In 2007 Nike Reduced the Price of Its Running Shoes

question 471

Multiple Choice

In 2007 Nike reduced the price of its running shoes by 20 percent. As a result, the substitution effect caused

• A) the demand curve for Nikes to shift rightward.
• B) the relative price of Nikes to increase.
• C) people to switch from Adidas shoes and buy more Nikes.
• D) the demand for Nike shoes to increase.

---

Definitions:

Facility-Level Costs

These are the costs that are necessary to operate a facility, such as a manufacturing plant or a warehouse, and do not vary significantly with production volume.

Overhead Cost

Expenses related to the ongoing operational costs of running a business that are not directly tied to the production of goods or services.

Traditional Costing System

A costing methodology that allocates overhead costs to products based on a predetermined rate, often using direct labor hours or machine hours as the allocation base.

Activity-Based Costing System

A costing methodology that assigns costs to products or services based on the activities that go into producing them, providing detailed insights into the actual consumption of resources.