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Applied Macroeconomic Theorys > Simple Pricing > Flashcards

Simple Pricing Flashcards

1
Q

Profit equation is

A

(P - AC) x Q

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2
Q

Many companies think about

A

how to sell more or how to reduce costs and not much time thinking about price

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3
Q

A demand curve tells you

A

how much consumers will purchase at a given price

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4
Q

The First Law of Demand says

A

the consumer will purchase more if the price falls

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5
Q

An aggregate demand curve

A

is the sum of all individual demand curves

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6
Q

An aggregate or market demand curve

A

is the relationship between the price and the number of purchases made by a group of consumers

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7
Q

As price decreases, the

A

quantity of demand increases

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8
Q

If something other than price causes an increase in demand,

A

the demand shifts to the right or demand increases

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9
Q

Demand curves are used to

A

change the pricing decision into a quantity decision

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10
Q

Consumers are using marginal analysis to

A

maximize consumer surplus

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11
Q

Sellers use marginal analysis to

A

maximize profits

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12
Q

If MR > MC

A

reduce price

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13
Q

If MR < MC

A

increase price

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14
Q

To get the best price by taking steps

A

and recomputing MR and MC to see whether to take another step

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15
Q

To estimate Marginal Revenue

A

measure quantity responses to past price changes, experimenting with price changes, or surveying potential customers

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16
Q

Price elasticity of demand is computed as

A

percentage of change in quantity demanded divided by percentage of change in price

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17
Q

Price elasticity measures

A

the sensitivity of quantity to price

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18
Q

A demand curve for which quantity changes more than price

A

is said to be elastic or sensitive to price

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19
Q

A demand curve for which quantity changes less than price

A

is said to be elastic or insensitive to price

20
Q

if |e| > 1

A

demand is elastic

21
Q

if |e| < 1

A

demand is inelastic

22
Q

In general, elasticity tells you

A

how revenue changes as you change price

23
Q

Elastic Demand: Price increase

A

Revenue Decrease

24
Q

Elastic Demand: Price decrease

A

Revenue Increase

25
Q

Inelastic Demand: Price increase

A

Revenue decrease

26
Q

Inelastic Demand: Price decrease

A

Revenue increase

27
Q

The more elastic the demand is

A

the lower the profit-maximizing price is

28
Q

Products with close substitutes

A

have more elastic demand

29
Q

Consumers respond to price increases

A

by switching to their next best alternative

30
Q

Demand for an individual brand is

A

more elastics than industry aggregate demand

31
Q

Brand price elasticity is

A

approximately equals to industry price elasticity divided by brand share

32
Q

Products with many complements have

A

less elastic demand

33
Q

Individual products that are consumed as part of a larger bundle

A

are complementary goods and have less demand

34
Q

Another factor affecting elasticity is

A

time. Given more time, consumers are more responsive to time changes

35
Q

In the long run, demand curves

A

become more elastic

36
Q

As price increases,

A

demand becomes more elastic

37
Q

With elasticity and percentage change in price,

A

you can predict the corresponding change in quantity

38
Q

Income elasticity of demand measures

A

the change in demand arising from changes in income

39
Q

Positive income elasticity means

A

that the good is normal. That is as income increases, demand increases.

40
Q

Negative income elasticity means

A

that the good is inferior. That is as income increases, demand declines

41
Q

Cross price elasticity of demand measures

A

the change in good A owing a change in price of good B

42
Q

A positive cross-price elasticity means

A

that Good B is a substitute for A

43
Q

Negative cross-price elasticity means

A

that Good B is a complement for A

44
Q

Stay even analysis allows

A

you to do marginal analysis of pricing by determining the volume required to offset change in price

45
Q

If predicted quantity decrease is bigger than the stay-even quantity decrease,

A

then the price increase is not profitable

46
Q

The stay-even quantity is the function

A

of the size of the price increase and contribution margin

47
Q

A proposed price change is profitable

A

if the predicted quantity loss is less than the stay-even quantity

Applied Macroeconomic Theorys (14 decks)

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