Final answer:
The incorrect pricing principle is (a) 'Pricing should anticipate a competitor’s reactions,' as it does not represent a fundamental pricing principle. Pricing principles guide how prices are managed in concordance with supply and demand forces and an organization's long-term profitability goals.
Step-by-step explanation:
Which of the following is not a pricing principle? The answer is (a) 'Pricing should anticipate a competitor’s reactions.' While anticipating competitor reactions can be a part of pricing strategy, it is not a principle of pricing itself. Pricing principles are core guidelines that drive how price is determined and managed within an organization or market.
Prices in a competitive market are determined by the forces of supply and demand. When these two curves intersect, they determine the equilibrium price, which is the price at which the quantity of goods supplied equals the quantity demanded. This is a concept foundational to understanding how prices are set in a market economy.
Price elasticity is crucial as it measures how sensitive the quantity demanded is to a change in price. If a product is elastic, a small change in price can lead to a large change in the quantity demanded. This can greatly influence how a firm sets its prices since the goal is often to maximize revenue without negatively impacting demand.
Economic models, like supply and demand curves, help predict and explain changes in price. Factors such as input costs, technological changes, and changes in consumer preferences can shift these curves, thereby affecting prices.
In terms of principles, pricing strategies should align with an organization's positioning strategy and reflect the value offered to different customer segments. Also, pricing principles should be geared towards maximizing long-term profitability. Short-run profits might sometimes be sacrificed to achieve a long-term position in the market.