Question 1

Barter agreements and trade-in agreements are not considered part of pricing because little or no money is exchanged.

Accepted Answer

Barter agreements and trade-in agreements are considered part of pricing strategies because they involve the exchange of goods or services as a form of payment, affecting the perceived value and cost structure of the transaction.

Question 2

From a broad perspective, price is the mechanism for the allocation of goods and services in the open U.S. market economy.

Accepted Answer

Price acts as a signal for both consumers and producers in an open market economy like the U.S., guiding the allocation of goods and services by indicating where resources are needed based on demand and supply.

Question 3

The role of pricing as a strategic element has dramatically increased in the industries that have been deregulated.

Accepted Answer

Deregulation often increases competition and market dynamics, leading industries to use pricing more strategically to attract and retain customers, differentiate offerings, and capture market share.

Question 4

A product will typically be marketed at its highest price in the mature stage of the product life cycle.

Accepted Answer

A product is usually marketed at its highest price during the introduction stage of the product life cycle, as the company seeks to recover development costs and target early adopters willing to pay a premium.

Question 5

A price-competition approach is an effective strategy for a firm with a long-term cost advantage over its competitors.

Accepted Answer

A firm with a long-term cost advantage can sustain lower prices than its competitors, attracting more customers and potentially increasing market share, making price competition an effective strategy.

Question 6

A "me-too" strategy often characterizes a nonprice-competition approach.

Accepted Answer

A "me-too" strategy typically involves imitating competitors' products or services, which is more aligned with price competition rather than nonprice competition, which focuses on differentiating products through features, quality, or branding.

Question 7

The success of a nonprice-competition strategy will be directly related to consumer perceptions as to the distinctiveness of a company and its goods and services.

Accepted Answer

Nonprice competition focuses on differentiating a company's products or services based on quality, innovation, or unique features rather than price. The success of such a strategy hinges on how effectively the company can convince consumers that its offerings are distinct and superior to competitors', making consumer perceptions crucial.

Question 8

According to the law of demand, when calculating the price elasticity of demand, the mathematical sign will be positive.

Accepted Answer

The law of demand states that there is an inverse relationship between price and quantity demanded, meaning as price increases, demand decreases, and vice versa. Therefore, the price elasticity of demand, which measures this relationship, is typically negative, reflecting the inverse relationship.

Question 9

After lowering its prices by 20 percent, a manufacturer finds that the quantity demanded increases by 10 percent. The elasticity of demand for this firm is 2.

Accepted Answer

The elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, it would be 10% / 20% = 0.5.

Question 10

A firm raises its retail price from $20 to $30 per unit. As a result, its sales in units drop from 220 to 180. Its price elasticity of demand is 0.25.

Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% Change in Quantity Demanded) / (% Change in Price). In this case, the % change in quantity demanded is [(180 - 220) / 220] * 100 = -18.18%, and the % change in price is [(30 - 20) / 20] * 100 = 50%. Therefore, PED = -18.18% / 50% = -0.3636, not 0.25.

Question 11

For the same good or service, demand elasticity can be inelastic at very low prices and elastic at very high prices.

Accepted Answer

Demand elasticity varies with price levels; at very low prices, consumers may not significantly increase their quantity demanded (inelastic), while at high prices, small price changes can lead to larger changes in quantity demanded (elastic), reflecting consumers' sensitivity to price changes.

Question 12

The shopper type with the greatest degree of price elasticity is the status seeker.

Accepted Answer

Status seekers are typically less price-sensitive because they are more focused on obtaining high-status or luxury items, where the brand or prestige associated with the product is more important than the price.

Question 13

Research conducted for a major supermarket chain examined the impact of the chain's giving trading stamps and staying open 24 hours on consumers' attitudes to its overall level of prices. This study dealt with consumers' price elasticity of demand.

Accepted Answer

The study described focuses on consumer attitudes towards the supermarket's pricing strategies and service features (trading stamps, 24-hour operation), not directly on the price elasticity of demand, which measures how quantity demanded of a good responds to a change in its price.

Question 14

As a public service, a local medical association publishes a list of suggested fees for such services as office visits, chest X-rays, and annual checkups. This price list may be viewed as a form of horizontal price fixing.

Accepted Answer

When a group of competitors, such as members of a medical association, agree on prices or price ranges for services, it constitutes horizontal price fixing, which is illegal under antitrust laws because it restricts competition.

Question 15

Manufacturers often want to control final selling prices so as to not alienate full-service retailers that cannot compete against discount retailers on a price basis.

Accepted Answer

Manufacturers may seek to control final selling prices through practices like Minimum Advertised Price (MAP) policies to ensure that full-service retailers, which often provide additional services and support, can compete with discount retailers that might otherwise undercut prices, potentially leading to a price war and harming the perceived value of the product.

Question 16

In general, manufacturers want to control final selling prices so as to increase their own gross profit margins.

Accepted Answer

The answer of In general, manufacturers want to control final...

Question 17

The Robinson-Patman Act reduces the flexibility of manufacturers' and wholesalers' salespeople in negotiating prices with channel-member customers.

Accepted Answer

The Robinson-Patman Act prohibits price discrimination among buyers when the effect may harm competition, thus limiting the ability of salespeople to offer different prices to different channel members without a justified reason.

Question 18

Both predatory pricing and loss-leader pricing are harmful to small competitors but beneficial to consumers in the short run.

Accepted Answer

Both strategies involve selling products at very low prices, which can harm small competitors unable to match these prices, but they benefit consumers in the short run by offering them lower prices.

Question 19

A major similarity between bait-and-switch advertising and loss leaders is that they each seek to increase customer traffic at a store.

Accepted Answer

Both bait-and-switch advertising and loss leaders are strategies used to attract customers into a store by advertising products at a low price, with the goal of selling them higher-priced items once they are in the store.

Question 20

Unit-pricing legislation would be unnecessary if there were industrywide standards for package sizes.

Accepted Answer

If there were industrywide standards for package sizes, consumers could easily compare prices across different brands without needing unit pricing, as the sizes would be consistent and comparison would be straightforward.

Quiz 20: Considerations in Price Planning