Module 6 Pricing

Question 1

Cost plus pricing

Answer 1

Add a mark-up on top of the cost of the product

Question 2

Psychology of pricing

Answer 2

• Price anchoring (products placed next to more expensive ones)
• The power of 9 (£9.99 vs £10.00)
• Decoy pricing (popcorn prices for different sizes)

Question 3

Three factors of the Law of Demand

Answer 3

1. The law of diminishing marginal utility
2. The income effect
3. The subsitute effect

Question 4

The Price of Substitutes

Answer 4

• May be used instead of a product
• If subsitue is cheaper the demand of the orginal will decrease

Question 5

Price Elasticity of Demand Equation

Answer 5

Almost always negative

• PED>1 - Elastic
• PED<1 - Inelastic

Question 6

Factors that influence PED

Answer 6

• Subsitute products
• Advertising and tastes
• Luxury or Necessity
• The proportion of Income spent on the Good
• Time

Question 7

Cross-price Elasticity of Demand Equation

Answer 7

Question 8

Income Elasticity of Demand

Answer 8

Question 9

What would cause the supply curve to shift left or right?

Answer 9

• The cost of making the good
• Technology
• Government regulations
• The profitability of alternative products

Question 10

Price Elasticity of Supply Equation

Answer 10

Almost always positive

• PES>1 - Elastic
• PES<1 - Inelastic

Question 11

Factors that inluence PES

Answer 11

• Time period being considered
• Cost of changing output

Question 12

Factors of Production

Answer 12

• Land - Rent
• Labour - Wages
• Capital - Interest
• Enterprise - Profit

Question 13

Target pricing

Answer 13

• Level of funding the business has
• Level of return that it needs to make
• Work back to cost

Question 14

Market skimming

Answer 14

• High price for new product
• Price lowered at later date once initial consumers are satisfied
• Attract next price layer

Question 15

Premium pricing

Answer 15

• Prices are set and kept at a high

Question 16

Market penetration

Answer 16

• New product priced low or loss
• Gain a high market share quickly
• Price may stay low or increase

Question 17

Limit pricing

Answer 17

• Firm with a dominant position
• Set prices low
• Deter other businesses

Question 18

Dynamic pricing

Answer 18

Prices are flexible and change based on market demands

Question 19

Freemium

Answer 19

• Basic features are free of charg
• Additional features and functionality must be paid for

Question 20

Loss leader

Answer 20

• Product is deliberately sold at loss
• Attract customers who purchase other more profitable goods

Question 21

Pay what you want

Answer 21

• Allows consumers the freedom to choose the price
• Business may give a suggested price or minimum

Question 22

The Price of Complements

Answer 22

• Products used alongside each other
• Complementary product cheaper, increases demand for orginal

Question 23

Consumer Incomes

Answer 23

• Demand for normal goods increase as income increases
• Demand for inferior goods decreases as income increases

Question 24

Tastes

Answer 24

• Demand increases if it comes into fashion

Question 25

Expectations of Future Price Rises

Answer 25

* Demand will increase to beat the price rise

Question 26

Legislation

Answer 26

* Ban on phones may increase the demand for hands free