparisons made possible by the Internet have contributed to ________.

Accepted Answer

Dips in the economy and the instant price comparisons made possible by the Internet have made consumers more price-sensitive, as they have access to a wider range of pricing information and are more likely to seek out better deals.

Question 7

In the aftermath of the Great Recession, consumers ________.

Accepted Answer

The Great Recession caused a significant impact on consumers' behavior and mindset towards spending. Consumers became more cautious about their expenses and, thus, became more value-conscious, preferring deals and discounts over premium pricing.

Question 8

Prices have a direct impact on a firm's bottom line.

Accepted Answer

Prices directly affect a firm's revenue, which in turn affects its profitability and ultimately its bottom line. If prices are too low, the firm may not generate enough revenue to cover its expenses and remain profitable. On the other hand, if prices are too high, the firm may lose sales to competitors and also impact its bottom line. Therefore, managing prices is an important aspect of a firm's profitability.

Question 9

Refer to the scenario below to answer the following questions.
Alden Manufacturing produces small kitchen appliances-blenders, hand mixers, and electric skillets-under the brand name First Generation. Alden attempts to target newlyweds and first-time home buyers with this brand.
Considering that most young households have limited financial resources, Alden attempts to engage in target costing. "In doing this," says Milt Alden, the co-founder of Alden Electronics, "we have better control over keeping price right in line with customers."
Alden manufactures a three-speed blender, its top seller, along with a five-speed blender. The hand mixers are manufactured in two variants-a small handheld mixer with two rotating beaters and another that comes with an optional stand and an attached mixing bowl. Alden's temperature-controlled skillets are manufactured in a single style with three color options.
"Our product offerings are narrower," Milt Alden added, "but our line workers know each product like the back of their hands. This allows us to produce superior products while holding our prices low.
-If Alden raises the price of the handheld mixer by 2 percent and then the quantity demanded falls by 10 percent, what is the price elasticity of demand?

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is -10% / 2% = -5.

Question 10

Which of the following is true about the demand curve?

Accepted Answer

A demand curve shows the relationship between the price of a good and the quantity of the good that consumers are willing to purchase. It shows the number of units the market will buy in a given time period at different prices that might be charged. Option A is referring to a cost curve, not a demand curve. Option B is referring to a LRAC (long-run average cost) curve, not a demand curve. Option C is referring to a short-run cost curve, not a demand curve. Option D is not accurate because a monopoly's demand curve shows the relationship between the price of the good and the quantity consumers are willing to buy at that particular price, which determines the monopoly's market power.

Question 11

Bruno Servers has decided to decrease its prices on its popular higher-range servers. The company can reasonably expect ________ to increase.

Accepted Answer

When Bruno Servers decreases the price of its popular higher-range servers, it is likely to increase the demand for these servers. This means that more customers will want to purchase these servers, which will increase the company's revenue. It is unlikely that fixed costs or overhead costs will increase as a result of this price decrease. While it is possible that variable costs may increase if the company experiences a significant increase in demand that requires additional resources or materials, it is not the most likely outcome in this scenario. Additionally, there is no indication that the price decrease will result in additional value for customers.

Question 12

If demand changes greatly with a small change in price, the demand is ________.

Accepted Answer

If demand changes greatly with a small change in price, it means that the demand is very sensitive to price changes. This is known as elastic demand. So, the correct choice is D) elastic.

Question 13

Price elasticity of demand is represented by ________ divided by ________.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Question 14

Buyers are less price sensitive when ________.

Accepted Answer

Buyers are less price sensitive when the product they are buying is unique, meaning there are no or very few substitutes available. This is because buyers have no other option but to buy that product, regardless of the price.

Question 15

Refer to the scenario below to answer the following questions.
Alden Manufacturing produces small kitchen appliances-blenders, hand mixers, and electric skillets-under the brand name First Generation. Alden attempts to target newlyweds and first-time home buyers with this brand.
Considering that most young households have limited financial resources, Alden attempts to engage in target costing. "In doing this," says Milt Alden, the co-founder of Alden Electronics, "we have better control over keeping price right in line with customers."
Alden manufactures a three-speed blender, its top seller, along with a five-speed blender. The hand mixers are manufactured in two variants-a small handheld mixer with two rotating beaters and another that comes with an optional stand and an attached mixing bowl. Alden's temperature-controlled skillets are manufactured in a single style with three color options.
"Our product offerings are narrower," Milt Alden added, "but our line workers know each product like the back of their hands. This allows us to produce superior products while holding our prices low.
-Milt Alden says that his line workers "know each product like the back of their hands," and that this knowledge helps the company keep its prices low. This indicates that Alden Manufacturing most likely benefits from the ________.

Accepted Answer

The statement about the line workers' knowledge of each product suggests that Alden Manufacturing benefits from the experience curve. The experience curve is a phenomenon in which as workers become more experienced with producing a product, they become more efficient, leading to cost savings that can be reflected in lower prices for consumers.

Question 16

Refer to the scenario below to answer the following questions.
Alden Manufacturing produces small kitchen appliances-blenders, hand mixers, and electric skillets-under the brand name First Generation. Alden attempts to target newlyweds and first-time home buyers with this brand.
Considering that most young households have limited financial resources, Alden attempts to engage in target costing. "In doing this," says Milt Alden, the co-founder of Alden Electronics, "we have better control over keeping price right in line with customers."
Alden manufactures a three-speed blender, its top seller, along with a five-speed blender. The hand mixers are manufactured in two variants-a small handheld mixer with two rotating beaters and another that comes with an optional stand and an attached mixing bowl. Alden's temperature-controlled skillets are manufactured in a single style with three color options.
"Our product offerings are narrower," Milt Alden added, "but our line workers know each product like the back of their hands. This allows us to produce superior products while holding our prices low.
-Milt Alden uses which of the following strategies for pricing his products?

Accepted Answer

Milt Alden engages in target costing, which involves starting with customer-value considerations to ensure that the price is right in line with customers. This strategy prioritizes the customer's perceived value over fixed manufacturing costs or competitors' prices.

Question 17

________, the more it pays for the seller to raise the price.

Accepted Answer

When demand is less elastic, it means that consumers are less sensitive to changes in price, so the seller can increase the price without losing too many customers. This in turn means that the seller stands to make more profit by raising the price when demand is less elastic.

Question 18

In which situation is the market dominated by one seller?

Accepted Answer

A pure monopoly is a situation in which there is only one seller in the market, giving them complete control over the supply and price of the product or service. This is the most extreme form of market domination by a single seller.

Question 19

Under oligopolistic competition ________.

Accepted Answer

Oligopolistic competition is characterized by a market consisting of only a few large sellers. This market structure encourages competition and can lead to price stabilization due to the interdependence of the firms.

Question 20

There was a 35 percent increase in demand for a product after the seller decreased its price by 14 percent. Therefore, the price elasticity of demand is ________.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the price decreased by 14% and the demand increased by 35%, so the calculation would be: (35%/(-14%)) = -2.5. Since price elasticity of demand is always a negative number, we take the absolute value and get 2.5. Therefore, the answer is D.

Quiz 10: Pricing: Understanding and Capturing Customer Value