Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Price fixing involves:

1. Independent businesses setting their own prices freely

2. Businesses agreeing to sell goods at predetermined prices

3. Selling products at varying prices based on demand

4. Offering discounts to encourage competition

The correct answer is: Businesses agreeing to sell goods at predetermined prices

Price fixing refers to an agreement among competitors to set prices at a certain level, rather than allowing them to be determined by the market forces of supply and demand. In this scenario, businesses collude to establish predetermined prices, which can lead to higher prices for consumers and reduced competition in the marketplace. This practice is generally illegal and considered anti-competitive, as it undermines free market principles and can create barriers to entry for other businesses. The other options describe different pricing strategies. Independent businesses setting their own prices freely relates to a competitive market scenario, where the price is driven by individual business decisions. Selling products at varying prices based on demand refers to dynamic pricing strategies that reflect changes in consumer interest and availability, which do not involve collusion among businesses. Finally, offering discounts to encourage competition is a tactic used to gain market share and attract customers, promoting a competitive environment rather than cooperating to set prices. Therefore, the option that correctly defines price fixing is the one involving businesses agreeing to sell goods at predetermined prices.