Take the quiz test your understanding of the key concepts covered in the chapter. Try testing yourself before you read the chapter to see where your strengths and weaknesses are, then test yourself again once you’ve read the chapter to see how well you’ve understood. 1. In a free market, a product’s price would be set by the forces of demand and supply. True or false? True False 2. Cost and price are interchangeable terms. True or false? True False 3. Going out to tender is a common way for prices to be set for government contracts, particularly for public works such as bridge building. True or false? True False 4. Mark-up pricing is common in retailing. True or false? True False 5. Charging a high price for products tends to encourage new competition into a market. True or false? True False 6. Which of the following is not a market-based pricing method?
Answer: c. contribution pricing 7. Johnny has recently opened a sandwich bar but he is not sure what prices to charge for his various products. His customers tell him they would never pay more than £4.00 for a sandwich and so he sets his top price at £4.00. What kind of pricing is he using?
Answer: b. psychological price barriers 8. For his basic sandwiches, Johnny checks out what other sandwich bars charge and charges approximately the same. What kind of pricing is this?
Answer: d. going-rate pricing 9. What is a cartel?
Answer: a. a group of companies that get together and fix prices between them 10. Fred runs a bakery. He has lots of bills to pay: electricity; rent for the shop; the staff’s wages; flour for bread, cakes and pastries; etc. His accountant says it is important to classify these costs correctly so that he can set the right prices for his products. How would you classify the shop’s rent?
Answer: c. fixed and indirect 11. Ivan runs a bakery. He has lots of bills to pay: electricity; rent for the shop; the staff’s wages; flour for bread, cakes and pastries; spelt for his special spelt loaf; etc. His accountant says it is important to classify these costs correctly so that he can set the right prices for his products. How would you classify the cost of the spelt?
Answer: d. variable and indirect 12. What type of cost is ‘mark-up’ pricing based on?
13. What is the term for the volume of products sold that, at a given price, will cover the company’s costs?
Answer: d. breakeven point 14. Miranda owns a chain of handbag shops across England and Wales. She has spotted a good location to set up a shop in Edinburgh but her handbags are not well known in Scotland and there is quite a lot of competition. She thinks it is worth a try anyway and decides to undercut the competition, at least until she gets known. What pricing strategy is Miranda following?
Answer: c. market penetration 15. Under which conditions would market skimming be likely to be a viable strategy?
Answer: d. All of the above. 16. Marie is a software developer who works freelance. She wants her customers to really value her work and so she consistently sets her prices higher than the competition. Sometimes she loses work because of this, but often she wins the contract. What kind of pricing is she using?
Answer: a. prestige pricing 17. Woods and Co is one of the largest office furniture suppliers in the UK. They outsource manufacturing overseas, sell direct and keep their prices low. New firms who do not have Woods’ economies of scale find it impossible to compete. What kind of pricing is Woods and Co using?
Answer: b. pre-emptive pricing 18. Matt has some great Christmas gifts for sale but not enough people come into his shop and see them. They tend to shop at bigger retailers instead. He cannot afford media advertising and so he decides to offer Christmas crackers for one penny each (well below what they cost him) to draw customers in. He puts a notice in the window advertising this bargain. What tactic is he using here?
19. What is parallel importing?
Answer: a. Trade customers buy goods cheaper abroad, import them and undercut the manufacturer. 20. If a product is said to have a price inelastic demand curve, what does this mean?
Answer: c. If you change the price, sales volume will change very little. 21. Sales ______ minus costs = profit. 22. There are three key elements to price setting: competitors’ prices, ______ perceptions of the product’s value and costs. 23. A sure way to go out of business is to set prices lower than ______. 24. As long as the product is sold for more than its variable cost, it is making a ______ towards the firm’s fixed costs and profits. 25. Price ______ start when two or more competitors continually undercut each other’s prices. |