Question 1

Domestic competition typically puts pressure on the prices of international companies.

Accepted Answer

False

Question 2

Price escalation is the increase in a product's price as transportation, duty, and distributor margins are added to the factory price.

Accepted Answer

Price escalation refers to the increase in price that occurs when various costs are added to the factory price of a product, such as transportation costs, import duties, and markups by distributors and retailers. This results in a higher price for the end consumer.

Question 3

Gray market goods are trademarked products that are exported from one country to another, where they are sold by authorized persons or organizations.

Accepted Answer

Gray market goods are trademarked products that are exported from one country to another and sold through channels that are unauthorized by the original manufacturer.

Question 4

Exchange-rate clauses protect both buyers and sellers from unforeseen large swings in currencies.

Accepted Answer

Exchange-rate clauses help both the parties involved in a transaction to mitigate the risk of large and unpredictable changes in currency exchange rates. Hence, the given statement is true.

Question 5

Changing pricing policies will lead to direct cost implications immediately.

Accepted Answer

Changing pricing policies primarily affects revenue and may indirectly influence costs over time, but it does not lead to direct cost implications immediately.

Question 6

Compared to other pricing strategies, it's relatively hard to arrive at a selling price using the cost-plus pricing method, even if the accounting costs are readily available.

Accepted Answer

The cost-plus pricing method is actually one of the easiest pricing strategies to use since the selling price is simply the cost plus a markup. The challenge may come in determining the appropriate markup to use, but the accounting costs are readily available to calculate the base cost.

Question 7

In many parts of the world, external market information regarding demand is distorted.

Accepted Answer

This is true. External market information can be distorted due to various factors such as incomplete data, biased sources, and cultural differences. This can make it difficult for businesses to accurately assess demand and make informed decisions.

Question 8

Companies need not maintain gross and operating profit margins under inflammatory conditions.

Accepted Answer

Companies have a responsibility to maintain ethical practices and adhere to their financial responsibilities, regardless of external conditions. Maintaining gross and operating profit margins is crucial to the long-term success and sustainability of a business. Inflammatory conditions may make it more challenging to achieve these margins, but it does not mean that they can be ignored or neglected.

Question 9

A local government can require a prior cash deposit from importers before allowing goods into the country.

Accepted Answer

Some local governments may require a cash deposit from importers before allowing goods into the country. This deposit can serve as a security or guarantee that any potential taxes or fines will be paid before the goods are released. This is a common practice in many countries to ensure compliance and revenue collection.

Question 10

The price of a product or service should ideally be higher than the demand for that product or service.

Accepted Answer

The price of a product or service should ideally be lower than the demand for that product or service. This is because higher demand will lead to more sales and revenue for the business, whereas higher prices may deter potential customers and lead to a decrease in sales.

Question 11

Cost-plus pricing requires adding up all the costs required to get the product to where it must go, plus shipping and ancillary charges, and a profit percentage.

Accepted Answer

Cost-plus pricing is a pricing strategy that involves calculating the total cost of producing a product, which includes all the direct and indirect costs, such as materials, labor, overhead, and so on. Then, a profit margin or markup percentage is added to the total cost to determine the selling price of the product. The shipping and ancillary charges are also included in the total cost before adding the profit margin.

Question 12

An exchange-rate clause allows the buyer and seller to agree to supply and purchase at fixed prices in each company's national currency.

Accepted Answer

An exchange-rate clause allows the buyer and seller to agree to supply and purchase at fixed prices in each company's national currency, thus minimizing the impact of exchange rate fluctuations on the transaction.

Question 13

The task of determining prices is simplified by exchange rate fluctuations.

Accepted Answer

Exchange rate fluctuations can make it more difficult to determine prices, as they introduce uncertainty into the market and can lead to volatility in pricing.

Question 14

Companies in strong, competitive market positions pass on price increases to consumers leading to a significant decrease in sales volume.

Accepted Answer

Companies in strong, competitive market positions often have brand loyalty and perceived value that may allow them to pass on price increases without a significant decrease in sales volume, as consumers may be willing to pay more for products they trust and value.

Question 15

Companies typically avoid periodic price adjustments during inflation.

Accepted Answer

Companies may actually increase prices to keep up with inflation and maintain their profit margins. However, they may also try to manage costs and find other ways to mitigate the impact of inflation.

Question 16

The traditional method of cost-plus pricing estimates costs based on future forecasts.

Accepted Answer

The traditional method of cost-plus pricing estimates costs based on historical data, not future forecasts. It involves adding a markup to the cost of goods sold to determine the selling price.

Question 17

The United States does not subsidize any of its agricultural sectors.

Accepted Answer

The United States does provide subsidies to some of its agricultural sectors, including corn, soybeans, dairy, and cotton, among others. These subsidies are meant to provide support and stability to farmers and the agricultural industry, but they are controversial and subject to debate over their effectiveness and fairness.

Question 18

Pricing below cost can be profitable in the long term.

Accepted Answer

Pricing below cost in the short term can attract more customers and increase market share. This can lead to economies of scale and cost savings in the long term, which can ultimately result in profitability. This strategy is commonly used by businesses to gain a competitive advantage and increase their customer base.

Question 19

Sourcing is a tool that can be used to fight price escalation.

Accepted Answer

Sourcing involves identifying and engaging with multiple suppliers to obtain competitive prices and terms, which can help to prevent or reduce price escalation. By having multiple options, companies can negotiate better deals and find the best value for their purchases.

Question 20

In practice, companies always fix the price of products in country target markets to avoid the impact of currency fluctuations.

Accepted Answer

Companies often adjust prices in different markets due to currency fluctuations, local taxes, shipping costs, and other factors, rather than fixing prices universally.

Quiz 11: Pricing Decisions