Entrepreneurism. Chapters 3

Front 1

A market in which overall demand will expand if prices are lowered. Increase in market share may not affect competitors initially. Example: Airlines
- Market actually expands
- When market cannot expand, price wars result

Back 1

Elastic Market

Front 2

The practice in which a company reduces the size of its product, such as a box of cereal, while keeping the price constant to avoid having to raise prices.

Back 2

Product Downsizing

Front 3

The difference between the selling price of a product or service and the amount the entrepreneur had to pay for the materials and labor that make up that product or service (the cost of goods sold).

Back 3

Gross Margin

Front 4

Action by a company to protect its most important sources of revenue

Back 4

Core Price Protection

Front 5

When discounted prices are offered for a limited time period

Back 5

Sale

Front 6

The practice of allowing people to pay for goods or services over time according to a payment plan.

Back 6

Credit

Front 7

A rise in the general price level in a specific market

Back 7

Inflation

Front 8

A strategy in which companies, to lure customers in, advertise items of well-known value at deeply discounted prices. The practice is prohibited in the United States

Back 8

Bait and Switch

Front 9

A means by which customers are able to purchase items on credit

Back 9

Credit Card

Front 10

The prices associated with a company's most important sources of revenue, usually its best customers, or its most popular products or services, or those with the greatest margins.

Back 10

Core Prices

Front 11

The ability to drive the costs of goods below what competitors pay.

Back 11

Buying Power

Front 12

A natural reaction to unchecked inflation in an economy

Back 12

Depression

Front 13

When businesses are able to raise prices without cost increases and without sacrificing sales volume.

Back 13

Pricing Power

Front 14

Inflation that is caused by a market demand greater than the available product supply.

Back 14

Demand Pull Inflation

Front 15

A pricing strategy that companies use to protect core pricing by focusing only on certain items or certain customers

Back 15

Discounting

Front 16

Conditions under which the government dictates price strategy. __________ are usually instituted during wartime to stem runaway inflation.

Back 16

Price and Wage Controls

Front 17

The realignment of labor and facilities during a time of upheaval, such as a war.

Back 17

Frictional Loss of Efficency

Front 18

The government agency that is charged with regulating money and credit in the United States; commonly called the Fed

Back 18

Federal Reserve Board

Front 19

Price strategy in a compromised market during which the supply of an item or items has been so severely restricted by special circumstances that the demand is completely out of balance with the supply

Back 19

Price Gouging

Front 20

The practice of allowing people to pay for goods or services over time according to a payment plan.

Back 20

Credit

Front 21

A form of price discounting in which companies offer credit terms to consumers at a more advantageous rate than current market rates; one popular strategy in the furniture industry is to allow customers to buy the merchandise and pay no interest on the financing for one year or more.

Back 21

Interest Rate Discounting

Front 22

A market in which demand will not respond to price changes. Increase in market share comes at expense of competitors. Example: market for Salt.
- price wars result

Back 22

Inelastic Market

Front 23

Inventory that has not sold at the regular price and is often liquidated by retailers at a deep discount.

Back 23

Obsolete or unwanted inventory

Front 24

A tax usually instituted to prevent businesses from achieving overly large profits

Back 24

Excess Profits Tax

Front 25

A fundamental equation in economics that shows the standard effect of supply and demand on the price of goods and services.

Back 25

Supply-Demand Price Equation

Front 26

Inflation that is caused by a shortage in the available supply of labor or materials, which causes the cost of these items to increase.

Back 26

Cost Push Inflation

Front 27

The opposite of inflation; characterized by a general drop in prices in an economy

Back 27

Deflation

Front 28

An additional amount that a retailer receives from consumers who fail to pay their credit terms on time. 2) A price strategy in which an item, usually a product, is given free to induce the customer to buy a product or service of much greater value.

Back 28

Premiums

Front 29

The price of money

Back 29

Interest Rate

Front 30

Situation in which a company's price-cutting strategies are likely to be matched by the competition; generally destructive to the industry.

Back 30

Price Wars

Front 31

The amount that the entrepeneur had to pay for producing the goods or services sold to customers

Back 31

Cost of Goods Sold

Front 32

The practice of discounting all merchandise on a continuous basis. Wal-mart uses this strategy.

Back 32

Everyday Low Pricing

Front 33

The practice of pricing some common goods higher amid a general strategy of discounting

Back 33

Price Up

Front 34

A payment plan in which the recipient of the financing pays it back in equal monthly installments

Back 34

Level Payment Plan

Front 35

When consumers tend to shop for products based on low prices rather than brand recognition or other features

Back 35

Price Sensitive

Front 36

Cycle created when a low cost provider enters an industry and the major competitors sustain their higher prices for a full time, but all providers eventually come into alignment on price. Airline industry is an example

Back 36

Price reduction cylce

Front 37

The disposing of goods that are surplus to their native market in a foreign market at prices below the prices in the home market or below the costs of manufacturing the goods.

Back 37

Dumping

Front 38

A price strategy in which companies, to attract customers, set prices on certain items that are only slightly above produciton costs.

Back 38

Loss Leader

Front 39

An elastic market is one in which demand will not respond to price changes.
(T or F)

Back 39

False

Front 40

It is illegal in the United States to use price-cutting as a method of putting competitors out of business. (T or F)

Back 40

True

Front 41

The marketplace sets price. (T or F)

Back 41

True

Front 42

Under free market conditions, if demand is static and supply decreases, prices will fall.(T or F)

Back 42

False

Front 43

Gross margin is expressed as a percentage of revenue.
(T or F)

Back 43

True

Front 44

One of the most important considerations in any price strategy is to protect the core prices of the business. (T or F)

Back 44

True

Front 45

Price-pull inflation is caused by a market demand that is greater than the available product supply.
(T or F)

Back 45

False

Front 46

Price leader is a price strategy that sets prices on certain items near their production costs.(T or F)

Back 46

False

Front 47

Discounting protects core pricing by focusing only on certain items or certain customers. (T or F)

Back 47

True

Front 48

When price reductions based on lowered costs and expanded market are continued for an extended period, consumers become price insensitive. (T or F)

Back 48

False

Front 49

In which type of market will overall demand expand if prices are lowered?

Back 49

Elastic Market

Front 50

Under free market conditions, if supply is held static and demand increases, prices will

Back 50

Rise

Front 51

Which of the following is the most widely used price strategy?

Back 51

Discounting

Front 52

The furniture and appliance industries are examples of the use of

Back 52

Interest Rate Discounting

Front 53

In which of the following payment plans does the recipient of the financing pay it back in equal installments?

Back 53

Level Payment Plan

Front 54

Price * Volume

Back 54

= Revenue

Front 55

Inelastic
Elastic

Back 55

Types of Demand or 2 markets

Front 56

Revenue-Cost of Goods Sold/Revenue = GMP
(Gross Margin Percent)

Back 56

Gross margin is expressed as a percentage of revenue, using the following equation:

Front 57

1)If supply is held static and demand increases, prices will rise.
2)If supply is static and demand falls, prices will fall.
3)If demand is static and supply increases, prices will fall.
4)If demand is static and supply decreases, prices will rise

Back 57

This equation assumes a free marketplace with willing buyers and willing sellers. Under these conditions, the formula has four implications regarding price

Front 58

Revenues minus cost of product and labor to produce the product

Back 58

Gross profit

Front 59

Gross profit minus operating expenses

Back 59

Operating profit

Front 60

- Another form of price discounting
- Give customer time to pay
- Offer a special interst rate

Back 60

Credit terms