Question 1

When consumer demand is inelastic, price elasticity is always less than 1.

Accepted Answer

When consumer demand is inelastic, it means that the quantity demanded does not change significantly with a change in price. Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. If demand is inelastic, this ratio is less than 1, indicating that the percentage change in quantity demanded is smaller than the percentage change in price.

Question 2

When consumer demand is unitary, price elasticity is always greater than 1.

Accepted Answer

Unitary demand means the price elasticity of demand is exactly 1, indicating that a change in price leads to a proportional change in quantity demanded.

Question 3

A high availability of substitutes and a low urgency of need result in inelastic demand.

Accepted Answer

A high availability of substitutes and a low urgency of need typically result in elastic demand, as consumers can easily switch to alternatives if the price of the product increases.

Question 4

Demand elasticity usually varies over a wide range of prices for the same good or service.

Accepted Answer

Demand elasticity can vary significantly across different price ranges for the same good or service because consumers' sensitivity to price changes often depends on factors like the availability of substitutes, the proportion of income spent on the good, and the nature of the good (necessity vs. luxury).

Question 5

"Price shoppers" generally have high price elasticities.

Accepted Answer

Price shoppers are highly sensitive to price changes, meaning they are likely to change their purchasing decisions if the price of a product increases or decreases, which is characteristic of high price elasticity.

Question 6

A consumer may believe that a low price represents a good buy or inferior quality, or that a high price represents status or poor value-depending on his/her perception.

Accepted Answer

A consumer's perception of price can vary widely, with some associating low prices with good value or poor quality, and high prices with status or not being worth the cost, depending on individual beliefs, experiences, and biases.

Question 7

In general, since the early 1980s, overall cost increases have been high.

Accepted Answer

Since the early 1980s, overall cost increases have generally been moderate, with periods of low inflation, especially in the 1990s and 2000s, until recent years where inflation has risen.

Question 8

The legality of horizontal price fixing agreements is based on how "reasonable" the ultimate price is.

Accepted Answer

Horizontal price fixing agreements, where competitors agree on prices, are illegal per se under antitrust laws, regardless of the reasonableness of the prices set.

Question 9

Matching a competitor's price increase (based on reading of the increase in a daily newspaper) constitutes illegal horizontal price fixing.

Accepted Answer

Price matching a competitor's increase, when done independently and not as a result of direct coordination or agreement, does not constitute illegal horizontal price fixing. Horizontal price fixing involves an agreement between competitors to set prices at a certain level, which is illegal under antitrust laws. Reading about a price increase in a newspaper and independently deciding to match it does not involve the direct coordination or agreement that characterizes illegal price fixing.

Question 10

In most cases, retailers cannot be required to adhere to the list prices suggested by manufacturers or wholesalers.

Accepted Answer

Retailers are generally not legally bound to adhere to the Manufacturer's Suggested Retail Price (MSRP) or list prices suggested by manufacturers or wholesalers, allowing them to set their own selling prices.

Question 11

Manufacturers and wholesalers are prohibited by the Robinson-Patman Act from price discrimination (for items of "like quality"), if the effect of such discrimination is to injure competitive purchasers of their merchandise.

Accepted Answer

The Robinson-Patman Act prohibits price discrimination by manufacturers and wholesalers in sales to different purchasers when the effect may substantially lessen competition or tend to create a monopoly, specifically when it injures competitors who are unable to purchase the product on the same terms.

Question 12

The Robinson-Patman Act allows price discrimination to exist in a channel if the price differences are justified by costs.

Accepted Answer

The Robinson-Patman Act permits price discrimination if the price differences are justified by differences in the cost of manufacture, sale, or delivery, allowing for competitive pricing strategies that reflect actual cost savings.

Question 13

Unfair-sales acts are intended to protect smaller firms from predatory pricing by larger competitors and to limit the use of loss leaders by retailers.

Accepted Answer

Unfair-sales acts, also known as anti-predatory pricing laws or minimum markup laws, are designed to protect smaller businesses from the practices of larger competitors that could harm them financially, such as predatory pricing or selling goods at a loss (loss leaders) to attract customers away from smaller competitors.

Question 14

Unit pricing has had the greatest effect on department stores.

Accepted Answer

Unit pricing has had the most significant impact on supermarkets and grocery stores, where it helps consumers compare prices of items sold in different sizes or quantities more easily, rather than on department stores which often deal in a wider range of products not typically sold by unit price.

Question 15

According to Federal Trade Commission price advertising guidelines, a retailer can document "comparative value" claims by purchasing one item from one competitor.

Accepted Answer

The Federal Trade Commission requires that comparative value claims in advertising must be substantiated by substantial evidence. This means that a retailer must have a reasonable basis for making a comparative value claim, which typically involves more than just purchasing one item from a competitor. It requires a broader survey of the market and prices from multiple competitors to ensure the comparison is fair and representative.

Question 16

Under certain circumstances, bait-and-switch advertising is legal.

Accepted Answer

Bait-and-switch advertising is considered a deceptive marketing practice and is illegal under consumer protection laws in many jurisdictions. It involves advertising a product at a certain price or with certain attributes to lure customers, and then trying to sell them a different, usually more expensive product.

Question 17

Selling against the brand enables retailers to increase sales of their private brands at the expense of manufacturer brands.

Accepted Answer

Selling against the brand is a strategy where retailers promote their own private brands over manufacturer brands, often by highlighting better value or quality, to increase sales of their private labels.

Question 18

The sale of gray market goods is illegal in the United States.

Accepted Answer

Gray market goods are legally sold in the United States, although they are products imported and sold without the consent of the authorized manufacturer, often at lower prices.

Question 19

A price war is most unlikely to occur in a market-controlled price environment.

Accepted Answer

The answer of A price war is most unlikely to...

Question 20

A government-controlled price environment is characterized by well-differentiated goods and services.

Accepted Answer

A government-controlled price environment typically involves price controls or regulations that can limit the differentiation of goods and services, as the focus is often on standardization and accessibility rather than on market-driven variety and innovation.

Quiz 20: Considerations in Price Planning