Question 1

According to the law of one price

Accepted Answer

A) if transaction costs are zero,identical goods should sell for the same price everywhere. 
B) if transactions costs are zero,firms must sell a product at a price equal to its marginal cost. 
C) if transactions costs are zero,all firms must earn the same profit margin. 
D) there must be no differences in the cost of producing identical goods by different producers. 
A) if transaction costs are zero,identical goods should sell for the same price everywhere. 
B) if transactions costs are zero,firms must sell a product at a price equal to its marginal cost. 
C) if transactions costs are zero,all firms must earn the same profit margin. 
D) there must be no differences in the cost of producing identical goods by different producers.

Question 2

Today,Walt Disney World charges different customers different prices for admission.This pricing strategy is called

Accepted Answer

A) arbitrage. 
B) odd pricing. 
C) cost-price pricing. 
D) price discrimination. 
A) arbitrage. 
B) odd pricing. 
C) cost-price pricing. 
D) price discrimination.

Question 3

Clarissa Kessler operates a store that sells toys.Her business suffered tremendously when a giant discount store chain opened a store in the area and is able to sell its products for less than Clarissa's wholesale cost.Is this evidence of illegal price discrimination on the part of the discount store chain?

Accepted Answer

A) Yes,it is clearly a violation of the Robinson-Patman Act. 
B) No,because it can be argued that the discount store chain is justified in charging lower prices because it is a large-volume buyer and is able to purchase toys at a lower wholesale price than Clarissa. 
C) Yes,the discount store chain is engaging in predatory pricing. 
D) No,even if the price discrimination is based on differences in cost,the law states that it is not illegal. 
A) Yes,it is clearly a violation of the Robinson-Patman Act. 
B) No,because it can be argued that the discount store chain is justified in charging lower prices because it is a large-volume buyer and is able to purchase toys at a lower wholesale price than Clarissa. 
C) Yes,the discount store chain is engaging in predatory pricing. 
D) No,even if the price discrimination is based on differences in cost,the law states that it is not illegal.

Question 4

Using outlet stores to price discriminate has been successful for many companies,with sales increasing faster than at conventional retail stores.

Accepted Answer

A) True 
 B)False

Question 5

Until the early 1980s,The Walt Disney Company used a pricing strategy in which visitors to its theme parks paid a low admission fee and also paid for rides.This pricing strategy is an example of

Accepted Answer

A) perfect price discrimination. 
B) cost-plus pricing. 
C) a two-part tariff. 
D) monopoly pricing. 
A) perfect price discrimination. 
B) cost-plus pricing. 
C) a two-part tariff. 
D) monopoly pricing.

Question 6

The antitrust law that prohibits price discrimination on grounds that it reduces competition is

Accepted Answer

A) the Clayton Act. 
B) the Federal Trade Commission Act. 
C) the Robinson-Patman Act. 
D) the Sherman Act. 
A) the Clayton Act. 
B) the Federal Trade Commission Act. 
C) the Robinson-Patman Act. 
D) the Sherman Act.

Question 7

$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity } \
\text { Demanded in } \
\text { Middle Fall } \
\text { (tubes per week) }
\end{array} & \begin{array} { c } 
\text { Price per } \
\text { Tube }
\end{array} & \begin{array} { c } 
\text { Quantity Demanded } \
\text { in West Fall } \
\text { (tubes per week) }
\end{array} & \begin{array} { c } 
\text { Price per } \
\text { Tube }
\end{array} \
\hline 1 & \$ 8 & 1 & \$ 5.00 \
\hline 2 & 7 & 2 & 4.50 \
\hline 3 & 6 & 3 & 4.00 \
\hline 4 & 5 & 4 & 3.50 \
\hline 5 & 4 & 5 & 3.00 \
\hline
\end{array}$$ Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2.The average cost of production is constant at $2 per tube.
-Refer to Table 16-2.How many tubes of toothpaste will Neem sell in West Fall and at what price?

Accepted Answer

A) Q = 2 units;P = $4.50 
B) Q = 3 units;P = $4 
C) Q = 4 units;P = $3.50 
D) Q = 5 units;P = $3 
A) Q = 2 units;P = $4.50 
B) Q = 3 units;P = $4 
C) Q = 4 units;P = $3.50 
D) Q = 5 units;P = $3

Question 8

Your text refers to airlines as "The Kings of Price Discrimination." Why is price discrimination common in the airline industry?

Accepted Answer

When airlines fly with empty seats,they

Question 9

The Walt Disney Company is in a position to use a two-part tariff by charging for admission and also charging for rides inside its two theme parks,Disneyland and Disney World.Which of the following statements regarding Disney's pricing strategy is true?

Accepted Answer

A) At one time,admission fees were charged at both parks but all rides were free.Disney has since changed its pricing policy;it earns higher profits by charging for both admission and rides. 
B) At one time,customers had to pay for admission and rides at Disneyland and Disney World.Disney has since changed its pricing policy;it earns higher profits by charging for admission but not for rides. 
C) At one time,customers had to pay for admission and rides at Disneyland and Disney World.Disney has since changed its pricing policy;it earns higher profits by charging for rides but not for admission. 
D) At one time,fees for admission and rides at both parks were set at their profit-maximizing levels.Disney has since changed its pricing policy;it uses a cost-plus pricing strategy for admission and does not charge for rides. 
A) At one time,admission fees were charged at both parks but all rides were free.Disney has since changed its pricing policy;it earns higher profits by charging for both admission and rides. 
B) At one time,customers had to pay for admission and rides at Disneyland and Disney World.Disney has since changed its pricing policy;it earns higher profits by charging for admission but not for rides. 
C) At one time,customers had to pay for admission and rides at Disneyland and Disney World.Disney has since changed its pricing policy;it earns higher profits by charging for rides but not for admission. 
D) At one time,fees for admission and rides at both parks were set at their profit-maximizing levels.Disney has since changed its pricing policy;it uses a cost-plus pricing strategy for admission and does not charge for rides.

Question 10

Perfect price discrimination is also known as

Accepted Answer

A) monopoly. 
B) first-degree price discrimination. 
C) third-degree price discrimination. 
D) yield management. 
A) monopoly. 
B) first-degree price discrimination. 
C) third-degree price discrimination. 
D) yield management.

Question 11

Perfect price discrimination will lead a firm to produce up to the point where price equals marginal cost,the efficient level of output.

Accepted Answer

A) True 
 B)False

Question 12

Consider the following pricing strategies:
A.perfect price discrimination
B.charging different prices to different groups of customers
C.optimal two-part tariff
D.single-price monopoly pricing
Which of the pricing strategies allows a producer to capture the entire consumer surplus that would have gone to consumers under perfect competitive pricing?

Accepted Answer

A) a,b,c,and d 
B) a,b,and c only 
C) a and b only 
D) a and c only 
A) a,b,c,and d 
B) a,b,and c only 
C) a and b only 
D) a and c only

Question 13

The Athenian Theatre sells tickets for the same play at different prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the front,around the stage.Which of the following statements is true?

Accepted Answer

A) This is an example of product differentiation but not price discrimination. 
B) The theatre practices first-degree price discrimination by setting prices based on willingness to pay. 
C) Since the cost of producing the play does not change with the seating configuration,this is evidence of price discrimination based on market segmentation. 
D) Charging two different prices is an effective way to avoid an excess demand for play tickets;the higher price lowers quantity demanded to some extent. 
A) This is an example of product differentiation but not price discrimination. 
B) The theatre practices first-degree price discrimination by setting prices based on willingness to pay. 
C) Since the cost of producing the play does not change with the seating configuration,this is evidence of price discrimination based on market segmentation. 
D) Charging two different prices is an effective way to avoid an excess demand for play tickets;the higher price lowers quantity demanded to some extent.

Question 14

Publishers practice price discrimination when they sell books at high prices to

Accepted Answer

A) early adopters. 
B) local bookstores. 
C) large chain bookstores. 
D) online book sellers. 
A) early adopters. 
B) local bookstores. 
C) large chain bookstores. 
D) online book sellers.

Question 15

Early adopters are consumers who will pay a high price to be among the first to own new products.

Accepted Answer

A) True 
 B)False

Question 16

The Walt Disney Company is in a position to use a two-part tariff policy in setting prices for admission and rides at Disney World.If this strategy resulted in maximum profit,Disney would convert all consumer surplus into profit.Which of the following explains why Disney does not maximize its profits from admission and rides?

Accepted Answer

A) To maximize its profits,Disney would have to know the demand curves of each of its customers.Since this is not possible,Disney is not able to convert all consumer surplus into profit. 
B) Disney purposely charges less than the profit-maximizing price for admission to Disney World because it does not want to risk alienating its customers. 
C) Disney purposely charges less than the profit-maximizing price for admission to Disney World in order to earn more profit from sales of food,lodging,and other related services. 
D) Disney does not charge the profit-maximizing price for admission because it wants to keep admission affordable for children who will be more likely to visit Disney World when they become parents. 
A) To maximize its profits,Disney would have to know the demand curves of each of its customers.Since this is not possible,Disney is not able to convert all consumer surplus into profit. 
B) Disney purposely charges less than the profit-maximizing price for admission to Disney World because it does not want to risk alienating its customers. 
C) Disney purposely charges less than the profit-maximizing price for admission to Disney World in order to earn more profit from sales of food,lodging,and other related services. 
D) Disney does not charge the profit-maximizing price for admission because it wants to keep admission affordable for children who will be more likely to visit Disney World when they become parents.

Question 17

Many firms use odd pricing-charging prices such as $.99 instead of $1.00 and $9.99 instead of $10.00.One reason for this pricing strategy is that consumers will somehow believe that the difference in price appears to be greater than it actually is.Researchers conducted consumer surveys to determine whether this is actually the case.What was the result of these surveys?

Accepted Answer

A) The surveys found that small differences in price cause small differences in quantity demanded.There is no evidence that odd pricing makes economic sense. 
B) Although the results were not conclusive,there is some evidence that odd pricing makes economic sense. 
C) The surveys found indifference regarding this strategy among most consumers,but hostility among other consumers.The latter group resented what they viewed as an attempt to fool them into buying products with odd prices.Researchers concluded that odd pricing is counterproductive. 
D) The survey results were inconclusive because most consumers gave unreliable responses to the survey questions. 
A) The surveys found that small differences in price cause small differences in quantity demanded.There is no evidence that odd pricing makes economic sense. 
B) Although the results were not conclusive,there is some evidence that odd pricing makes economic sense. 
C) The surveys found indifference regarding this strategy among most consumers,but hostility among other consumers.The latter group resented what they viewed as an attempt to fool them into buying products with odd prices.Researchers concluded that odd pricing is counterproductive. 
D) The survey results were inconclusive because most consumers gave unreliable responses to the survey questions.

Question 18

Transactions costs refer to

Accepted Answer

A) the implicit costs of production. 
B) the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services. 
C) the raw material cost of production. 
D) the cost of transporting goods from one destination to another. 
A) the implicit costs of production. 
B) the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services. 
C) the raw material cost of production. 
D) the cost of transporting goods from one destination to another.

Question 19

Calling long distance is often more expensive on weekdays between 8 am and 5 pm than in the evening hours.Why is this the case?

Accepted Answer

A) Telephone companies hope to discourage customers from calling long distance during the day to keep their labor costs down. 
B) The cost of making long-distance connections is higher during the day than in the evenings. 
C) Businesses who must call suppliers or customers during business hours have few alternatives and therefore have an inelastic demand during the workday compared to after-work hours. 
D) Increasingly,businesses who must call suppliers or customers during business hours resort to the internet,thereby reducing demand for long-distance calls.To make up for this fall in demand,telephone companies charge higher rates. 
A) Telephone companies hope to discourage customers from calling long distance during the day to keep their labor costs down. 
B) The cost of making long-distance connections is higher during the day than in the evenings. 
C) Businesses who must call suppliers or customers during business hours have few alternatives and therefore have an inelastic demand during the workday compared to after-work hours. 
D) Increasingly,businesses who must call suppliers or customers during business hours resort to the internet,thereby reducing demand for long-distance calls.To make up for this fall in demand,telephone companies charge higher rates.

Question 20

By selling products in both retail stores and outlet stores,firms can increase their profits by charging ________ prices to consumers with a low price elasticity of demand and ________ prices to consumers with a higher price elasticity of demand.

Accepted Answer

A) higher;higher 
B) higher;lower 
C) lower;higher 
D) lower;lower 
A) higher;higher 
B) higher;lower 
C) lower;higher 
D) lower;lower

Exam 16: Pricing Strategy

According to the law of one price

Today,Walt Disney World charges different customers different prices for admission.This pricing strategy is called

Using outlet stores to price discriminate has been successful for many companies,with sales increasing faster than at conventional retail stores.

Until the early 1980s,The Walt Disney Company used a pricing strategy in which visitors to its theme parks paid a low admission fee and also paid for rides.This pricing strategy is an example of

The antitrust law that prohibits price discrimination on grounds that it reduces competition is

Your text refers to airlines as "The Kings of Price Discrimination." Why is price discrimination common in the airline industry?

The Walt Disney Company is in a position to use a two-part tariff by charging for admission and also charging for rides inside its two theme parks,Disneyland and Disney World.Which of the following statements regarding Disney's pricing strategy is true?

Perfect price discrimination is also known as

Perfect price discrimination will lead a firm to produce up to the point where price equals marginal cost,the efficient level of output.

The Athenian Theatre sells tickets for the same play at different prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the front,around the stage.Which of the following statements is true?

Publishers practice price discrimination when they sell books at high prices to

Early adopters are consumers who will pay a high price to be among the first to own new products.

Transactions costs refer to

Calling long distance is often more expensive on weekdays between 8 am and 5 pm than in the evening hours.Why is this the case?

By selling products in both retail stores and outlet stores,firms can increase their profits by charging ________ prices to consumers with a low price elasticity of demand and ________ prices to consumers with a higher price elasticity of demand.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

By selling products in both retail stores and outlet stores,firms can increase their profits by charging prices to consumers with a low price elasticity of demand and prices to consumers with a higher price elasticity of demand.