Marketing: Real People, Real Choices

1) ________ is the assignment of value, or the amount a consumer must give to receive a
product.
a. Profit
b. Exchange
c. Price
d. Demand
e. Yield
Answer: c
Diff: 1
Type: MC
Page Reference: 296
Topic: What is Price?
Skill: Concept
Objective: 09-1 The importance of pricing
2) Which of the following statements about price is true?
a. Pricing is the least important marketing mix element.
b. Price is always a monetary value.
c. Price can mean exchange of nonmonetary goods or services.
d. Most consumers believe price has little influence on their purchase decisions.
e. Pricing is unaffected by changes in the business cycle.
Answer: c
Diff: 2
Type: MC
Page Reference: 296
Topic: What is Price?
Skill: Concept
Objective: 09-1 The importance of pricing
3) The value of something we give up in order to obtain something else is referred to as
a(n)________.
a. transformation cost
b. opportunity cost
c. exchange
d. variable cost
e. marginal cost
Answer: b
Diff: 2
Type: MC
Page Reference: 296
Topic: What is Price?
Skill: Concept
Objective: 09-1 The importance of pricing
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4) Which of the following is NOT a type of pricing objective?

a. elasticity
b. market share
c. profit
d. competitive effect
e. image enhancement
Answer: a
Diff: 2
Type: MC
Page Reference: 299
Topic: Developing Pricing Objectives
Skill: Concept
Objective: 09-1 The importance of pricing
5) In price planning, a firm would be most likely to set a profit objective for which of the
following products?
a. a commodity such as coal
b. toothpaste
c. a fad such as Beanie Babies
d. lightbulbs
e. construction materials
Answer: c
Diff: 2
Type: MC
Page Reference: 299
Topic: What is Price?
Skill: Application
Objective: 09-1 The importance of pricing
6) A company that intends to maintain low-end pricing policies to make the market
unattractive for its competitors is using which of the following pricing objectives in its
price planning?
a. sales
b. profit
c. break-even
d. competitive effect
e. customer satisfaction
Answer: d
Diff: 2
Type: MC
Page Reference: 301
Topic: What is Price?
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Skill: Concept
Objective: 09-1 The importance of pricing
7) Which of the following is true about the demand curve?
a. It is used to illustrate the effect of price on the quantity supplied.
b. It is always graphically depicted by a straight line.
c. It shows the quantity of product customers will buy in a market during a period of time
even if other factors change.
d. It usually slopes upward and to the right.
e. It shows the relationship between product demand and product price.
Answer: e
Diff: 3
Type: MC
Page Reference: 302
Topic: Estimate Demand and Value
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
8) According to the law of demand, which of the following is true?
a. If prices decrease, customers will buy more.
b. Customers are not aware of small price changes.
c. The effect on demand from changes in price cannot be accurately predicted.
d. Demand equals supply.
e. If prices increase, customers will buy more.
Answer: a
Diff: 2
Type: MC
Page Reference: 302
Topic: Estimate Demand and Value
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
9) Why do marketers consider prestige products to be an exception to the law of demand?
a. The demand curve for prestige products slopes downward and to the right.
b. Increasing the price of prestige products can make them seem more desirable.
c. Demand for prestige products often is greater than supply.
d. Prestige products such as diamonds, sapphires, and emeralds are nonrenewable
resources.
e. Customers are more aware of any price changes to prestige products.
Answer: b
Diff: 3
Type: MC
Page Reference: 303
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Topic: Estimate Demand and Value

Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
10) What is the first step a marketer should take to estimate a product's potential sales?
a. determine maximum production levels
b. conduct a survey of buyers' intentions
c. estimate total demand for the product in the market
d. determine how to expand market share
e. predict the company's market share
Answer: c
Diff: 2
Type: MC
Page Reference: 303
Topic: Estimate Demand and Value
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
11) Which of the following is a measure of the sensitivity of customers to changes in
price?
a. a liquidity ratio
b. demand sensitivity
c. price elasticity of demand
d. marginal analysis
e. basing-point
Answer: c
Diff: 1
Type: MC
Page Reference: 305
Topic: Price Elasticity of Demand
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
12) How is the price elasticity of demand calculated?
a. averaging previous demand levels with new demand levels
b. dividing percentage change in quantity demanded by percentage change in price
c. dividing the new quantity demanded by the percentage change in price times 100
d. multiplying the percentage change in quantity demanded by the percentage change in
price
e. dividing the percentage change in price by the percentage change in quantity demanded
Answer: b
Diff: 3
Type: MC
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Page Reference: 305

Topic: Estimate Demand and Value
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
13) Which of the following occurs when price is inelastic?
a. Price and revenue change in the same direction.
b. Revenues decrease when price increases.
c. Revenue is unaffected by price changes.
d. Quantity demanded increases when price increases.
e. The demand curve is more horizontal.
Answer: a
Diff: 2
Type: MC
Page Reference: 305
Topic: Price Elasticity of Demand
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
14) Demand would most likely be inelastic for which of the following?
a. lamb chops and t-bone steaks
b. gourmet cheese
c. symphony tickets
d. luxury watches
e. basic necessities
Answer: e
Diff: 2
Type: MC
Page Reference: 305
Topic: Price Elasticity of Demand
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
15) When demand is ________, increases in price result in increases in total revenues,
while decreases in price result in decreases in total revenue.
a. elastic
b. inelastic
c. flexible
d. supply-driven
e. cross-elastic
Answer: b
Diff: 2
Type: MC
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Marketing: Real People, Real Choices

Page Reference: 305

Topic: Price Elasticity of Demand
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
16) The changes in prices of other products affect the demand for an item. This is a
phenomenon called ________.
a. cross-elasticity of demand
b. complementary elasticity
c. interdependent elasticity
d. parallel elasticity
e. variable demand
Answer: a
Diff: 1
Type: MC
Page Reference: 306
Topic: Price Elasticity of Demand
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
17) ________ are the per-unit costs of production that will fluctuate depending on how
many units or individual products a firm produces.
a. Fixed costs
b. Variable costs
c. Average fixed costs
d. Marginal costs
e. Everyday costs
Answer: b
Diff: 1
Type: MC
Page Reference: 307
Topic: Determine Costs
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
18) ________ do not vary with the number of units produced.
a. Liquidity costs
b. Fixed costs
c. Variable costs
d. Marginal costs
e. Everyday costs
Answer: b
Diff: 1
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Type: MC
Page Reference: 307
Topic: Determine Costs
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
19) ________ are the sum of the ________ and ________ for any given level of
production.
a. Fixed costs; variable costs; marginal costs
b. Fixed costs; break-even costs; variable costs
c. Variable costs; fixed costs; marginal costs
d. Total costs; fixed costs; variable costs
e. Break-even costs; fixed costs; total costs
Answer: d
Diff: 2
Type: MC
Page Reference: 307
Topic: Determine Costs
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
20) Break-even analysis is used to examine the relationship between ________.
a. fixed costs and variable costs
b. costs and contributions
c. costs and price
d. demand and costs
e. demand and profits
Answer: c
Diff: 1
Type: MC
Page Reference: 308
Topic: Determine Costs
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
21) Which of the following statements about the break-even point is true?
a. It is used to determine how many more units need to be sold to increase market share
by a specific amount.
b. It is a technique used to calculate fixed costs.
c. It determines the amount of retained earnings a company will have during an
accounting period.
d. It is a technique marketers use to examine the relationship between supply and
demand.
e. It is calculated using contribution per unit costs and total fixed costs.
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Answer: e
Diff: 2
Type: MC
Page Reference: 308-309
Topic: Determine Costs
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
22) The break-even point is the point at which ________.
a. the total revenue and total costs lines intersect
b. demand equals supply
c. the production of one more unit will not increase profit
d. the company can pay all of its long-term debt
e. a firm's profit goal is reached
Answer: a
Diff: 2
Type: MC
Page Reference: 308
Topic: Determine Costs
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
23) To determine the break-even point, a firm needs to first do which of the following?
a. determine what percentage of the market it wants
b. determine the point at which supply equals demand
c. calculate the contribution per unit
d. conduct an environmental audit
e. determine total market share
Answer: c
Diff: 2
Type: MC
Page Reference: 308
Topic: Determine Costs
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
24) ________ lets marketers look at cost and demand at the same time and identify the
output and the price that will generate the maximum profit.
a. Break-even analysis
b. SWOT analysis
c. Marginal analysis
d. Competitive analysis
e. Supply-demand analysis
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Answer: c
Diff: 1
Type: MC
Page Reference: 310
Topic: Determine Costs
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
25) Which of the following statements about marginal analysis is true?
a. Marginal analysis is typically a straightforward procedure to apply in real-life
situations.
b. An important factor in marginal analysis is predicting demand, which is an exact
science.
c. Marginal revenue is also the demand curve, so it represents the amount customers will
buy at different prices.
d. Profit is maximized at the point at which marginal cost is exactly equal to marginal
revenue.
e. The cost of producing a unit beyond the point when marginal cost equals marginal
revenue is much less than the revenue from the sale of that unit.
Answer: d
Diff: 3
Type: MC
Page Reference: 310
Topic: Determine Costs
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
26) Which of the following is an external influence that affects pricing decisions?
a. the salaries of production management
b. competition
c. the salaries of finance management
d. overall pricing objectives
e. the company's overall marketing strategy
Answer: b
Diff: 1
Type: MC
Page Reference: 313
Topic: Examine the pricing Environment
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment

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27) When setting prices, a company must consider factors in its pricing environment.
________ such as the business cycle, economic growth, and consumer confidence can
have a significant impact on the firm's pricing strategies.
a. Consumer trends
b. Economic trends
c. Competitors' responses
d. Regulations
e. Market structures
Answer: b
Diff: 1
Type: MC
Page Reference: 313
Topic: Examine the pricing Environment
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
28) In a market with ________, there are many sellers, each offering a slightly different
product. Firms can differentiate products and focus on nonprice competition.
a. pure competition
b. monopolistic competition
c. oligopolistic competition
d. a pure monopoly
e. socialism
Answer: b
Diff: 2
Type: MC
Page Reference: 314
Topic: Examine the pricing Environment
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
29) In a market with ________, the market consists of many buyers and a few sellers who
are likely to have similar pricing.
a. pure competition
b. monopolistic competition
c. oligopolistic competition
d. a pure monopoly
e. socialism
Answer: c
Diff: 2
Type: MC
Page Reference: 314
Topic: Examine the pricing Environment
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Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
30) The most common cost-based approach to pricing is ________.
a. demand-based pricing
b. psychological pricing
c. yield management pricing
d. cost-plus pricing
e. cost-minus pricing
Answer: d
Diff: 2
Type: MC
Page Reference: 317
Topic: Choose a pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing strategies
31) The method of setting prices in which marketers total all the costs for the product and
then add an amount to arrive at the selling price is called ________.
a. supply-based pricing
b. target costing
c. cost-plus pricing
d. yield management pricing
e. demand-based pricing
Answer: c
Diff: 1
Type: MC
Page Reference: 317
Topic: Choose a pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing strategies
32) Lawyers, accountants, and other professionals typically price by adding a standard
markup for profit. This is known as ________.
a. target costing
b. value pricing
c. cost-plus pricing
d. break-even pricing
e. penetration pricing
Answer: c
Diff: 2
Type: MC
Page Reference: 317
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Topic: Choose a pricing Strategy

Skill: Application
Objective: 09-3 Pricing the Product: Establishing strategies
33) In which type of pricing is the selling price based on an estimate of volume or
quantity a firm can sell in different markets at different prices?
a. capacity management
b. target costing
c. demand-based
d. penetration
e. distribution-based
Answer: c
Diff: 1
Type: MC
Page Reference: 318
Topic: Choose a pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing strategies
34) With target costing, marketers first ________ and then ________.
a. build the marketing mix; identify the target market
b. identify target markets; set different prices for each market
c. design the product; determine its cost
d. use skimming pricing; use penetration pricing
e. determine a reasonable selling price; target costs to ensure that the price is met
Answer: e
Diff: 2
Type: MC
Page Reference: 319
Topic: Choose a pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing strategies
35) Two forms of demand-based pricing are ________.
a. price bundling and captive pricing
b. price skimming and penetration pricing
c. fixed pricing and variable pricing
d. target costing and yield management pricing
e. price leadership and everyday low pricing
Answer: d
Diff: 2
Type: MC
Page Reference: 318-319
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Topic: Choose a pricing Strategy

Skill: Concept
Objective: 09-3 Pricing the Product: Establishing strategies
36) Which of the following is an example of a pricing strategy that focuses on customers'
needs?
a. price leadership
b. everyday low pricing
c. distribution-based pricing
d. cost-plus pricing
e. skimming
Answer: b
Diff: 2
Type: MC
Page Reference: 321
Topic: Choose a pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing strategies
37) A firm is using ________ when it charges a high, premium price for a new product
with the intention of reducing the price in the future.
a. a skimming price
b. trial pricing
c. value pricing
d. penetration pricing
e. prestige pricing
Answer: a
Diff: 1
Type: MC
Page Reference: 320
Topic: Choose a pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing strategies
38) Which of the following should be true for a skimming price to be successful?
a. Target consumers should be price sensitive.
b. Supply should exceed demand.
c. Demand must be stabilizing.
d. The producer should use intensive distribution.
e. There should be little chance that competitors can quickly enter the market.
Answer: e
Diff: 2
Type: MC
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Page Reference: 320

Topic: Choose a pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing strategies
39) A firm is using a(n)________ strategy when it introduces a product at a very low
price to gain market share early on.
a. skimming pricing
b. trial pricing
c. intensive pricing
d. penetration pricing
e. price bundling
Answer: d
Diff: 1
Type: MC
Page Reference: 322
Topic: Choose a pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing strategies
40) Which of the following is a reason that a marketer would choose a penetration pricing
strategy?
a. to ensure the company has the ability to increase prices once demand decreases
b. to focus on the rapid achievement of profit objectives
c. to appeal to different consumer segments with different levels of price sensitivity
d. to create markets for highly technical products
e. to discourage competition from entering the market
Answer: e
Diff: 2
Type: MC
Page Reference: 322
Topic: Choose a pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product: Establishing strategies
41) A new product carries a low price for a limited period of time to attract customers in
what type of pricing strategy?
a. price skimming
b. trial pricing
c. penetration pricing
d. specialty pricing
e. price bundling
Answer: b
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Diff: 1
Type: MC
Page Reference: 322
Topic: Choose a pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product: Establishing strategies
42) ________ refers to the sale of two or more goods or services as a single package for
one price.
a. Two-part pricing
b. Captive pricing
c. Price bundling
d. List pricing
e. Everyday low pricing
Answer: c
Diff: 1
Type: MC
Page Reference: 322
Topic: Choose a pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product: Establishing strategies
43) ________ is a pricing tactic a firm uses for two products that work only when used
together. The firm sells one item at a very low price and then makes its profit on the
second high-margin item.
a. Two-part pricing
b. Price bundling
c. Captive pricing
d. Penetration pricing
e. Skim pricing
Answer: c
Diff: 1
Type: MC
Page Reference: 325
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing Tactics and Setting Pricing Points
44) Another name for F.O.B. factory pricing is ________ pricing.
a. captive
b. F.O.B destination
c. F.O.B. origin
d. F.O.B. delivered
e. basing-point
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Marketing: Real People, Real Choices

Answer: c
Diff: 2
Type: MC
Page Reference: 326
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing Tactics and Setting Pricing Points
45) With ________, the seller pays both the cost of loading and transporting the product
to the customer.
a. uniform delivered pricing
b. basing-point pricing
c. F.O.B. origin pricing
d. F.O.B. delivered pricing
e. F.O.B. factory pricing
Answer: d
Diff: 2
Type: MC
Page Reference: 326
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing Tactics and Setting Pricing Points
46) When a company charges the same rate to ship a product anywhere in the United
States, it is using which form of pricing?
a. freight absorption
b. F.O.B. factory
c. F.O.B. origin
d. uniform delivered
e. basing-point
Answer: d
Diff: 1
Type: MC
Page Reference: 327
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing Tactics and Setting Pricing Points
47) Whether a firm sells to businesses or directly to consumers, most pricing structures
are built around which of the following?
a. distribution costs
b. channel length
c. trade discounts
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Marketing: Real People, Real Choices

d. sales promotions
e. list prices
Answer: e
Diff: 2
Type: MC
Page Reference: 328
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing Tactics and Setting Pricing Points
48) A list price is also referred to as a(n)________.
a. captive price
b. bundled price
c. channel price
d. suggested retail price
e. basing-point price
Answer: d
Diff: 2
Type: MC
Page Reference: 328
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing Tactics and Setting Pricing Points
49) Trade or functional discounts are offered by manufacturers to which of the following?
a. channel intermediaries who perform wholesaling tasks that the manufacturer would
otherwise have to perform
b. consumers who earn a price reduction for buying in bulk
c. intermediaries who pay their bills before they are due
d. manufacturers that agree to exclusive distribution contracts
e. the government market and other organizations that require bid proposals
Answer: a
Diff: 2
Type: MC
Page Reference: 328
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing Tactics and Setting Pricing Points
50) Which of the following is true about noncumulative quantity discounts?
a. They encourage large single orders.
b. They encourage a strong relationship between buyer and seller.
c. They are based on a total quantity purchased within a set time period.
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Marketing: Real People, Real Choices

d. They typically involve giving the buyer a credit to use against future orders.
e. They encourage small, regularly spaced orders.
Answer: a
Diff: 3
Type: MC
Page Reference: 329
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing Tactics and Setting Pricing Points
51) A quantity discount is a price reduction to buyers who purchase ________.
a. frequently
b. large volumes
c. close outs
d. bundled products
e. seasonal products
Answer: b
Diff: 1
Type: MC
Page Reference: 329
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing Tactics and Setting Pricing Points
52) When a snow blower shop offers a price reduction to customers who buy during the
spring and summer, the shop is giving a(n)________ discount.
a. functional
b. seasonal
c. annual
d. trade
e. allowance
Answer: b
Diff: 1
Type: MC
Page Reference: 330
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing Tactics and Setting Pricing Points
53) On the Internet, price can easily be adjusted to meet changes in the marketplace. This
is called ________.
a. captive pricing
b. dynamic pricing
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Marketing: Real People, Real Choices

c. basing-point pricing
d. price bundling
e. freenomics
Answer: b
Diff: 1
Type: MC
Page Reference: 331
Topic: Dynamic Pricing Strategies
Skill: Concept
Objective: 09-5 Pricing and Electronic Commerce
54) Which of the following allow shoppers to bid on everything from bobble heads to
health-and-fitness equipment?
a. freenomics
b. shopbots
c. reverse auctions
d. online auctions
e. list prices
Answer: d
Diff: 1
Type: MC
Page Reference: 331
Topic: Dynamic Pricing Strategies
Skill: Concept
Objective: 09-5 Pricing and Electronic Commerce
55) In a(n)________, all of the buyers know the highest price bid at any point in time.
a. reverse auction
b. dynamic auction
c. open auction
d. reserve auction
e. price-lining auction
Answer: c
Diff: 2
Type: MC
Page Reference: 331
Topic: Dynamic Pricing Strategies
Skill: Concept
Objective: 09-5 Pricing and Electronic Commerce
56) The idea of externalities is the basis of ________.
a. dynamic pricing
b. e-commerce
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Marketing: Real People, Real Choices

c. freenomics
d. reserve pricing
e. price sensitivity
Answer: c
Diff: 2
Type: MC
Page Reference: 331
Topic: Dynamic Pricing Strategies
Skill: Concept
Objective: 09-5 Pricing and Electronic Commerce
57) Freenomics is a new business model based on pricing goods ________.
a. based on psychological factors
b. at zero or close to zero
c. using crowdsourcing
d. using odd-even pricing
e. using the price-placebo effect
Answer: b
Diff: 2
Type: MC
Page Reference: 331
Topic: Dynamic Pricing Strategies
Skill: Concept
Objective: 09-5 Pricing and Electronic Commerce
58) Which of the following is a set price or price range in consumers' minds that they
refer to in evaluating a product's price?
a. dynamic price
b. internal reference price
c. suggested retail price
d. captive price
e. value price
Answer: b
Diff: 21
Type: MC
Page Reference: 331
Topic: Dynamic Pricing Strategies
Skill: Concept
Objective: 09-5 Pricing and Electronic Commerce
59) Often consumers base their perception of price on what they perceive to be the
customary or ________.
a. dynamic price
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Marketing: Real People, Real Choices

b. fair price
c. target price
d. list price
e. assimilated price
Answer: b
Diff: 2
Type: MC
Page Reference: 333
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
60) An illegal marketing practice in which an advertised price special is used as bait to
get customers into the store with the intention of switching them to a higher-priced item
is called_______________________.
a. Predatory Pricing
b. Bait and Switch
c. Loss Leader Pricing
d. Price Discrimination
e. Bid Rigging
Answer: b
Diff: 2
Type: MC
Page Reference: 333
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
61) T he illegal practice of offering the same product of like quality and quantity to
different business customers at different prices, thus lessening competition is called
______________________.
a. Predatory Pricing
b. Bait and Switch
c. Loss Leader Pricing
d. Price Discrimination
e. Bid Rigging
Answer: d
Diff: 2
Type: MC
Page Reference: 333
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
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62) Rough diamond seller De Beers, for example, currently faces a price fixing class
action law suit that alleges that they have led a world-wide diamond cartel that has had
anti-competitive impact on Canadian .This is an example of _________________.
a. Price Maintenance
b. Bait and Switch
c. Loss Leader Pricing
d. Price Discrimination
e. Bid Rigging
Answer: a
Diff: 3
Type: MC
Page Reference: 333
Topic: Deceptive Pricing Practices
Skill: Application
Objective: 09-6 Legal and ethical aspects of pricing
63) Consumers usually perceive higher-priced products as ________.
a. out of reach for all but the wealthy
b. having high quality
c. having low profit margins
d. having cost-based prices
e. being in the introductory stage of the product life cycle
Answer: b
Diff: 2
Type: MC
Page Reference: 333
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
64) A business using price lining is doing which of the following?
a. trying to avoid the use of psychological pricing, which may be negatively received by
customers
b. trying to recoup its research and development costs for a new product
c. attempting to attain a large market share before any competitors can enter the
marketplace
d. using price points to determine its pricing strategy
e. engaging in potentially unethical pricing
Answer: d
Diff: 2
Type: MC
Page Reference: 327
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Topic: Psychological Tactics

Skill: Concept
Objective: 09-4 Pricing the Product:Pricing Tactics and Setting Price Points
65) From a marketer's point of view, price lining is a way to do which of the following?
a. control supply
b. maximize profits
c. make the business more socially responsible
d. pass shipping costs on to consumers
e. eliminate price elasticity concerns
Answer: b
Diff: 3
Type: MC
Page Reference: 327
Topic: Psychological Tactics
Skill: Concept
Objective: 09-4 Pricing the Product:Pricing Tactics and Setting Price Points
66) Which of the following is a pricing strategy that turns the typical assumption about
price-demand relationships on its head?
a. penetration pricing
b. price bundling
c. assimilation effect pricing
d. placebo effect pricing
e. prestige pricing
Answer: e
Diff: 2
Type: MC
Page Reference: 326
Topic: Pricing Strategies to achieve customer satisfaction objectives
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing Strategies
67) Enforcing laws against ________ is complicated because such practices are similar to
the legal practice of "trading up."
a. price bundling
b. captive pricing
c. bait-and-switch tactics
d. prestige pricing
e. placebo effect pricing
Answer: c
Diff: 2
Type: MC
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Page Reference: 333

Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
68) Some retailers advertise items at very low prices or even below cost just to get
customers into the store. The rationale for implementing this ________ strategy is the
belief that once a customer is in the store she will buy the advertised item as well as other
items at regular prices.
a. bait-and-switch
b. price lining
c. predatory pricing
d. loss leader pricing
e. dynamic pricing
Answer: d
Diff: 2
Type: MC
Page Reference: 334
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
69) Which unit of Industry Canada, is responsible for ensuring that Canadian businesses (
including foreign businesses that operate in Canada) adhere to federal laws that are
designed to maintain and encourage fair competition.
a. Immigration Misnistry
b. Foreign Trade Department
c. Consumer Ministry
d. The Competition Bureau
e. Prime Ministers Office
Answer: d
Diff: 2
Type: MC
Page Reference: 333
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
70) The ______________________was recently amended to enable civil (as well as
criminal) action to more quickly and effectively stop unfair, deceptive, or otherwise anticompetitive behaviour.
a. Consumer Packaging and Labelling Act
b. Competition Act
c. Textile Labelling Act
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d. Precious Metals Marking Act

e. Grey Marketing Act
Answer: b
Diff: 3
Type: MC
Page Reference: 333
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
71) Price fixing occurs when two or more companies conspire to ________.
a. keep prices at a certain level
b. use predatory pricing
c. use loss-leader pricing
d. use bait-and-switch tactics
e. prohibit competitors from entering a market
Answer: a
Diff: 2
Type: MC
Page Reference: 334
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
72) Which of the following occurs when competitors making the same product jointly
determine what price each will charge customers for the item?
a. horizontal price fixing
b. vertical price fixing
c. predatory pricing
d. internal reference pricing
e. assimilation pricing
Answer: a
Diff: 2
Type: MC
Page Reference: 334
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
73) Which of the following occurs when manufacturers or wholesalers attempt to force
retailers to charge a certain price for their products?
a. horizontal price fixing
b. vertical price fixing
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c. predatory pricing
d. internal reference pricing
e. assimilation pricing
Answer: b
Diff: 2
Type: MC
Page Reference: 335
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
74) Competition Act on price-fixing requires that sellers set their prices ________.
a. based on their fixed and variable costs
b. without communication with competitors
c. to achieve a specified profit margin
d. consistently with all customers
e. consistently throughout a region
Answer: b
Diff: 2
Type: MC
Page Reference: 335
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
75) By using ________, a company deliberately sets a low price with the intention of
driving its competition out of business.
a. price-fixing
b. price lining
c. contrast pricing
d. predatory pricing
e. loss leader pricing
Answer: d
Diff: 1
Type: MC
Page Reference: 333
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
76) When setting prices, a leading manufacturer of nutritional supplements decided to
institute a pricing strategy that would support a five percent increase in sales over the
next three years. What type of pricing objective has the company set?
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a. profit
b. sales
c. competitive effect
d. cost-plus
e. value
Answer: b
Diff: 2
Type: MC
Page Reference: 300
Topic: What is Price?
Skill: Application
Objective: 09-1 The importance of pricing
77) When Home Depot stores entered the Canadian market, there were already stores
providing similar services and products. To get people to try the Home Depot stores, the
chain deliberately sold merchandise below the price that the Canadians were used to.
What type of pricing objective did Home Depot use?
a. market share
b. profit
c. competitive effect
d. customer satisfaction
e. image enhancement
Answer: c
Diff: 1
Type: MC
Page Reference: 300
Topic: What is Price?
Skill: Application
Objective: 09-1 The importance of pricing
78) Many people rely on a prescription drug to control their cholesterol. An increase in
the price of the drug would have little effect on the quantity demanded because there are
no substitutes for the drug and because people who take it have no choice but to continue
taking it if they wish to stay healthy. The demand for the cholesterol drug is ________.
a. elastic
b. inelastic
c. cross-elastic
d. supply-driven
e. asymmetrical
Answer: b
Diff: 2
Type: MC
Page Reference: 305
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Topic: Price Elasticity of Demand

Skill: Application
Objective: 09-2 Costs,Demand,Revenue and the Pricing Environment
79) When Joe's Coffee Nook raised the price of a latte, Joe noticed a substantial change
in how many lattes he sold daily. A price reduction caused his sales to increase. From this
information, you can assume the demand for lattes is ________.
a. static
b. supply-driven
c. asymmetrical
d. elastic
e. inelastic
Answer: d
Diff: 2
Type: MC
Page Reference: 305
Topic: Price Elasticity of Demand
Skill: Application
Objective: 09-2 Costs,Demand,Revenue and the Pricing Environment
80) Sellers should know that the less elastic the demand for their product is, the more
advantageous it is for them to ________.
a. drop the price
b. raise the price
c. maintain the price
d. discontinue the item
e. bundle the item with another product
Answer: b
Diff: 2
Type: MC
Page Reference: 305
Topic: Price Elasticity of Demand
Skill: Application
Objective: 09-2 Costs,Demand,Revenue and the Pricing Environment
81) Which of the following is an example of a variable cost for an amusement park?
a. salary of the park manager
b. food cart supplies
c. liability insurance
d. interest on the property's mortgage
e. property taxes
Answer: b
Diff: 2
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Type: MC
Page Reference: 307
Topic: Determine Costs
Skill: Application
Objective: 09-2 Costs,Demand,Revenue and the Pricing Environment
82) For a company that manufactures plastic signs, the printing press used to make the
signs, the manager's salary, and the utilities are all examples of ________.
a. fixed costs
b. average fixed costs
c. variable costs
d. marginal costs
e. everyday costs
Answer: a
Diff: 1
Type: MC
Page Reference: 307
Topic: Determine Costs
Skill: Application
Objective: 09-2 Costs,Demand,Revenue and the Pricing Environment
83) As a manufacturer increases price, the ________ drops.
a. target
b. break-even point
c. marginal revenue
d. total cost
e. variable cost
Answer: b
Diff: 3
Type: MC
Page Reference: 307
Topic: Determine Costs
Skill: Application
Objective: 09-2 Costs,Demand,Revenue and the Pricing Environment
84) Joe Bergerson makes and sells maple racks for cooling cakes and cookies. Joe knows
that it costs $15 to make one rack, and he wants to earn a 25 percent profit on each rack.
Which approach to pricing is Joe most likely to use?
a. demand-based pricing
b. target costing
c. cost-plus pricing
d. yield management pricing
e. value pricing

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Answer: c
Diff: 2
Type: MC
Page Reference: 317
Topic: Choose a Pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product:Establishing strategies
85) Swatch surveyed the market and identified an unserved segment of watch buyers.
Using these results, they created a watch at a price consumers were willing to pay. The
unorthodox order of this marketing mix decision is an example of ________.
a. competition-based pricing
b. cost-plus pricing
c. target costing
d. value pricing
e. penetration pricing
Answer: c
Diff: 2
Type: MC
Page Reference: 319
Topic: Choose a Pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product:Establishing strategies
86) The average price Xerox charged when it introduced the first stand-alone fax machine
was $12,700. This premium price was a way for Xerox to recoup some of the research
and development costs that went into production. Xerox used ________.
a. a skimming price
b. a trial price
c. penetration pricing
d. prestige pricing
e. target costing
Answer: a
Diff: 2
Type: MC
Page Reference: 320
Topic: Choose a Pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product:Establishing strategies
87) Valeo Fashions has just introduced a new line of fashion dresses for teens. The line
will initially enter the market at high prices in a ________ strategy.
a. penetration pricing
b. skimming pricing
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c. price leadership
d. yield management pricing
e. value pricing
Answer: b
Diff: 2
Type: MC
Page Reference: 320
Topic: Choose a Pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product:Establishing strategies
88) When a beverage maker came out with a new drink and priced it at half price for a
month to attract buyers, the company was using a(n)________ strategy.
a. penetration pricing
b. skim pricing
c. everyday low price
d. trial pricing
e. price leadership
Answer: d
Diff: 2
Type: MC
Page Reference: 322
Topic: Choose a Pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product:Establishing strategies
89) Johnson Boats wants to introduce a new model of boat into mature markets in highly
developed countries with the goal of quickly gaining mass-market share. As a consultant,
you should recommend a ________ pricing strategy.
a. skim
b. penetration
c. price leadership
d. cost-plus
e. captive
Answer: b
Diff: 2
Type: MC
Page Reference: 322
Topic: Choose a Pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product:Establishing strategies

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90) A skimming price strategy would likely be most effective in selling which of the
following?
a. any convenience item
b. an electronic device which involved a great deal of research and development to bring
to market
c. shampoo and bath soap
d. anything easily copied by competitors
e. most items at EDLP retailers such as Walmart
Answer: b
Diff: 2
Type: MC
Page Reference: 320
Topic: Choose a Pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product:Establishing strategies
91) Mach 3 razor blades must be used in the Mach 3 razor. Which type of pricing is most
likely used for the razor blades?
a. penetration
b. value
c. captive
d. two-part
e. basing-point
Answer: c
Diff: 2
Type: MC
Page Reference: 325
Topic: Develop Pricing Tactics
Skill: Application
Objective: 09-4 Pricing the Product:Pricing tactics and Setting Price Points
92) Manufacturers of which of the following would be most likely to use freight
absorption pricing ?
a. chocolate candy
b. laptop computers
c. furniture polish
d. feline flea collars
e. repair parts for vacuum cleaners
Answer: b
Diff: 2
Type: MC
Page Reference: 326
Topic: Develop Pricing Tactics
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Skill: Application
Objective: 09-4 Pricing the Product:Pricing tactics and Setting Price Points
93) Odd (Even) number pricing reported in dollar and cents such as - $1.99, $2.98,$56.95
is an example of_____________.
a. Psychological Tactics
b. Geographical Pricing
c. Price Lining
d. Two Part Pricing
e. Zone Pricing
Answer: a
Diff: 2
Type: MC
Page Reference: 327
Topic: Develop Pricing Tactics
Skill: Application
Objective: 09-4 Pricing the Product:Pricing tactics and Setting Price Points
94) A local restaurant sells lunch entrees for $7.95, $9.95, and $09.95. From this
information, you can infer the restaurant uses which of the following?
a. price discrimination
b. odd pricing and price lining
c. dynamic pricing and price lining
d. reference pricing and value pricing
e. dynamic pricing and loss leader pricing
Answer: b
Diff: 3
Type: MC
Page Reference: 327
Topic: Develop Pricing Tactics
Skill: Application
Objective: 09-4 Pricing the Product:Pricing tactics and Setting Price Points
95) A hamburger stand near the local mall sells hamburgers for $3.99, drinks for $1.99,
and fries for $1.49, while a gourmet restaurant nearby sells entrees for $20, $30, and $45.
Both of these restaurants are using ________.
a. demand-based pricing
b. cost-based pricing
c. psychological pricing
d. prestige pricing
e. penetration pricing
Answer: c
Diff: 2
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Type: MC
Page Reference: 327
Topic: Develop Pricing Tactics
Skill: Application
Objective: 09-4 Pricing the Product:Pricing tactics and Setting Price Points
96) After looking at the ads in her Sunday paper, Ruby decided to visit a local nursery
and buy potting soil at $1.99 a bag. The regular price is $4.99 a bag. While Ruby was
there she also purchased three bushes, six flowering plants, and a bird bath. You can infer
from this information that the nursery used the bags of potting soil as a(n) ________.
a. loss leader
b. assimilator
c. bait-and-switch
d. price line
e. reference price
Answer: a
Diff: 2
Type: MC
Page Reference: 335
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
97) When Circuit Town Electronics sets its televisions at three price levels of $699, $899,
and $1,099, it is most likely using ________.
a. price fixing
b. price lining
c. penetration pricing
d. skimming pricing
e. loss leader pricing
Answer: b
Diff: 2
Type: MC
Page Reference: 327
Topic: Develop Pricing Tactics
Skill: Application
Objective: 09-4 Pricing the Product:Pricing tactics and Setting Price Points
98) A number of top fashion-modeling agencies were charged with ________ because
they were jointly determining what commissions they would charge for models.
a. prestige pricing
b. horizontal price lining
c. vertical price lining
d. vertical price-fixing
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e. horizontal price-fixing
Answer: e
Diff: 3
Type: MC
Page Reference: 335
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
99) Bayer AG agreed to pay $46 million as part of a law settlement for conspiring with
Archer-Daniels-Midland (ADM) to keep prices of citric acid at a certain level. These two
international companies were guilty of ________.
a. price lining
b. skimming pricing
c. predatory pricing
d. price-fixing
e. placebo pricing
Answer: d
Diff: 2
Type: MC
Page Reference: 334
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
100) Savings for You, a discount retail chain, is highly competitive. When entering a new
market, Savings for You often cuts prices so deeply that it sells below costs, effectively
pushing smaller companies with less purchasing power out of the market. Savings for
You is most at risk of being accused of ________.
a. skimming prices
b. price-fixing
c. predatory pricing
d. deceptive pricing
e. loss leader pricing
Answer: c
Diff: 2
Type: MC
Page Reference: 333
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
101) Exchanges of non-monetary value do not involve a price.
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a. True
b. False
Answer: b
Diff: 1
Type: TF
Page Reference: 296
Topic: What is Price?
Skill: Concept
Objective: 09-1 The importance of pricing
102) The first step in planning how to price a product is to develop pricing objectives.
a. True
b. False
Answer: a
Diff: 1
Type: TF
Page Reference: 299
Topic: What is Price?
Skill: Concept
Objective: 09-1 The importance of pricing
103) A demand curve never appears on a graph as a straight line.
a. True
b. False
Answer: b
Diff: 2
Type: TF
Page Reference: 302
Topic: Estimate Demand and Value
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
104) A break-even analysis helps marketers understand the relationship between price
and demand.
a. True
b. False
Answer: b
Diff: 2
Type: TF
Page Reference: 3108
Topic: Determine Costs
Skill: Concept
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Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
105) Predicting demand is never an exact science.
a. True
b. False
Answer: a
Diff: 2
Type: TF
Page Reference: 303
Topic: Estimate Demand and Value
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
106) In response to inflation, marketers may decide to either raise or decrease their
prices.
a. True
b. False
Answer: a
Diff: 3
Type: TF
Page Reference: 303
Topic: Estimate Demand and Value
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
107) A company in an industry characterized by monopolistic competition is most likely
to adopt status quo pricing objectives.
a. True
b. False
Answer: b
Diff: 3
Type: TF
Page Reference: 314
Topic: Examine the Pricing Environment
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
108) Businesses within a purely competitive market have few opportunities to raise or
lower their prices.
a. True
b. False
Answer: a
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Diff: 3
Type: TF
Page Reference: 314
Topic: Examine the Pricing Environment
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
109) Cost-based pricing considers factors such as the nature of the target market, demand,
competition, and the product life cycle.
a. True
b. False
Answer: b
Diff: 2
Type: TF
Page Reference: 317
Topic: Choose a Pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing Strategies
110) The simplest pricing method is break-even pricing: adding a standard markup to the
cost of the product.
a. True
b. False
Answer: b
Diff: 2
Type: TF
Page Reference: 317
Topic: Choose a Pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing Strategies
111) Consumer surveys are often important to marketers using demand-based pricing.
a. True
b. False
Answer: a
Diff: 2
Type: TF
Page Reference: 318
Topic: Choose a Pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing Strategies
112) Value pricing is the opposite of cost-based pricing.
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a. True
b. False
Answer: b
Diff: 3
Type: TF
Page Reference: 321
Topic: Choose a Pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing Strategies
113) Market-skimming is a more popular strategy for pricing new products, while
market-penetration is a more popular strategy for pricing products that are more advanced
in the product life cycle.
a. True
b. False
Answer: b
Diff: 2
Type: TF
Page Reference: 320-322
Topic: Choose a Pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing Strategies
114) A skimming price is typically used when the company introducing a new product
anticipates other competitors will enter the market quickly.
a. True
b. False
Answer: b
Diff: 2
Type: TF
Page Reference: 320
Topic: Choose a Pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing Strategies
115) Penetration pricing is the opposite of skimming pricing.
a. True
b. False
Answer: a
Diff: 2
Type: TF
Page Reference: 320-322
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Topic: Choose a Pricing Strategy

Skill: Concept
Objective: 09-3 Pricing the Product: Establishing Strategies
116) Value Meal Deals at a fast food restaurant in which you get a sandwich, fries, and a
drink for one price are an example of price bundling.
a. True
b. False
Answer: a
Diff: 2
Type: TF
Page Reference: 323
Topic: Choose a Pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product: Establishing Strategies
117) Captive pricing is illegal.
a. True
b. False
Answer: b
Diff: 2
Type: TF
Page Reference: 325
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing tactics and Setting Price Points
118) Pricing based on supply and demand is not a part of dynamic pricing.
a. True
b. False
Answer: b
Diff: 2
Type: TF
Page Reference: 331
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing tactics and Setting Price Points
119) All provinces in Canada consider loss leader practices to be wrong and have passed
legislation called "unfair sales acts," also called "unfair trade practices acts."
a. True
b. False

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Answer: b
Diff: 3
Type: TF
Page Reference: 334
Topic: Deceptive Pricing Practices
Skill: Concept
Objective: 09-6 Legal and ethical aspects of pricing
120) Price lining is known as the amount of the price that is padded, giving the retailer
room to give the customer a discount.
a. True
b. False
Answer: b
Diff: 2
Type: TF
Page Reference: 327
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing tactics and Setting Price Points
121) Application fees, tuition, and fines are all examples of prices.
a. True
b. False
Answer: a
Diff: 2
Type: TF
Page Reference: 296
Topic: What is Price?
Skill: Application
Objective: 09-1 The importance of pricing
122) Variable costs for producing textbooks include the price of paper.
a. True
b. False
Answer: a
Diff: 2
Type: TF
Page Reference: 307
Topic: Examine the pricing Environment
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment

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123) When a major moving van company sells accessory products (boxes, bubblewrap,
etc.) that must be used in moving a household's furniture, the company is practicing
captive pricing.
a. True
b. False
Answer: a
Diff: 2
Type: TF
Page Reference: 325
Topic: Develop Pricing Tactics
Skill: Application
Objective: 09-4 Pricing the Product: Pricing tactics and Setting Price Points
124) Freight absorption pricing means the seller takes on art or all of the cost of shipping.
a. True
b. False
Answer: a
Diff: 2
Type: TF
Page Reference: 327
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing tactics and Setting Price Points
125) List price is the price that the end customer is expected to pay.
a. True
b. False
Answer: a
Diff: 2
Type: TF
Page Reference: 328
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing tactics and Setting Price Points
126) Describe what a demand curve is and explain how it helps businesses.
Answer:
The demand curve estimates consumer demand at different prices. A demand curve
doesn't account for changes in the company's external environment, but it is a useful tool
marketers can use to determine how much of a product customers will buy at different
price points. This information can help marketers decide on the price position for their
product.
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Diff: 2
Type: ES
Page Reference: 302
Topic: Estimate Demand and Value
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
127) When setting prices, the company must consider its external pricing environment.
Describe three components of the pricing environment and how they affect businesses.
Answer:
Economic conditions affect both the costs of producing a product and consumer
perceptions of the product's price and value. The business cycle, inflation, economic
growth, and consumer confidence all influence the type of pricing strategy that will
succeed. The competition is another major influence in the pricing environment.
Depending on the type of industry, a company may charge a similar price as its
competitors or set prices on the basis of its own costs. Consumer trends can also greatly
affect prices. As demographics change, consumers' tastes change, affecting their
purchasing habits. Changes in government regulation are environmental factors that can
change a company's production costs or directly address how an industry sets prices.
Diff: 2
Type: ES
Page Reference: 312-314
Topic: Estimate Demand and Value
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
128) What are the advantages and disadvantages of using demand-based pricing?
Answer:
Demand-based pricing assures a firm that it should be able to sell what it produces at the
determined price because the price is based on market research findings about customer
demand rather than on the seller's costs. Disadvantages include the difficulty in
estimating demand accurately and that there is no assurance the price will be profitable
(or even cover costs).
Diff: 2
Type: ES
Page Reference: 319-320
Topic: Choose a Pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing Strategies

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129) Companies bringing out a new product can choose between three broad strategies: a
skimming price, penetration pricing, and trial pricing. Distinguish among the three.
Answer:
A skimming price is used to skim revenues from the market by entering with high initial
prices. The product's quality and image must support its higher price, and enough buyers
must want the product at that price. Competitors should not be able to enter the market
easily and undercut the high price. Penetration pricing is the opposite of a skimming
price. It is used to penetrate the market quickly and deeply to attract a large number of
buyers and win a large market share by setting a low price upon entering the market. The
low price should help keep out competition and be maintained over time. Trial pricing
also offers a low price for a new product, but unlike penetration pricing it only offers the
low price for a limited time.
Diff: 2
Type: ES
Page Reference: 320-322
Topic: Choose a Pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing Strategies
130) Explain the concept of price bundling. Why would a retailer implement this pricing
strategy? Give one example of this strategy being implemented.
Answer:
Price bundling means selling two or more goods or services as a single package for one
price. A retailer would implement this strategy so that consumers will buy all instead of
some products associated with a main product. Charging one price will make the
customer feel as if the total cost is the entire set of items instead of charging for each item
separately. Examples given will vary. The textbook gives the example of a PC, which is
typically bundled with a monitor, a keyboard, and software.
Diff: 2
Type: ES
Page Reference: 323
Topic: Choose a Pricing Strategy
Skill: Concept
Objective: 09-3 Pricing the Product: Establishing Strategies
131) How has the Internet made it easier for companies to use dynamic pricing
strategies? Use an example in your explanation.
Answer:
A dynamic pricing strategy involves easily adjusting prices to meet changes in the
marketplace. The cost of changing prices in a brick-and-mortar retail store involves labor,
advertising, and materials; the cost of changing prices online is minimal and can also be
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instant. For example, with the Internet the marketers of rock concert tickets can adjust
concert ticket prices on the basis of supply and demand so that a ticket for a certain seat
might cost more or less depending on which day the customer logs on to the Internet to
make the purchase.
Diff: 2
Type: ES
Page Reference: 331
Topic: Pricing and Electronic Commerce
Skill: Application
Objective: 09-5 Dynamic Pricing Strategies
132) What are some of the potential consumer benefits to purchasing items online?
Answer:
Consumers can potentially save on the actual cost of the purchased product by shopping
online. With more information about competing prices and the actual costs of producing
products available through the Internet, customers have more negotiating power for bigticket items. Savings can be realized in the customer's expenses in the gasoline not used
when driving to a store. Also, there are time management advantages and stress
reduction for the customer who does not have to physically travel to a store.
Diff: 2
Type: ES
Page Reference: 332
Topic: Pricing and Electronic Commerce
Skill: Application
Objective: 09-5 Dynamic Pricing Strategies
133) Explain the pricing strategy being implemented when a firm has two products that
work only when used together. Provide an example of the strategy.
Answer:
Captive pricing is a tactic a firm uses when it has two products that work only when
used together. The firm sells one item at a very low price and then makes its profit on the
second high-margin item. Gillette uses captive pricing
to sell its shaving products. The Gillette Fusion ProGlide razor is sold for a relatively low
price but the disposable blades sell for $4.50 or more per blade setand the typical user
buys 30 blades a year. Although the blade and razor business generates only a third of
corporate revenues for Gillette, the companys use of captive pricing tactics in this
category delivers two-thirds of its profits
Diff: 2
Type: ES
Page Reference: 325
Topic: Develop Pricing Tactics
Skill: Concept
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Objective: 09-4 Pricing the Product: Pricing tactics and Setting Price Points
134) Why is price lining a good practice for retailers?
Answer:
Price lining is a way to maximize profits. Price lining uses a limited number of prices, or
price points, that generally fall at the top of the range different types of customers find
acceptable. Ideally, companies would charge each customer a different price--the highest
price she was willing to pay. Since this isn't possible, price lining is a more workable
alternative.
Diff: 2
Type: ES
Page Reference: 327
Topic: Develop Pricing Tactics
Skill: Concept
Objective: 09-4 Pricing the Product: Pricing tactics and Setting Price Points
135) A local appliance store is advertising the sale of a 27-inch color TV for only $199.
The ad states that this price will apply only to TVs that are in stock and no rain checks
will be given. Fifteen minutes after the store opens on the day of the sale of the TV, a
customer is told by a sales clerk that all of the TVs selling for $199 have been sold.
However, the sales clerk is very happy to show the customer a similar TV for only $399.
What pricing strategy is the store implementing and why?
Answer:
The store is using the bait-and-switch tactic. One item is used as the bait to get customers
into the store. Then, for whatever the reason, the customer cannot buy the advertised sale
item, so a salesperson shows the customer another item, the switch, usually selling for a
higher price. The store was successful in getting the customer into the store. Now, the
store is striving to get the customer to spend more money.
Diff: 2
Type: ES
Page Reference: 333
Topic: Deceptive Pricing Practices
Skill: Application
Objective: 09-6 Legal and ethical aspects of pricing
136) Explain the concept of opportunity cost, giving at least one example.
Answer:
Opportunity costs are the value of something that is given up to obtain something else.
The cost of going to college includes more than tuition. It also includes the income that a
student could have earned by working instead of going to classes.

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Diff: 2
Type: ES
Page Reference: 297
Topic: What is Price?
Skill: Application
Objective: 09-1 The importance of pricing
137) Saturn car company started a trend with its value pricing strategy of giving
customers one price and one price only. The Saturn Web site gave detailed price
information without the need for or involvement of a salesperson. What pricing objective
did Saturn use?
Answer:
Saturn used the customer satisfaction pricing objective. Saturn recognized that many
people hate to buy new cars because they may feel the dealers are untrustworthy. The
objective was not only to satisfy customers but also to generate a new breed of car
salespeople who used low-pressure sales tactics and promised customer satisfaction and
long-term service.
Diff: 2
Type: ES
Page Reference: 301
Topic: What is Price?
Skill: Application
Objective: 09-1 The importance of pricing
138) Explain how prestige products may relate to some customers' feelings of self-worth.
What is an example of a prestige product?
Answer:
The image enhancement function of pricing is particularly important with prestige
products that have a high price and appeal to status-conscious consumers. People are
often willing to pay a premium price for a luxury product like a watch because they
believe that it makes a statement about their own worth.
Diff: 2
Type: ES
Page Reference: 301
Topic: What is Price?
Skill: Application
Objective: 09-1 The importance of pricing
139) Explain the difference between elastic demand and inelastic demand.
Answer:

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Elastic demand occurs when a change in price results in a substantial change in the
quantity demanded. When a change in price has little effect on the quantity demanded,
then demand is said to be inelastic.
Diff: 2
Type: ES
Page Reference: 305
Topic: Price Elasticity of Demand
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
140) If demand is elastic, will sellers consider lowering their prices? Explain your
answer.
Answer:
Yes. A lower price will produce more needed revenue, as consumers will respond to the
change in price and buy more.
Diff: 2
Type: ES
Page Reference: 305
Topic: Price Elasticity of Demand
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
141) To determine the break-even point, a firm first needs to calculate the contribution
per unit. What does this mean?
Answer:
The contribution per unit is the difference between the price the firm charges for a
product and the variable costs. This figure is the amount the firm has after paying for
fixed costs of production.
Diff: 2
Type: ES
Page Reference: 308-309
Topic: Break even Analysis
Skill: Concept
Objective: 09-2 Describe costs, demands, revenue, and the pricing environment
142) How does the airline industry implement the yield management pricing strategy?
Answer:
Using yield management pricing, firms charge different prices to different customers in
order to manage capacity while maximizing revenues. The airline industry recognizes

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that some customers will pay top dollar for an airline ticket while others will travel only
if there is a discount fare; the airlines' pricing structure reflects this.
Diff: 2
Type: ES
Page Reference: 319
Topic: Choose a Pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product:Establishing strategies
143) When Top-Flite introduced its Strata golf balls with a new dimple design and more
solid core for better flight with metal clubs, the price was three times that of regular balls.
Pro shops still could not keep them in stock. What is the pricing strategy implemented by
Top-Flite, and why did the company choose this strategy?
Answer:
Top-Flite implemented the skimming price strategy, charging a high, premium price for
its new product with the intention of reducing the price in the future. Top-Flite may have
been able to recoup the cost of research and development.
Diff: 2
Type: ES
Page Reference: 320
Topic: Choose a Pricing Strategy
Skill: Application
Objective: 09-3 Pricing the Product:Establishing strategies
144) Explain the concept of trial pricing. Why would a retailer implement this pricing
strategy?
Answer:
Trial pricing is used when a new product carries a low price for a limited period of time
to attract customers. The idea is to win customer acceptance first and make profits later.
Diff: 2
Type: ES
Page Reference: 322
Topic: Strategies for Market Share Objectives
Skill: Application
Objective: 09-3 Understand key pricing strategies and tactics
145) Cellular phone service providers typically offer customers a set number of minutes
for a monthly fee plus a per-minute rate for extra phone usage. What is the pricing
strategy being implemented by these cellular phone service providers?
Answer:
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Cellular phone service providers are implementing the two-part pricing strategy, which
requires two separate types of payments to purchase the product. The cellular phone
customer must pay a monthly fee plus an additional fee for the minutes used.
Diff: 2
Type: ES
Page Reference: 325
Topic: Develop Pricing Tactics
Skill: Application
Objective: 09-4 Pricing the Product:Pricing tactics and Setting Price Points
146) Compare F.O.B. origin pricing and F.O.B. delivered pricing.
Answer:
F.O.B. origin pricing means that the cost of transporting the product from the factory to
the customer's location is the responsibility of the customer. The seller takes on more
responsibility in F.O.B. delivered pricing, which means that the seller pays both the cost
of loading and the cost of transporting to the customer, which is included in the selling
price.
Diff: 3
Type: ES
Page Reference: 325
Topic: Develop Pricing Tactics
Skill: Application
Objective: 09-4 Pricing the Product:Pricing tactics and Setting Price Points
147) How do consumers benefit from price bundling? Give an example of price bundling.
Answer:
Several products are sold together at a reduced rate; vacation packages that include air
and hotel, or value meals in the fast-food industry are examples.
Diff: 2
Type: ES
Page Reference: 323
Topic: Strategies for Competitive Effect Objectives
Skill: Application
Objective: 09-3 Understand key pricing strategies and tactics
148) What is the rationale for a store advertising the sale of one item at a price that may
be potentially lower than the cost of the item to the store?
Answer:
The store is using this one sale item as a loss leader item in its pricing strategy. Some
retailers advertise items at very low prices or even below cost and are glad to sell them at
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that price because they know that once in the store, customers may buy other items at
regular prices.
Diff: 2
Type: ES
Page Reference: 334
Topic: Deceptive Pricing Practices
Skill: Application
Objective: 09-6 Legal and ethical aspects of pricing
149) What are the two types of price fixing? Briefly define each.
Answer:
Horizontal price fixing occurs when competitors making the same products jointly
determine what price they will charge. Vertical price fixing occurs when manufacturers
and wholesalers force retailers to charge a certain price for their products.
Diff: 2
Type: ES
Page Reference: 334-335
Topic: Deceptive Pricing Practices
Skill: Application
Objective: 09-6 Legal and ethical aspects of pricing
150) What is predatory pricing?
Answer:
Predatory pricing is an illegal pricing strategy in which a company sets a very low price
for the purpose of driving competitors out of business.
Diff: 2
Type: ES
Page Reference: 333
Topic: Deceptive Pricing Practices
Skill: Application
Objective: 09-6 Legal and ethical aspects of pricing

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