The Practice of Charging a Very Low Price for a Product

question 2

Multiple Choice

The practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market is called:

• A) price discrimination
• B) predatory pricing
• C) price fixing
• D) price manipulation
• E) anti-competitive pricing

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Definitions:

Capital Asset Pricing Model

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks, used in finance to price risky securities.

William Sharpe

An economist who created the Sharpe Ratio, a measure to calculate risk-adjusted return.

SML (Security Market Line)

A line in the Capital Asset Pricing Model that shows the relationship between the expected return of a security and its risk.

Risk Averse

A tendency to prefer certainty over uncertain outcomes to minimize exposure to financial loss.