Question 1

The Clayton Act of 1936 outlawed price discrimination that reduced competition.

Accepted Answer

A) True 
 B)False

Question 2

Why is price discrimination legal but not discrimination based on race or gender?

Accepted Answer

A) because price discrimination increases profits and therefore tax revenues for the government,but discrimination based on race or gender reduces tax revenues 
B) because price discrimination reduces deadweight loss,but discrimination based on race or gender increases deadweight loss 
C) because price discrimination involves charging people different prices based on their willingness to pay rather than on the basis of arbitrary characteristics 
D) because price discrimination enables firms to increase output and employment,but race- or gender-based discrimination reduces employment 
A) because price discrimination increases profits and therefore tax revenues for the government,but discrimination based on race or gender reduces tax revenues 
B) because price discrimination reduces deadweight loss,but discrimination based on race or gender increases deadweight loss 
C) because price discrimination involves charging people different prices based on their willingness to pay rather than on the basis of arbitrary characteristics 
D) because price discrimination enables firms to increase output and employment,but race- or gender-based discrimination reduces employment

Question 3

A firm's efforts to increase profit by price discrimination can be undermined by

Accepted Answer

A) arbitrage by buyers. 
B) consumer ignorance. 
C) differences in elasticity of demand. 
D) seller market power. 
A) arbitrage by buyers. 
B) consumer ignorance. 
C) differences in elasticity of demand. 
D) seller market power.

Question 4

For a firm that can effectively price discriminate,who will be charged a lower price?

Accepted Answer

A) customers who have an elastic demand for the product 
B) customers who have an inelastic demand for the product 
C) buyers that are members of the largest market segment 
D) buyers that are members of the smallest market segment 
A) customers who have an elastic demand for the product 
B) customers who have an inelastic demand for the product 
C) buyers that are members of the largest market segment 
D) buyers that are members of the smallest market segment

Question 5

Which of the following is not an advantage cost-plus pricing?

Accepted Answer

A) It leads to profit maximization. 
B) It is an easy method to implement if a firm produces multiple products and has overhead costs that are difficult to allocate to a particular good. 
C) It could lead to price stability if the industry is made up of identical firms all using the same method of pricing. 
D) It is easy to justify price increases when total costs of production increase. 
A) It leads to profit maximization. 
B) It is an easy method to implement if a firm produces multiple products and has overhead costs that are difficult to allocate to a particular good. 
C) It could lead to price stability if the industry is made up of identical firms all using the same method of pricing. 
D) It is easy to justify price increases when total costs of production increase.

Question 6

Which of the following products allows the seller to identify different groups of consumers (segment the market)at virtually no cost?

Accepted Answer

A) early bird dinner specials 
B) books sold online 
C) a pair of Bose speakers 
D) iPhones 
A) early bird dinner specials 
B) books sold online 
C) a pair of Bose speakers 
D) iPhones

Question 7

"Buy low and sell high is advice given to people who want to make a profit by buying and selling shares of stock.Arbitrage is defined as buying a product in one market at a low price and reselling it in another market at a high price.Therefore,when stock brokers buy and sell stocks to earn a profit they are engaging in arbitrage." Evaluate this statement;state whether it is true or false and explain your answer.

Accepted Answer

The statement is false.Buying and sellin

Question 8

Figure 16-5  
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to act as a monopolist and charge a single price.What is the profit maximizing quantity produced and what is the price charged?

Accepted Answer

A) Q = 240 units;P = $28 
B) Q = 320 units;P = $24 
C) Q = 480 units;P = $16 
D) Q = 560 units;P = $12 
A) Q = 240 units;P = $28 
B) Q = 320 units;P = $24 
C) Q = 480 units;P = $16 
D) Q = 560 units;P = $12

Question 9

Watanabe Sensei operates the only martial arts school in Hartfield.For simplicity,assume that consumers have identical demand curves and that Sensei knows what this demand curve is.Figure 16-6 shows this demand curve.
-Refer to Figure 16-6.Sensei's friend,Marcel,suggests that he charge a one-time membership fee to use the martial arts school,in addition to a per-class charge.Suppose Sensei charges the monopoly price for each class and also imposes a one-time membership fee.What is the maximum amount of revenue from the membership fee he can collect from all his customers?

Accepted Answer

A) an amount equal to the area A + B 
B) an amount equal to the area E + F 
C) an amount equal to the area H + G 
D) an amount equal to the area A + C + H 
A) an amount equal to the area A + B 
B) an amount equal to the area E + F 
C) an amount equal to the area H + G 
D) an amount equal to the area A + C + H

Question 10

Consumers who ________ will be more likely to buy goods in outlet malls at a lower price,while consumers who ________ will be more willing to pay full price in regular stores.

Accepted Answer

A) are less price-sensitive;are more price-sensitive 
B) are more status-conscious;are less status-conscious 
C) have high levels of wealth;have low levels of wealth 
D) are more price-sensitive;are less price-sensitive 
A) are less price-sensitive;are more price-sensitive 
B) are more status-conscious;are less status-conscious 
C) have high levels of wealth;have low levels of wealth 
D) are more price-sensitive;are less price-sensitive

Question 11

Successful price discrimination cannot take place if

Accepted Answer

A) the market is perfectly competitive. 
B) the market can be segmented into different buyer groups. 
C) customers are not able to resell the product. 
D) the demand curve facing the firm is downward sloping. 
A) the market is perfectly competitive. 
B) the market can be segmented into different buyer groups. 
C) customers are not able to resell the product. 
D) the demand curve facing the firm is downward sloping.

Question 12

If a firm could practice perfect price discrimination,it would

Accepted Answer

A) allow resale of its product. 
B) charge every buyer a different price. 
C) charge a price based on the quantity of a product bought. 
D) use odd pricing. 
A) allow resale of its product. 
B) charge every buyer a different price. 
C) charge a price based on the quantity of a product bought. 
D) use odd pricing.

Question 13

Arnold Marion,a first-year economics student at Fazer College,was given an assignment to find an example of price discrimination and present it to his class.When asked for his example Arnold said "I went to a Milwaukee Brewers baseball game with my cousin last week.We paid $25 each for our seats in left field.My aunt and uncle paid $50 each for their tickets;they sat five rows behind the first base dugout.This is an example of price discrimination since we paid different prices for the same product,and the differences were not due to differences in costs." How would Arnold's economics instructor assess Arnold's example?

Accepted Answer

A) He would agree with Arnold that he had found an example of price discrimination,but would add that arbitrage would occur if ticket scalpers sold Brewers tickets for more than the prices Arnold and his uncle paid. 
B) He would disagree with Arnold's example because the $25 seats and the $50 seats were not the same products. 
C) He would agree with Arnold that he had found an example of price discrimination and would explain that the elasticity of demand for Brewers tickets is different for Arnold and his uncle. 
D) He would disagree with Arnold's example because there were differences in transactions costs for the $50 tickets and the $25 tickets. 
A) He would agree with Arnold that he had found an example of price discrimination,but would add that arbitrage would occur if ticket scalpers sold Brewers tickets for more than the prices Arnold and his uncle paid. 
B) He would disagree with Arnold's example because the $25 seats and the $50 seats were not the same products. 
C) He would agree with Arnold that he had found an example of price discrimination and would explain that the elasticity of demand for Brewers tickets is different for Arnold and his uncle. 
D) He would disagree with Arnold's example because there were differences in transactions costs for the $50 tickets and the $25 tickets.

Question 14

Watanabe Sensei operates the only martial arts school in Hartfield.For simplicity,assume that consumers have identical demand curves and that Sensei knows what this demand curve is.Figure 16-6 shows this demand curve.
-Refer to Figure 16-6.Suppose instead of charging the monopoly price for his classes,Sensei charges the competitive price.What is the competitive price and what is the quantity demanded at this price?

Accepted Answer

A) P0,Q1 
B) P0,Q0 
C) P1,Q0 
D) P1,Q1 
A) P0,Q1 
B) P0,Q0 
C) P1,Q0 
D) P1,Q1

Question 15

A price-discriminating firm charges the highest price to

Accepted Answer

A) the group with the largest demand. 
B) the group with the most elastic demand. 
C) the group with the least elastic demand. 
D) the group with demand that is unit elastic. 
A) the group with the largest demand. 
B) the group with the most elastic demand. 
C) the group with the least elastic demand. 
D) the group with demand that is unit elastic.

Question 16

Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community,and other residents in the neighborhood.Figure 16-3 shows the demand curves for the residents of the retirement community,labeled Market A,and other residents in the neighborhood,labeled Market B.The demand curves are not identical.
-Refer to Figure 16-3.Which group of customers is likely to have a more elastic demand curve (more sensitive to price)?

Accepted Answer

A) the other residents of the neighborhood-market B 
B) There is no difference in the elasticity of demand between the two groups. 
C) the customers from "The Chateau"-market A 
D) There is insufficient information to answer this question. 
A) the other residents of the neighborhood-market B 
B) There is no difference in the elasticity of demand between the two groups. 
C) the customers from "The Chateau"-market A 
D) There is insufficient information to answer this question.

Question 17

What is odd pricing? Why do some merchants use odd pricing?

Accepted Answer

Odd pricing is the practice of charging

Question 18

Lou buys a Star Wars: The Force Awakens poster from Evan for $30 and resells it on eBay for $60.Which of the following statements is false?

Accepted Answer

A) Lou has earned some arbitrage profits,assuming that transactions costs are negligible. 
B) The transaction has made Evan worse off because he undersold the poster. 
C) Lou has probably incurred some costs in connection with this sale. 
D) It is possible that Evan has earned some producer surplus from this transaction. 
A) Lou has earned some arbitrage profits,assuming that transactions costs are negligible. 
B) The transaction has made Evan worse off because he undersold the poster. 
C) Lou has probably incurred some costs in connection with this sale. 
D) It is possible that Evan has earned some producer surplus from this transaction.

Question 19

What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?

Accepted Answer

Perfect price discrimination,also known

Question 20

An article on how prices in South Bend,Indiana rise during Notre Dame home football games noted: "For the Sept.16 game against the University of Michigan,the South Bend Marriott is charging $649 a night for a double room....The Marriott's regular weekend price is $149 a night." Source: Ilan Brat,"Notre Dame Football Introduces Its Fans To Inflationary Spiral," Wall Street Journal,September 7,2006,p.A1.
Which of the following statements is true?

Accepted Answer

A) The Marriott is practicing first-degree price discrimination by charging what the market will bear. 
B) This is evidence of third-degree price discrimination because hotel accommodation on a particular day is not a product that can be resold later. 
C) There is no evidence of price discrimination;the Marriott is responding to increased demand for hotel rooms in the face of constant supply. 
D) The Marriott has adopted this pricing strategy to capitalize on arbitrage profits. 
A) The Marriott is practicing first-degree price discrimination by charging what the market will bear. 
B) This is evidence of third-degree price discrimination because hotel accommodation on a particular day is not a product that can be resold later. 
C) There is no evidence of price discrimination;the Marriott is responding to increased demand for hotel rooms in the face of constant supply. 
D) The Marriott has adopted this pricing strategy to capitalize on arbitrage profits.

Exam 16: Pricing Strategy

The Clayton Act of 1936 outlawed price discrimination that reduced competition.

Why is price discrimination legal but not discrimination based on race or gender?

A firm's efforts to increase profit by price discrimination can be undermined by

For a firm that can effectively price discriminate,who will be charged a lower price?

Which of the following is not an advantage cost-plus pricing?

Which of the following products allows the seller to identify different groups of consumers (segment the market)at virtually no cost?

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to act as a monopolist and charge a single price.What is the profit maximizing quantity produced and what is the price charged?

Consumers who ________ will be more likely to buy goods in outlet malls at a lower price,while consumers who ________ will be more willing to pay full price in regular stores.

Successful price discrimination cannot take place if

If a firm could practice perfect price discrimination,it would

A price-discriminating firm charges the highest price to

What is odd pricing? Why do some merchants use odd pricing?

Lou buys a Star Wars: The Force Awakens poster from Evan for $30 and resells it on eBay for $60.Which of the following statements is false?

What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?

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

Consumers who will be more likely to buy goods in outlet malls at a lower price,while consumers who will be more willing to pay full price in regular stores.