MAR 301 Fall 2010
Additional examples:
1.When Delta Airlines raises or lowers its prices on its Atlanta to Chicago route other airlines tend to
make the same changes in their pricing. This is an example of _____ pricing.
a. status quo
b. target return
c. market share
d. predatory
e. cost-plus
ANS: A
2. Consumers’ responsiveness or sensitivity to changes in prices is known as:
a.
b.
c.
d.
e.
break-even
equilibrium
unitary revenue
asymmetrical demand
elasticity of demand
ANS: E
3. Nixon Watch Co. will incur fixed costs of $500,000 and unit variable costs of $20 on its new perpetual calendar
quartz models. Nixon plans to set the wholesale price of the model at $50. To break even, Nixon must sell
__________ units.
a. 9,876
b. 16,667
c. 18,333
d. 20,000
e. 25,000
Answer: B
4. At the Greenville Florist, there are four different prices for funeral bouquets. The smallest bouquet sells
for $30; there is also a $40 version and a $75 version. For those who want to express their grief through
the purchase of a dramatic floral arrangement, the florist also offers a $150 value. The owner of the florist
shop has chosen price lining because it will:
a. enable the shop to carry a larger total inventory
b. maintain all of the product line at the same stage in the product life cycle
c. confuse customers and allow salespeople to sell more of the expensive models
d. reach several different target market segments
e. thwart competitors that are trying to sell similar products
ANS: D
Price lining allows a retailer to appeal to several different target markets. It is not an uncommon strategy
and competitors probably use it. It should not affect inventory overall and will not confuse customers
5. Yesterday, the price of envelopes was $3 a box, and Julie was willing to buy 10 boxes. Today, the price has gone
up to $3.75 a box, and Julie is now willing to buy 8 boxes. Is Julie's demand for envelopes elastic or inelastic? What
is Julie's elasticity of demand?
To find Julie's elasticity of demand, we need to divide the percent change in quantity by the percent change in
price.
% Change in Quantity = (8 - 10)/(10) = -0.20 = -20%
% Change in Price = (3.75 - 3.00)/(3.00) = 0.25 = 25%
Abs (Elasticity) = |(-20%)/(25%)| = |-0.8| = 0.8
Her elasticity of demand is the absolute value of -0.8, or 0.8. Julie's elasticity of demand is inelastic, since it is less
than 1.