Fair Price in Supply Management

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Questions and Answers

What is the primary condition for a price to be considered 'fair' in the context of supply management?

The price is the lowest possible, regardless of supplier profit.
The price matches the prevailing market rate at any given time.
The price guarantees the supplier an immediate maximum level of profit.
The price ensures long-term continuous supply of the proper quality. (correct)

What aspect of total cost should a product price typically cover, at minimum?

The costs incurred throughout the supply chain.
All of the supplier's overhead expenses.
Direct costs specifically related to producing the item. (correct)
The full share of total costs, including profits

Which scenario does the text suggest may not reflect a 'fair price', even if it's the current selling price?

A price that is affected by market activity, even black market. (correct)
A price set by a monopolist and not affected by the market.
A price that directly reflects the overall costs of production by the supplier.
A price that is negotiated through buyer and supplier transparency.

Why might a supply manager pay different prices to different suppliers for similar goods?

Because a 'fair price' may differ based on each supplier's individual cost structure. (A) Signup and view all the answers

What does the text suggest that supply managers should consider to determine a 'fair price'?

Production processes, associated costs, and logistics. (D) Signup and view all the answers

What is the primary long-term requirement for a supplier's sustainability?

Ensuring total sales cover total costs, including reasonable profit. (B) Signup and view all the answers

Under what condition might a specific product not contribute its full share to cost coverage?

During a specified period within a longer operational cycle. (A) Signup and view all the answers

Which of the following scenarios would justify a buyer paying different prices for similar items from two different sellers?

When each item has different direct cost and profit requirements for each seller. (A) Signup and view all the answers

When are prices set by a monopolist or through collusion, considered unfair or excessive?

Not necessarily, based solely on their formation, even when set by one seller or by colluding sellers. (B) Signup and view all the answers

What does the text imply about prevailing market prices regarding their fairness?

Prevailing prices may not be fair, particularly in unofficial markets or via coercive actions. (A) Signup and view all the answers

What role does a supply manager's judgement play in the price determination process?

Continuously evaluate what is a fair price, based on changing conditions. (B) Signup and view all the answers

What should a supply manager rely on to help determine fair pricing?

Past experiences and a deep understanding of production processes as well as logistics costs. (B) Signup and view all the answers

Why is a continuous supply often linked to a supplier's profitability?

Sustainability in supply is reliant on a supplier that can cover their costs and generate profit. (C) Signup and view all the answers

What should be the minimum price coverage for an item, according to the text?

The price should, at a minimum, cover direct costs incurred for the item. (A) Signup and view all the answers

What is the ultimate goal of a fair price from the perspective of a supply manager?

To secure a reliable supply of goods or services at an appropriate quality, when and where they are needed. (C) Signup and view all the answers

Flashcards

Fair Price

The lowest price that ensures a continuous supply of the proper quality where and when needed.

Profitability of the Supplier

The total costs, including a reasonable profit, must be covered by total sales in the long run.

Fair Price Variation

A price that is fair to one seller for an item may differ from the fair price for a substitute item.

Fairness Beyond Monopoly/Collusion

Just because a price is set by a single seller or through collusion does not mean it's unfair. Similarly, the prevailing market price may not be fair.