Chapter 55, Price

Question 1

Forces affecting price

Answer 1

• objectives if the business
• consumers, income, and tastes
• cost of producing the good
• level of demand
• level of competition
• actual nature of the product
• it’s stage in the product lifecycle
• rest of the marketing mix
• the scale of production
• the economic environment
• value of the pound
• legislation
• weather conditions

Question 2

Price elasticity of demand

Answer 2

the response of demand to changes in price

Percentage change in demand / percentage change in price

Question 3

Income elasticity of demand

Answer 3

the response in demand to a change in income

Percentage change in demand / Percentage change in income

Question 4

Cross elasticity of demand

Answer 4

shows how the change in the price of one good will affect the demand for another ( CD, CD Player)
Percentage change in the demand for A / Percentage change in the price of B

Question 5

Pricing Strategies and Methods

Answer 5

• Skimming
• Penetration Pricing
• Premium Pricing or prestige Pricing
• Psychological pricing
• Loss leaders
• Competition-based pricing
• Predatory pricing
• Market-based Pricing
• Promotional pricing
• Cost Plus
• Contribution or marginal cost Pricing
• Price discrimination

Question 6

Skimming

Answer 6

setting high prices in order to gain profit quickly from products with a short product lifecycle

Question 7

Penetration Pricing

Answer 7

used to establish a new product in the market by setting initially low prices in comparison to competitors in order to gain consumers and market share quickly.
often heavily advertised.

Question 8

Premium Pricing or Prestige Pricing

Answer 8

a high price is set to create an image of prestige and high quality

Question 9

Psychological pricing

Answer 9

£9.99

Question 10

Loss `leaders

Answer 10

used to entice customers into a particular shop often used by supermarkets with essential products like milk having low prices in order for consumers to make other purchases in the store

Question 11

Competition-based Pricing

Answer 11

Setting lower prices than competitors in order to better them and gain market share

Question 12

Predatory Pricing

Answer 12

where an established business responds to a new entrant by reducing its prices making it impossible for the new entrant to gain market share

Question 13

Market-based pricing

Answer 13

the going rate

Question 14

Promotional Pricing

Answer 14

offers such as By 1 get 1 free

Question 15

Cost Plus

Answer 15

pricing the product above costs of production

Question 16

Contribution or marginal cost pricing

Answer 16

fixed costs are ignored and only variable costs are taken into account. The contribution is the selling price of a product minus the variable cost of producing it. ensuring the price gives a positive contribution

Question 17

Price discrimination

Answer 17

Price changes depending on what area of the world it’s in and what time it is or season