Chapter 17 Flashcards
(45 cards)
Price Elasticity of Demand
Measures how much demand changes in response to price changes.
If a coffee shop raises prices and sales drop significantly, demand is elastic.
Horizontal Price Fixing
When competitors agree to set the same prices, which is illegal.
Competing gas stations agree to charge the same price for fuel.
Vertical Price Fixing
When manufacturers force retailers to sell at a set price.
A shoe brand tells stores they must sell its sneakers for $100.
Robinson-Patman Act
A law preventing price discrimination that harms competition.
A supplier can’t charge small retailers more than big retailers unfairly.
Minimum-Price Laws
Laws preventing retailers from selling below a set minimum price.
Some states ban selling milk below cost to protect small stores.
Predatory Pricing
Selling below cost to drive competitors out of business.
A big chain sells diapers super cheap to push out small stores.
Loss Leaders
Products sold at a loss to attract customers.
A store sells cheap turkey at Thanksgiving to draw in shoppers.
Unit Pricing
Showing price per unit to help comparison.
A cereal box label shows the cost per ounce.
Item Price Removal
Eliminating price tags and using shelf or scanner prices.
A grocery store stops putting price stickers on each item.
Bait-and-Switch Advertising
Luring customers with low prices, then pushing expensive items.
A store advertises cheap TVs but only sells higher-priced models.
Gray-Market Goods
Legitimate products sold outside authorized channels.
A store sells imported designer handbags cheaper than official retailers.
Market Penetration Pricing
Setting a low initial price to gain market share.
A new streaming service starts at $5/month to attract users.
Market Skimming Pricing
Charging high prices initially to maximize profits.
A new iPhone starts at $1,200 before prices drop later.
Demand-Oriented Pricing
Setting prices based on customer demand.
Concert tickets cost more for front-row seats.
Cost-Oriented Pricing
Pricing based on cost plus a set markup.
A retailer adds 50% to the wholesale price of clothing.
Competition-Oriented Pricing
Setting prices based on competitors’ prices.
A gas station prices fuel 2 cents lower than the station next door.
Price–Quality Association
The belief that higher prices mean better quality.
Consumers assume a $50 bottle of wine is better than a $10 one.
Prestige Pricing
Setting high prices to signal quality and exclusivity.
A luxury watch brand prices its products above competitors.
Markup Pricing
Adding a set amount to the cost of goods.
A store buys shoes for $40 and sells them for $80.
Markup
The difference between cost and selling price.
A jacket costs $20 to make and sells for $50; markup is $30.
Markup Percentage
Markup as a percentage of cost or selling price.
A $10 item sold for $15 has a 50% markup based on cost.
Initial Markup
The first markup when pricing an item.
A sweater originally priced at $50 before any discounts.
Maintained Markup
The final markup after sales and markdowns.
A $50 sweater discounted to $35 has a maintained markup of $15.
Gross Margin
Sales revenue minus the cost of goods sold.
A store makes $100,000 in sales and has $60,000 in costs; gross margin is $40,000.
