Econ chapter 16
You own an eco-friendly packaging company, and FreshVeggie wants you to custom-make specific packages for its fresh salads. You know that to get this deal, you need to tailor all your processing lines for this specific customer. Which of the following is NOT true about this example?
Getting this deal would strengthen your bargaining power.
Marcella is a tomato farmer. Under which of the following conditions would she face the most intense competition?
Marcella is one of 1,200 tomato farmers who sell in the same tomato market.
Which of these best explains why Coke and Pepsi are able to charge prices well above their marginal costs?
They have differentiated their products.
You own an apparel shop but begin losing customers because more shoppers start to buy secondhand clothes. This is an example of which force from the Five Forces framework?
Threat of substitute products
Producers of potential substitutes are part of the Five Forces framework because .
they may become your competitors
An economy has only one purse manufacturer. It sells cheap, replaceable, single-pocket purses. The positioning strategy most likely to be successful for a new purse manufacturer would be
to create better quality pursues
You own a restaurant in which you installed a kitchen and sitting booths yourself. You rent the space, and the rent is subject to change a few times a year. This implies that
your supplier has bargaining power and can charge you higher prices
Which of the following mergers between two companies would be considered to be a vertical merger?
A fabric mill merges with a pants factory.
Which of the following can reduce the incentive of business partners to hold up a company when the company has made relationship-specific investments?
A long-term relationship based on trust exists between the partners and the company.
Under the Five Forces framework, how can the market power of customers impact a seller's profitability?
Customers with market power can use their leverage to lower the selling price that sellers charge.
Relationship-specific investments are investments that:
are worth more in the context of a specific business relationship.
Dinesh owns a restaurant. He is able to negotiate lower prices than other restaurants pay with his supplier because he buys in volume and threatens to buy from another supplier. Dinesh is:
exercising bargaining power.
According to the Five Forces framework, the _____ the degree of rivalry in an industry, the _____ the average profits will be in the industry.
greater; lower
When negotiating your salary for a new position, you should know that the _____ is at your current job, the greater your bargaining power is.
higher your salary
You can improve your bargaining power by
improving your next best alternative.
When you call a firm for a quote on a domestic repair and mention that you will get other quotes, your bargaining power will _____ and the price they quote will go _____.
increase; down
When you receive a pay raise at your current job, your bargaining power with other potential employers is likely to _____ because it will _____.
increase; improve your next best alternative
When a business positions its product to win a different segment of the market,
it is using non-price competition.
When an input seller has market power in the input market, its customers:
may end up paying a higher price for inputs.
When advertising increases brand loyalty for your company's brand, then the company's demand curve becomes:
more inelastic.
As a basic rule of thumb, business owners should differentiate their products as much as possible when:
price competition is intense.
Your firm is one of a few airplane manufacturers. You inform one of your aircraft seat suppliers that unless they offer a better price, you will buy seats from another supplier that offers you a lower price. This is an example of the
bargaining power of buyers
What protects a business from the threat of entry by potential competitors?
barriers to entry
In differentiating a product, the supply-side consideration is to _____ as possible.
be as different from competitors
How does the threat of potential substitutes lessen the market power of a business? If the substitute becomes available, then the:
business may lose customers to the substitute good's market unless it lowers price.
A search good is a product that:
can easily be evaluated before purchase.
Existing businesses use barriers to entry to _____.
shield themselves from the competition by new entrants
When Joe's Manufacturing Company successfully differentiates its product, then from the perspective of consumers:
the output of rival sellers is not a good substitute for Joe's output.
In which of the following situations would a company have a lower chance of losing customers when it raises the price of its product?
the product is differentiated across companies.
A company's long-term profitability depends on _____ in the market.
the structure of competition
Under the Five Forces framework, your existing competitors determine
the type and intensity of existing competition.
Which of the following statements about product differentiation is FALSE?
It is charging a lower price than other sellers
What happens if a business focuses too much on demand-side considerations, and positions its product close to a rival's customers' preferences, but does not focus on supply-side concerns?
It will face intense price competition.
What distinguishes persuasive advertising from informative advertising?
Persuasive advertising focuses on emotions and provides few facts about the product.
You own a sandwich shop, and business is booming until the local grocery store starts selling made-to-order sandwiches in its deli. This is an example of which competitive force?
Potential entry
What is price competition?
Sellers try to win customers through charging as low a price as possible.
Your firm manufactures computers and has only one supplier providing computer processors. What would happen if your supplier used its bargaining power to raise prices?
You would either have to pay up or close your business.
What will happen if you try to win customers from your rivals by positioning your product too far away from their products by including unusual features?
Your product will be too different to compete with your rivals.
Marta wants to open a shop specializing in gourmet candies and is having a difficult time finding space to rent in a location where many potential customers will pass by each day. There are only two possible locations that meet Marta's criteria, and several other types of businesses are vying to rent each location. This leads to high rents. What challenge to profitability is Marta facing as she starts her business?
suppliers with bargaining power
A search good is any good
that buyers can easily evaluate before buying it.
