7.1 Prices are economic stop lights. They direct buying and selling. When prices become sticky: The market is less efficient in allocating resources.

Transcription

1 7.1 Prices are economic stop lights. They direct buying and selling. When prices become sticky: The market is less efficient in allocating resources. When demand increases faster than supply increases: Price increases. What is the consequence of increased general global demand that is only somewhat answered by increased supply? General price increases. When supply decreases faster than demand decreases: Price stays the same. When supply increases faster than demand increases: Price decreases. In which of the following continents do prices change more often? North America. The long-term solution to the high price of gasoline is: Increase the price further through government taxation. When demand decreases faster than supply decreases: Price decreases.

2 If you face fierce competition the short-term effect on sales of a price reduction will be: Greater than the long-term effect of a price reduction. 7.2 Which of the following decreases consumer price sensitivity? When the purchase is a necessity. Which of the following does the Price Setting worksheet analysis do? What can you learn from the Price Change worksheet? The Price Change worksheet uses the "Wisdom of the Crowd" by: Using the forecasts of everyone involved. If the contribution margin percentage is currently 40 percent and a price-reduction of 20 percent is proposed, what will sales have to increase by for the price-reduction to be worthwhile? 100% What is gross contribution? Quantity sold times contribution. Which of the following scenarios best describe a high negative price elasticity? Both A and C Which of the following price points should markets focus on? Both supply-curve and demand-curve kink points. Which of the following increases consumer price sensitivity? When prices can be searched on the Internet. Kinks in the demand curve for a particular product are more likely to occur when: Both B and C occur. Optimal price is very likely at one of the demand-curve kinks because it produces: The highest gross contribution.

3 7.3 An enterprising manufacturer of filing-cabinet hanging folders makes them in several bright, modern colors rather than the standard, dull, cardboard green. Which of the following reasons contributed to the great success of this very successful and very profitable quality-added product feature and product positioning differentiation? The different colors are more aesthetically attractive. The folders are made of recycled paper: No The extra cost is only a cent or so per file: Customers have to keep a larger inventory of files: The colors can be used to organize files: If all dairy farmers adopt Supercowchow and overall supply increases by 10 percent, which of the following will happen to the long-term income of the farmers who adopted it first? Their long-term income compared to their short-term income will: Decrease. Which of the following would the manufacturer find to be the lowest acceptable price for the new Supercowchow per sack? $70 Dell computer sets the price of its added-value note-pad features based on: Both the cost and the perceived value. Which of the following do you think is the fairest price for the Supercowchow? $80 When administered according to a careful feeding schedule, a premium nutritional additive called Supercowchow increases milk production earnings in a dairy herd to $1,050,000 from $1,000,000 using the standard Cowchow that costs $50 a sack for the farmer to buy. The farmer uses 1,000 sacks of Cowchow a year. Supercowchow costs $10 per sack extra to manufacture and the farmer would use 1,000 sacks of it. Thus the added-value of Supercowchow over regular Cowchow is $50,000/1,000 sacks which is $50 per sack. Which of the following would be the farmers' highest acceptable price for the new Supercowchow per sack? $90

4 A price skimming strategy: Is more likely to attract competitors. 7.4 A penetration pricing strategy can be attractive when: When the market has distinguishable segments that vary in their degree of price sensitivity, the best pricing strategy to use when initially introducing a new product is likely: Price skimming. What kind of pricing strategies have Toyota and Honda done over the last 50 years in the United States? Which of the following products can price skimming strategy be applied with? Lower introductory prices can lead to higher per unit margins by: Increasing sales volume and achieving economies of scale and sales efficiencies. According to the module which of the following products/services uses a premium pricing strategy? Extended appliance warranties of Best Buy. Consistently pricing your product below your average cost: Both A and C

5 7.5 A tied pricing contract: Is illegal in the United States. Volume discounting: Is a form of price discrimination. Electric utilities have developed to compete in the home heating market segment. Usage segment discounting What impact(s) might occur when off-peak demand pricing is applied? Reducing the annual overall contribution margin. Price shading: Allows sellers to lower prices for buyers who are knowledgeable about competitive suppliers. In a market where price shading is relatively common, sellers who do not shade their prices: May be perceived as uncooperative and unreasonable. Payment terms: Price discrimination: Results when a seller differentially adapts prices to various buyers. A method to reduce price shading's potential to lower profits is to: Base commissions on profits and not sales volume. A movie theater that prices afternoon showings lower than more popular evening showings: Does so because of lower demand and it cannot store its excess seating capacity.

6 7.6 A negative aspect of price promotions in a mature market is: That they can reduce the degree of brand loyalty in the market. What can be done to discourage price promotions? Operate close to production capacity. Which of the following statements is true? In the fashion world promotions running late in the season are designed to reduce inventory carrying costs and the risk of fashion obsolescence. Research suggests that compared to price promotions consumers may have a more positive feeling about: Coupons and rebates. Which of the following scenarios described in the price module best represents the advantage of differentiation over price promotion? What are the possible underlying implications when companies rely on price promotions to sell their mature product? Price promotions: Have strong reinforcing effects and train shoppers to become deal-seeking shoppers Many price discounts are wasted because: B, C and D

7 7.7 The most efficient transfer price is: The market price of the goods and services that the subsidiary faces. Transfer prices are most often adjusted because of: Tax implications. Transfer pricing is: The price you charge another unit or subsidiary of your company for a product or service. It is likely that the internal buyer will suggest that the transfer price should be the market price: Less the cost in sales-commissions and distribution that result from selling to a subsidiary (an internal buyer). In addition to economic efficiency and tax arguments most of the rest of transfer pricing is about: Which of the following statements is true? Both B and C