How can a grocery store use responsive pricing to address an overstock of cereal?

• A. Limit the quantity of cereal customers can buy at the current price.
• B. Lower the price of cereal to increase quantity demanded and reduce excess inventory.
• C. Keep the price unchanged to avoid affecting demand.
• D. Raise the price of cereal to discourage purchases and maintain high inventory levels.

Answer: (B)

Verified step by step guidance

1. Understand the concept of responsive pricing, which involves adjusting prices based on current market conditions to influence demand and supply.
2. Identify that an overstock of cereal means there is excess supply relative to demand at the current price.
3. Recall the law of demand: when the price of a good decreases, the quantity demanded generally increases, helping to reduce excess inventory.
4. Consider the effect of lowering the price of cereal: this should increase the quantity demanded, encouraging more purchases and reducing the overstock.
5. Evaluate why keeping the price unchanged or raising it would not help reduce overstock, as these actions either maintain or decrease demand, leaving excess inventory unresolved.