Pennies (A Grocery Chain) Opened Next Door to the Established

question 37

Multiple Choice

Pennies (a grocery chain) opened next door to the established low cost grocery chain Price Busters. Price Busters lowered their prices to a level at which Pennies could not compete. Once Pennies was driven out of business, Price Busters increased their prices again. What is this strategy called?

• A)price fixing
• B)predatory pricing
• C)bait and switch
• D)deceptive pricing

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Definitions:

Law of Diminishing Returns

A principle stating that as one factor of production is increased while others are held constant, the resulting addition to output will eventually decrease.

Coase Theorem

An economic theory stating that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own.

Director of Housing

A position responsible for overseeing housing programs, policies, and services, typically within a governmental or nonprofit organization.

Marginal Benefit (MB) Curves

Graphs that show the additional benefit received from consuming one more unit of a good or service.