Question 1

Price is the cash expenditure plus taxes that consumers have to pay for a good or service.

Accepted Answer

False

Question 2

In general,prices should not be based on costs because consumers make their purchase decisions based on perceived value,not the cost of production.

Accepted Answer

Prices should be based on the perceived value to the consumer rather than the cost of production because consumers make their purchase decisions based on the perceived value of a product or service. If prices were based solely on costs, it may not reflect the actual value that the product or service provides to the consumer.

Question 3

In addition to the product-specific and firm-specific factors that affect pricing,there are two broader factors: the Internet and sociocultural factors.

Accepted Answer

False

Question 4

The key to successful pricing is to match the product with the consumer's perception of value.

Accepted Answer

Pricing strategies should be based on the consumer's perception of value. If the price is too high, it can lead to low demand and if the price is too low, it may signal low quality to the consumer. Therefore, successful pricing is about finding the right balance between perceived value and price.

Question 5

If Brandon buys hats for his store for $5 each and sells them for $15 each,he is using a keystoning pricing strategy.

Accepted Answer

Keystoning is a pricing strategy where a retailer doubles the cost price to determine the selling price. In this case, Brandon is tripling the cost price, not doubling it.

Question 6

Because consumers are generally more sensitive to price increases than to price decreases,it is easier to lose current customers with a price increase than it is to gain new customers with a price decrease.

Accepted Answer

This is a well-known phenomenon in economics, known as price sensitivity or price elasticity of demand. Customers tend to be more price-sensitive when it comes to increases, as they perceive price increases as a loss of value or an unfair increase in profits for the seller. On the other hand, price decreases are often interpreted as a sale or a good deal, but they may not be enough to attract new customers who were not previously interested in the product. Therefore, a price increase is more likely to drive away existing customers than a price decrease is to attract new ones.

Question 7

Price is the only part of the marketing mix that does not generate costs.

Accepted Answer

Price generates revenue rather than incurring costs, unlike product development, distribution (place), and promotion, which all involve costs.

Question 8

If a firm is engaged in monopolistic competition,it should seek a way to differentiate itself.

Accepted Answer

Differentiation is a key strategy in monopolistic competition where firms try to make their products appear distinct from those of their competitors. This can allow them to charge a higher price and gain a larger market share.

Question 9

A gray market employs irregular but not necessarily illegal methods of distributing products.

Accepted Answer

A gray market involves the distribution of products via methods that are not authorized by the manufacturer, but are not necessarily illegal.

Question 10

Rarely is the lowest-price product offering the dominant brand in a given market.

Accepted Answer

While price is certainly a factor in purchasing decisions, other factors such as quality, brand reputation, and customer service also play a role. In many cases, consumers are willing to pay more for a product or service that they perceive as offering superior value. Therefore, it is not necessarily the case that the lowest-priced product will always be the most popular in a given market.

Question 11

Firm A has set very low prices for its products in an attempt to drive its competitor,Firm B,out of business.This is known as monopolistic pricing.

Accepted Answer

This scenario is not an example of monopolistic pricing. It is an example of predatory pricing, which is a strategy used by a dominant firm to drive a competitor out of business by temporarily setting very low prices. Monopolistic pricing occurs when a firm has partial control over a market and is able to set prices higher than competitive levels.

Question 12

At the break-even point,profits are maximized.

Accepted Answer

At the break-even point, the company is not making a profit or a loss, so profits are not maximized. Profits are maximized at the point where total revenue exceeds total cost.

Question 13

Brands that have developed loyal customers have a higher price elasticity of demand.

Accepted Answer

Brands with loyal customers often have a lower price elasticity of demand because their customers are less sensitive to price changes and more likely to continue purchasing the product even if prices increase.

Question 14

Economic trends that affect pricing decisions include increases in disposable income and status consciousness,a trend for customers to shop cheap,global economic conditions,and local economic conditions.

Accepted Answer

Economic trends such as increases in disposable income and status consciousness, a trend for customers to shop cheap, global economic conditions, and local economic conditions can all affect pricing decisions.

Question 15

In U.S.markets,there are many substitute products for Fruit Loops cereal,suggesting the price elasticity of demand for Fruit Loops is high.

Accepted Answer

The presence of many substitute products indicates that consumers have a range of options to choose from, making the demand for Fruit Loops more price sensitive or elastic. If the price of Fruit Loops increases, consumers may switch to a cheaper alternative, leading to a decrease in demand for Fruit Loops.

Question 16

A demand curve shows the relationship between income and demand.

Accepted Answer

A demand curve shows the relationship between price and quantity demanded, not income and demand.

Question 17

Earl was known for driving 30 miles to save a dollar on the price for his favorite beverage.Earl perceived price as ________________,while most consumers recognize price as the ______________ made to acquire a good or service.
A) money paid; overall sacrifice
B) variable cost; fixed cost
C) fixed cost; variable payment
D) overall sacrifice; monetary payment
E) break-even amount; price elasticity

Accepted Answer

The answer of Earl was known for driving 30 miles...

Question 18

Price is the _____________ a consumer is willing to make to acquire a specific product or service.
A) amount of money
B) overall sacrifice
C) fixed cost
D) target return
E) variable cost

Accepted Answer

Price is not just the amount of money a consumer is willing to pay, but it also includes the overall sacrifice the consumer is willing to make, which could include time, effort, and the opportunity cost of choosing one product or service over another. Fixed cost, target return, and variable cost are all related to the seller's pricing strategy, while overall sacrifice is a factor from the consumer's perspective.

Question 19

The Internet has decreased consumers' price sensitivity.

Accepted Answer

The Internet has generally increased consumers' price sensitivity by providing easy access to price comparisons and product information, allowing consumers to make more informed purchasing decisions.

Question 20

Diana owns a boutique specializing in ball gowns.Sales are stable and Diana feels it is time she had a 20 percent increase in her salary.If Diana takes this increase in compensation,it will decrease the breakeven quantity of gowns she needs to sell on a monthly basis.

Accepted Answer

Increasing Diana's salary will increase the boutique's fixed costs, which will in turn increase the breakeven quantity of gowns she needs to sell. Therefore, the statement is false.

Quiz 14: Pricing Concepts for Establishing Value