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60 Cards in this Set

  • Front
  • Back
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
Elastic Market
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.
Product Downsizing
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).
Gross Margin
Action by a company to protect its most important sources of revenue
Core Price Protection
When discounted prices are offered for a limited time period
The practice of allowing people to pay for goods or services over time according to a payment plan.
A rise in the general price level in a specific market
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
Bait and Switch
A means by which customers are able to purchase items on credit
Credit Card
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.
Core Prices
The ability to drive the costs of goods below what competitors pay.
Buying Power
A natural reaction to unchecked inflation in an economy
When businesses are able to raise prices without cost increases and without sacrificing sales volume.
Pricing Power
Inflation that is caused by a market demand greater than the available product supply.
Demand Pull Inflation
A pricing strategy that companies use to protect core pricing by focusing only on certain items or certain customers
Conditions under which the government dictates price strategy. __________ are usually instituted during wartime to stem runaway inflation.
Price and Wage Controls
The realignment of labor and facilities during a time of upheaval, such as a war.
Frictional Loss of Efficency
The government agency that is charged with regulating money and credit in the United States; commonly called the Fed
Federal Reserve Board
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
Price Gouging
The practice of allowing people to pay for goods or services over time according to a payment plan.
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.
Interest Rate Discounting
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
Inelastic Market
Inventory that has not sold at the regular price and is often liquidated by retailers at a deep discount.
Obsolete or unwanted inventory
A tax usually instituted to prevent businesses from achieving overly large profits
Excess Profits Tax
A fundamental equation in economics that shows the standard effect of supply and demand on the price of goods and services.
Supply-Demand Price Equation
Inflation that is caused by a shortage in the available supply of labor or materials, which causes the cost of these items to increase.
Cost Push Inflation
The opposite of inflation; characterized by a general drop in prices in an economy
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.
The price of money
Interest Rate
Situation in which a company's price-cutting strategies are likely to be matched by the competition; generally destructive to the industry.
Price Wars
The amount that the entrepeneur had to pay for producing the goods or services sold to customers
Cost of Goods Sold
The practice of discounting all merchandise on a continuous basis. Wal-mart uses this strategy.
Everyday Low Pricing
The practice of pricing some common goods higher amid a general strategy of discounting
Price Up
A payment plan in which the recipient of the financing pays it back in equal monthly installments
Level Payment Plan
When consumers tend to shop for products based on low prices rather than brand recognition or other features
Price Sensitive
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
Price reduction cylce
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.
A price strategy in which companies, to attract customers, set prices on certain items that are only slightly above produciton costs.
Loss Leader
An elastic market is one in which demand will not respond to price changes.
(T or F)
It is illegal in the United States to use price-cutting as a method of putting competitors out of business. (T or F)
The marketplace sets price. (T or F)
Under free market conditions, if demand is static and supply decreases, prices will fall.(T or F)
Gross margin is expressed as a percentage of revenue.
(T or F)
One of the most important considerations in any price strategy is to protect the core prices of the business. (T or F)
Price-pull inflation is caused by a market demand that is greater than the available product supply.
(T or F)
Price leader is a price strategy that sets prices on certain items near their production costs.(T or F)
Discounting protects core pricing by focusing only on certain items or certain customers. (T or F)
When price reductions based on lowered costs and expanded market are continued for an extended period, consumers become price insensitive. (T or F)
In which type of market will overall demand expand if prices are lowered?
Elastic Market
Under free market conditions, if supply is held static and demand increases, prices will
Which of the following is the most widely used price strategy?
The furniture and appliance industries are examples of the use of
Interest Rate Discounting
In which of the following payment plans does the recipient of the financing pay it back in equal installments?
Level Payment Plan
Price * Volume
= Revenue
Types of Demand or 2 markets
Revenue-Cost of Goods Sold/Revenue = GMP
(Gross Margin Percent)
Gross margin is expressed as a percentage of revenue, using the following equation:
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
This equation assumes a free marketplace with willing buyers and willing sellers. Under these conditions, the formula has four implications regarding price
Revenues minus cost of product and labor to produce the product
Gross profit
Gross profit minus operating expenses
Operating profit
- Another form of price discounting
- Give customer time to pay
- Offer a special interst rate
Credit terms