In reference pricing, _____.

• A. producers are required to sell goods at the average market price
• B. the government sets a maximum legal price for a good or service
• C. consumers compare the current price of a good to a benchmark or previous price to assess its value
• D. black markets emerge due to restrictions on legal pricing

Answer: (C)

Verified step by step guidance

1. Understand the concept of reference pricing: it refers to the idea that consumers evaluate the price of a good by comparing it to a benchmark price, which could be a previous price they paid or a commonly known market price.
2. Recognize that reference pricing is a behavioral economics concept related to consumer perception rather than a direct government or producer action like price controls or mandated pricing.
3. Eliminate options that describe government-imposed price ceilings or producer requirements, as these relate to price controls, not reference pricing.
4. Note that black markets typically arise when legal price restrictions create shortages or incentives to trade illegally, which is a different concept from reference pricing.
5. Conclude that the correct understanding of reference pricing is that consumers use a reference or benchmark price to judge whether the current price is high or low, influencing their purchasing decisions.