The Price a Firm Charges for a Good or Service

question 12

Multiple Choice

The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because

• A) the customer's disposable income is significantly higher than what the market demands.
• B) the customer captures some of that value in the form of a consumer surplus.
• C) regulatory mechanisms ensure that the customer is not overcharged for products/services.
• D) marketers implement psychological pricing tactics to ensure that customers perceive the prices to be low.

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Definitions:

Price Elasticity

The degree to which the demand for an item is affected by fluctuations in its cost.

Demand Function

A mathematical representation of how the quantity demanded of a good is influenced by its price and other factors.

Price Elasticity

A metric assessing the reaction of the amount of a good demanded to its price alterations.

Demand Function

An equation that describes the relationship between the quantity of a product demanded and the product’s price.