Test 5 (Money, Pricing, The Problem of Inflation)

I. Match the terms with their definitions:

1. Penetration pricing	A. selling a product at a high price, sacrificing high sales in order to earn high profits
2. Creaming (skimming)	B. the quantity of goods or services that money will buy at a certain time
3. Legal tender	C. the bank’s liabilities to its customers
4. Demand inflation	D. selling a different price for the same product in different segments of the market
5. Token money	E. the kind of inflation that is caused by rising costs of labour and materials
6. Price discrimination	F. coins in which the metallic content is less valuable than the face value
7. Cost inflation	G. selling an initial low price for a new product so that it is attractive to customers
8. Bank deposit	H. the form of money in which a person has a right by law to pay a debt
9. Barter	I. the kind of inflation caused by an excess of demand over supply resulting in a decrease in the value of money
10. Value of money	J. exchange of goods for goods

II. Put the words in the correct order:

1. system, trade, until, has, is, full, a, usually, by, on, carried, barter, developed, money, been.

2. charged, any, needs, carefully, the, by, to think, price, rivals, business, about.

3. be, the, price, must, general, a, form, level, average, of, therefore.

4. acceptable, to be, it, if, tender, is not, legal, generally, will, then, money, cease.

5. is, would, once, in, business, the, a, established, product, raise, its, market, the, price.

6. of, index, the, price, normal, of, method, is, the, calculation, by, use.

III. Fill in the gaps with the words or word combinations in italics:

Money, creaming, value, cost inflation, losses, demand inflation, increases, barter, legal tender, price

1. …is setting a high price for a product initially and lowering it later on.

2. Money is only a claim against the real goods that have … .

3. …assumes that the collective upwards “push” of costs is sufficient to raise the general level of prices.

4. Charging a price similar to competitors is one way to set prices but it might lead to … .

5. …in the quantity of money were likely to lead to increases in prices.

6. If … is not generally acceptable then it will cease to be money.

7. …is one element of the marketing mix.

8. …is of no use unless the wealth is being created.

9. …takes place when supply cannot respond (i.e. when most of all resources are already employed) and leads to a rise in prices instead of to extra output.

10. …entails the necessity of a double coincidence of wants.

IV. Are the following statements true or false? Correct the false ones:

1. Paper money is convertible into gold.

2. Bank deposits, which are money, are not legal tender.

3. A fall in prices means that the value of money has risen.

4. The value of money changes proportionally with changes in the price level.

5. The price of similar competitive products does not influence pricing.

6. When the price covers both the average fixed and variable costs of the product, the business is said to be full-cost pricing.

7. The measurement of the inflation does not depend upon the general price level.

8. The selling of the country’s currency often takes place when inflation rates exceed the tolerances allowed for by the government.