Economics Chapter on Elasticity

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What does it indicate when the elasticity coefficient is greater than 1?

Demand is perfectly inelastic.

Demand is elastic. (correct)

Demand is unitary elastic.

Supply exceeds demand.

If demand is inelastic, what is the expected outcome of a price increase?

Quantity demanded will decrease significantly.

Quantity demanded will increase.

Quantity demanded will remain unchanged.

Quantity demanded will decrease only slightly. (correct)

Which scenario describes perfectly elastic demand?

Quantity demanded remains the same regardless of price changes.

A slight increase in price leads to a large decrease in quantity demanded. (correct)

A price change has no impact on the quantity demanded.

A large price increase results in no sales.

When demand is unitary elastic, what does this imply about the relationship between price and quantity demanded?

The percentage change in quantity demanded equals the percentage change in price. Signup and view all the answers

What happens to prices when supply exceeds demand in a market?

Prices will fall. Signup and view all the answers

What is the primary factor influencing the cost-based pricing method?

Cost of production Signup and view all the answers

In the cost markup formula, what is represented by the variable 'Mark-up%'?

The percentage of profit margin Signup and view all the answers

Which pricing strategy would be most appropriate for a company selling a unique, patented drug?

Cost-based method Signup and view all the answers

Which of the following factors does NOT influence a cost-based pricing approach?

Competitor prices Signup and view all the answers

What does the term 'Price Death Spiral' refer to in pricing strategy?

A situation where prices continually decrease, harming profitability Signup and view all the answers

What is the formula for calculating markup percentage?

Selling price - purchase cost / purchase cost Signup and view all the answers

Which pricing strategy is characterized by starting with desired profit to set product prices?

Target costing Signup and view all the answers

Which of the following statements accurately describes price setters?

They can set prices based on desired profit without competition. Signup and view all the answers

In the target costing method, what is the target cost dependent on?

Market price minus desired profit Signup and view all the answers

How does traditional pricing differ from target costing?

Traditional pricing starts with cost while target costing begins with price. Signup and view all the answers

What does the absorption cost include in the context of markup cost basis?

Cost of goods sold (COGS) Signup and view all the answers

Which of the following best describes a price taker?

A business that must adhere to prevailing market prices. Signup and view all the answers

What is the purpose of cost-plus pricing?

To ensure a specific profit margin over the cost. Signup and view all the answers

What is the formula for calculating the price when using the price maker approach?

Price = Cost x (1 + Mark-up%) Signup and view all the answers

Why do retailers commonly use the Variable Cost Method?

They think in terms of buying and selling the core variable cost. Signup and view all the answers

Which pricing method involves setting prices based on competitors' prices?

Competition-based pricing Signup and view all the answers

In which scenario would a company most likely employ the Total Cost or Full Cost Method?

When capitalizing on all expenses related to production, even failures. Signup and view all the answers

What does the term 'death spiral' refer to?

The elimination of products resulting in higher overhead costs per item. Signup and view all the answers

What distinguishes Cost plus target rate of return pricing from Cost plus pricing?

The setting of prices to earn a specific return on capital. Signup and view all the answers

How is the absorption cost calculated in the price maker approach?

Cost x 1.7404 Signup and view all the answers

What is the outcome of using a price taker approach?

Costs are derived from prevailing market prices. Signup and view all the answers