Question

Ideally, a transfer price should be less than the price that the receiving business unit would have to pay for that product or service in the marketplace.

True
False

Answer 1

The statement is false because buyers may be willing to pay more than the equilibrium price in certain situations.

Step-by-step explanation:

The statement “In the goods market, no buyer would be willing to pay more than the equilibrium price” is false. In a competitive market, the equilibrium price is determined by the intersection of supply and demand. At the equilibrium price, the quantity demanded equals the quantity supplied. However, buyers may be willing to pay more than the equilibrium price under certain circumstances:

1. If the good has a high level of demand and limited supply, buyers may be willing to pay higher prices to secure the product.
2. If there are transaction costs involved in obtaining the good from the marketplace, buyers may be willing to pay a higher price to avoid those costs.

Therefore, it is not true that no buyer would be willing to pay more than the equilibrium price in the goods market.