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?

1. customer value pricing
2. psychological price barriers
3. contribution pricing
4. going-rate pricing
5. tenders

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?

1. customer value pricing
2.  psychological price barriers
3. contribution pricing
4. going-rate pricing
5. tenders

8. For his basic sandwiches, Johnny checks out what other sandwich bars charge and charges approximately the same. What kind of pricing is this?

1. customer value pricing
2. psychological price barriers
3. contribution pricing
4. going-rate pricing
5. tenders

9. What is a cartel?

1. a group of companies that get together and fix prices between them
2. a list of prices
3. the various prices charged across a product range
4. a government pricing strategy
5. a means of converting prices into another currency

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?

1. fixed and direct
2. variable and direct
3. fixed and indirect
4. variable and indirect
5. marginal

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?

1. fixed and direct
2. variable and direct
3. fixed and indirect
4. variable and indirect
5. marginal

12. What type of cost is ‘mark-up’ pricing based on?

1. fixed cost
2. variable cost
3. direct cost
4. indirect cost
5. marginal cost

13. What is the term for the volume of products sold that, at a given price, will cover the company’s costs?

1. equilibrium point
2. target profit
3. maximum profit
4. breakeven point
5. match 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?

1. market skimming
2. loss leader
3. market penetration
4. price discrimination
5. export pricing

15. Under which conditions would market skimming be likely to be a viable strategy?

1. There is insufficient market capacity and competitors cannot make more of the product.
2. There are no competitors.
3. The demand for the goods in question is relatively price inelastic.
4. All of the above.
5. None 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?

1. prestige pricing
2. pre-emptive pricing
3. product line pricing
4. placement pricing
5. price discrimination

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?

1. prestige pricing
2. pre-emptive pricing
3. product line pricing
4. placement pricing
5. price discrimination

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?

1. predatory pricing
2. psychological pricing
3. retail pricing
4. discounts
5. a loss leader

19. What is parallel importing?

1. Trade customers buy goods cheaper abroad, import them and undercut the manufacturer.
2. A manufacturer piggybacks on another manufacturer’s distribution channel.
3. A manufacturer imports and prices two product lines together.
4. Distributors put together a large shipment of different goods to cut costs.
5. It is an agreement between two companies to swap shipments of goods without any money changing hands.

20. If a product is said to have a price inelastic demand curve, what does this mean?

1. If you put the price up, sales will stay the same.
2. If you the price down, sales volume will fall.
3. If you change the price, sales volume will change very little.
4. To sell more products, you should raise the price.
5. To make more sales revenue, you should lower the price.

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.