Question

Question 1

If you lower the price of a product by 5% and the volume sold increases by 10%, this is considered _____.

1. inelastic demand
2. elastic demand

Question 2

A negative aspect of selecting unit volume as a pricing objective is that..

1. if price reductions are used to achieve volume objectives, it can sometimes come at the expense of profits
2. production often cannot keep up with demand
3. there are increased carrying costs with extensive inventories
4. it always positively correlates with a sales revenue objective
5. it can create competition between divisions within the organization itself causing conflicts over the allocation of resources

Question 3

Netflix used to charge $14.99 per month for its movie rental service. However, when Blockbuster introduced the same service at $13.99, Netflix dropped its price to $13.99. Netflix most likely made this price reduction in an attempt to...

1. decrease revenue but increase profit

2. increase efficiency
3. increase profit by decreasing revenue
4. maintain market share
5. decrease market share

Question 4

Buyers are more price sensitive when _____.

1. they need the product right away
2. they are more aware of substitutes for the product
3. the product is significantly more distinctive than others on the market
4. the product is a status symbol
5. the expenditure is small relative to their total income

Answer 1

1. Option B.

• Demand for a good is said to be elastic when the decrease in price of a good will lead to an increase in demand for that good.
• Hence lowering the price by 5%, increases the sales by 10% as the good is having elastic demand.

2. Option A.

• A negative aspect of selecting unit volume as a pricing objective is that if price reductions are used to achieve volume objectives, it can sometimes come at the expense of profits.
• When we select unit volume, as a pricing objective it may sometimes lead to reduction in profits if the firms try to bring reductions in price.

3. Option D.

• Netflix made this price reduction in an attempt to maintain market share.
• When Blockbuster entered the market for providing the same service, the Netflix reduced the price inorder to be competitive with blockbuster.

4. Option B.

• Buyers are more price sensitive when there are more aware of substitutes for the product.
• When there are more substitutes for any good, consumer's always search for a good that has minimum price and may substitute a good with Higher price with its substitute having lower price.