Question 1

Sales of national brands of orange juice tend to increase when the economy is doing well,while sales of generic orange juice increase when the economy is not doing well.Among industry members this is called the "orange juice indicator." This is an example of how ____________ impacts demand for products.

Accepted Answer

The "orange juice indicator" illustrates how changes in the overall economy (specifically changes in consumers' income levels) impact demand for specific products. As consumers' incomes rise, they may be more likely to purchase higher-priced national brands of orange juice. On the other hand, when the economy is not doing well, consumers may switch to purchasing lower-cost generic orange juice. This phenomenon is an example of the income effect on demand.

Question 2

Bill is a yacht broker in the southeastern United States.For years he has had difficulty selling large yachts locally because there were few places to dock these boats.Yachts and spaces to dock them are an example of

Accepted Answer

Yachts and spaces to dock them are complementary products because they are products that are typically used or purchased together. In this case, the yacht cannot be fully enjoyed without a place to dock it, so the availability of docking spaces is crucial to the sale of the yacht.

Question 3

Price elasticity of demand is the

Accepted Answer

Price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. This measures how responsive quantity demanded is to changes in price.

Question 4

Marketers of products and services associated with the wedding industry know that customers often do not care what the price is.They just want the wedding to be perfect.For these customers,demand is likely to be

Accepted Answer

Customers who prioritize having a perfect wedding are likely to have a strong emotional attachment to the event and be less sensitive to price changes. Therefore, demand is likely to be price inelastic, meaning changes in price will not have a significant impact on the quantity demanded.

Question 5

The food and beverage manager at an upscale country club once offered a two-for-one happy hour price for all alcoholic beverages,only to see very little response to the special.For these consumers,demand for alcoholic beverages is

Accepted Answer

The lack of response to the two-for-one happy hour price indicates that demand for alcoholic beverages at this country club is price inelastic, meaning that consumers are not very responsive to changes in price.

Question 6

If the price for a product increases,the demand for the complementary product will

Accepted Answer

If the price for a product increases, the demand for the complementary product will decrease as people are less likely to purchase both products together due to the increased cost. For example, if the price of gasoline increases, people may be less likely to purchase cars, which are complements to gasoline.

Question 7

For which of the following is demand likely to be most sensitive to price increases?

Accepted Answer

A specific brand of soft drink is likely to have a high price elasticity of demand because there are many substitutes available in the market. If the price of the specific brand increases, consumers may switch to a competitor's brand.

Question 8

The observation that consumers are generally more sensitive to price increases than to price decreases suggests that

Accepted Answer

This observation, known as "price elasticity of demand," suggests that consumers are more sensitive to price increases because they feel like they are losing something, while price decreases may not have the same effect. Therefore, businesses need to be careful when increasing prices, as they may lose customers and market share.

Question 9

Brad always buys and uses Nike brand golf balls.If he finds a Titleist or Callaway ball in the rough,he gives it away.Brand loyal golfers like Brad allow Nike to charge a higher price and not lose many sales.By building a strong brand,Nike has effectively

Accepted Answer

By building a strong brand and creating brand loyalty among customers like Brad, Nike has reduced the price elasticity of demand for its products. In other words, even if Nike raises its prices, customers like Brad will still be willing to buy their golf balls because they are committed to the brand. This allows Nike to charge a higher price and not lose many sales, as mentioned in the question.

Question 10

Which of the following is the most logical example of complementary products?

Accepted Answer

Hot dogs and hot dog buns are complementary products because they are often used together. The same can be said for other food items like popcorn and soda, or chips and dip. The other options do not fit the definition of complementary products as closely.

Question 11

If a 1 percent decrease in price results in less than a 1 percent increase in the quantity demanded,demand is

Accepted Answer

When a 1 percent decrease in price results in less than a 1 percent increase in the quantity demanded, demand is price inelastic. This means that the change in price does not have a significant impact on the quantity demanded, and consumers are not particularly sensitive to price changes.

Question 12

Ferrari and Lamborghini are manufacturers of very expensive automobiles.Their limited edition cars often sell for $300,000 or more.For most consumers,these are prestige products,and demand is likely to be

Accepted Answer

As these cars are considered prestige products, their demand is likely to be price inelastic. This means that even if the price increases, the demand for these cars is not likely to decrease significantly as consumers are willing to pay a premium for these luxury products.

Question 13

Near the end of the summer season,Sergio still has a large inventory of bathing suits.He needs to sell them rather than holding them over till next season,because colors and styles often change.He plans to offer them at 30 percent off the retail price.Sergio hopes that demand for bathing suits at the end of the season is

Accepted Answer

When Sergio offers a discount of 30 percent, customers may be more motivated to buy the bathing suits because they are getting a better deal. This means that the change in quantity demanded will be more than the change in price, resulting in a relatively large elasticity of demand. Therefore, the demand for bathing suits at the end of the season is likely to be price elastic.

Question 14

Assume the demand for electricity,a necessity with few substitutes,is -0.2.If the electric company raised its rates by 10 percent,we would expect

Accepted Answer

The price elasticity of demand for electricity is -0.2. This means that if the price of electricity increases by 10%, the quantity demanded will decrease by 2% (10% x -0.2 = -2%), hence the answer is (D) a 2 percent decrease in quantity demanded.

Question 15

The more substitutes that exist in a market,

Accepted Answer

The more substitutes that exist in a market, the more likely consumers will be to switch to a substitute if the price of a particular product increases. This means that consumers are more sensitive to changes in price and therefore, the price elasticity of demand is higher.

Question 16

A study found that,among addicted smokers,a 10 percent increase in the price of cigarettes resulted in a 2 percent decrease in quantity demanded.For these consumers,cigarettes have a(n)________________ price elasticity demand.

Accepted Answer

The fact that a 10 percent increase in the price of cigarettes results in only a 2 percent decrease in quantity demanded indicates that cigarettes have an inelastic price elasticity of demand. This means that addicted smokers are relatively unresponsive to changes in price when it comes to their cigarette consumption.

Question 17

Rodi owns Hallman's auto repair service.He has observed over the years that customers keep their high-mileage cars longer when the economy is doing poorly,creating demand for his maintenance and repair service.Rodi has observed the impact of ______________ on demand for his service.

Accepted Answer

The income effect refers to changes in consumer demand for goods or services based on changes in their income levels. In this case, Rodi has observed that customers are keeping their high-mileage cars longer during economic downturns, indicating that their income levels may have decreased and they are choosing to prioritize maintenance and repairs over purchasing a new car.

Question 18

Barry customizes Harley-Davidson motorcycles.No two cycles are alike.He notices that very few customers even ask the price of his motorcycles before they decide to purchase them.Demand for his motorcycles is probably

Accepted Answer

The fact that customers do not ask the price before purchasing and each motorcycle is customized, suggests a high degree of uniqueness and differentiation. In such cases, demand tends to be price inelastic, meaning that consumers are willing to pay a higher price for the product due to its unique qualities.

Question 19

Marketers spend millions of dollars annually trying to create or reinforce brand loyalty.Brand loyalty changes the demand curve for the firm's products by

Accepted Answer

Brand loyalty reduces the price elasticity of demand, meaning that consumers are less sensitive to price changes and will continue to purchase the brand regardless of small price increases. This allows the firm to charge a premium for their product and potentially increase profits.

Question 20

If a 1 percent decrease in price results in more than a 1 percent increase in quantity demand,demand is

Accepted Answer

This phenomenon is known as price elasticity of demand, where the demand is sensitive to price changes. When the percentage change in quantity demand is greater than the percentage change in price, it is considered price elastic. Therefore, option C is the correct answer.

Quiz 14: Pricing Concepts for Establishing Value