Question 1

Buying at a low price in one market and reselling at a higher price in another market will

Accepted Answer

A) not generate any profit because of transportation costs. 
B) not generate any profit because of transactions costs. 
C) eventually eliminate all of the price differences. 
D) eventually eliminate most,but not necessarily all,of the price differences. 
A) not generate any profit because of transportation costs. 
B) not generate any profit because of transactions costs. 
C) eventually eliminate all of the price differences. 
D) eventually eliminate most,but not necessarily all,of the price differences.

Question 2

According to a New York Times article,shoppers from New York City have played a game of "retail arbitrage" by shopping at malls in Northern New Jersey,a state where there is no tax on clothing and shoes.Even after accounting for transactions costs,shoppers could still save money on their clothing and footwear purchases. Source: Ken Belson and Nate Schweber,"Sales Tax Cut in City May Dim Allure of Stores Across Hudson," New York Times,January 18,2007.
Is the term "arbitrage" correctly used here?

Accepted Answer

A) Yes,because shoppers were able to purchase items at lower prices even after deducting their transactions costs. 
B) No,"arbitrage" means buying at a low price and reselling at a higher price but no resale takes place here. 
C) Yes,arbitrage applies even if no resale takes place;in this case the profits are pocketed by the customers themselves. 
D) No,"arbitrage" does not apply to markets that are not in the same geographic area. 
A) Yes,because shoppers were able to purchase items at lower prices even after deducting their transactions costs. 
B) No,"arbitrage" means buying at a low price and reselling at a higher price but no resale takes place here. 
C) Yes,arbitrage applies even if no resale takes place;in this case the profits are pocketed by the customers themselves. 
D) No,"arbitrage" does not apply to markets that are not in the same geographic area.

Question 3

Reporters from the Wall Street Journal found that the office supply store Staples charged different prices for the same product to different online customers based primarily on

Accepted Answer

A) the age of the customer. 
B) how close the customer's zip code was to competitors' stores. 
C) the gender of the customer. 
D) how many times the customer had looked up the product on its Website. 
A) the age of the customer. 
B) how close the customer's zip code was to competitors' stores. 
C) the gender of the customer. 
D) how many times the customer had looked up the product on its Website.

Question 4

Because each customer pays according to her willingness to pay,a consumer maximizes her consumer surplus under first-degree price discrimination.

Accepted Answer

A) True 
 B)False

Question 5

Even though it often does not result in profit maximization,some small firms use a cost-plus pricing strategy anyway because

Accepted Answer

A) it is easy to use. 
B) they do not understand what marginal revenue and marginal cost mean. 
C) it is expensive to hire an economist who can determine what the profit-maximizing price is. 
D) they sell several products,each of which sells for a different price.The time and expense involved in finding the profit-maximizing price for each product are not worth the effort. 
A) it is easy to use. 
B) they do not understand what marginal revenue and marginal cost mean. 
C) it is expensive to hire an economist who can determine what the profit-maximizing price is. 
D) they sell several products,each of which sells for a different price.The time and expense involved in finding the profit-maximizing price for each product are not worth the effort.

Question 6

In which market structure is it not possible to practice price discrimination?

Accepted Answer

A) perfect competition 
B) monopolistic competition 
C) oligopoly 
D) monopoly 
A) perfect competition 
B) monopolistic competition 
C) oligopoly 
D) monopoly

Question 7

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.If Sensei acts as a monopolist and charges the profit-maximizing price,what is the consumer surplus received by his customers?

Accepted Answer

A) the area A + B + C + D 
B) the area A + B + C + D + E 
C) the area A + B 
D) the area A + C + H 
A) the area A + B + C + D 
B) the area A + B + C + D + E 
C) the area A + B 
D) the area A + C + H

Question 8

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

Accepted Answer

A) It is easy to calculate. 
B) It requires little information. 
C) If a firm is selling multiple products,it ensures that the firm's prices will cover costs that are difficult to assign to one product. 
D) It ensures that the firm will maximize its profits. 
A) It is easy to calculate. 
B) It requires little information. 
C) If a firm is selling multiple products,it ensures that the firm's prices will cover costs that are difficult to assign to one product. 
D) It ensures that the firm will maximize its profits.

Question 9

A firm using a two-part tariff can produce the economically efficient outcome by

Accepted Answer

A) making the fixed-fee portion of the price as low as possible. 
B) setting the per-unit portion of the price equal to the marginal cost of production. 
C) setting the per-unit portion of the price equal to the average cost of production. 
D) setting the fixed-fee portion of the price at some proportion to the fixed cost of production. 
A) making the fixed-fee portion of the price as low as possible. 
B) setting the per-unit portion of the price equal to the marginal cost of production. 
C) setting the per-unit portion of the price equal to the average cost of production. 
D) setting the fixed-fee portion of the price at some proportion to the fixed cost of production.

Question 10

Erin and Deidre,two residents in Ithaca,New York,are planning a trip to Boston.Erin,the sales manager for a large retailer,has to attend a business meeting.Deidre,a college student on vacation,is planning a leisurely trip to visit friends and relatives.Whose demand curve for air travel is likely to be more elastic?

Accepted Answer

A) Erin 
B) Deidre 
C) There is no difference in their price elasticities of demand. 
D) The elasticity of the demand curves for Erin and Deidre cannot be determined without more information. 
A) Erin 
B) Deidre 
C) There is no difference in their price elasticities of demand. 
D) The elasticity of the demand curves for Erin and Deidre cannot be determined without more information.

Question 11

Cost-plus pricing would be consistent with selecting the profit-maximizing price when

Accepted Answer

A) it results in a price that causes quantity sold to be where marginal revenue equals marginal cost. 
B) a firm has no difficulty estimating its demand curve. 
C) consumers value the product beyond its marginal cost. 
D) the demand for the firm's product is unit elastic. 
A) it results in a price that causes quantity sold to be where marginal revenue equals marginal cost. 
B) a firm has no difficulty estimating its demand curve. 
C) consumers value the product beyond its marginal cost. 
D) the demand for the firm's product is unit elastic.

Question 12

Online companies gather personal information about the customers who shop on their Web sites and some of those companies will use the data to estimate price elasticities of the customers.Doing this is a way that these companies might be able to charge a higher price for a product to those customers who have a ________ price elasticity of demand.

Accepted Answer

A) high 
B) low 
C) negative 
D) unitary 
A) high 
B) low 
C) negative 
D) unitary

Question 13

Which of the following is necessary in order for a firm to successfully practice price discrimination?

Accepted Answer

A) The firm must practice product differentiation. 
B) The demand for the firm's product is inelastic. 
C) The firm must be able to segment the market for the product. 
D) The firm's transactions costs must be zero. 
A) The firm must practice product differentiation. 
B) The demand for the firm's product is inelastic. 
C) The firm must be able to segment the market for the product. 
D) The firm's transactions costs must be zero.

Question 14

If marginal cost is zero,with an optimal two-part tariff

Accepted Answer

A) total revenue is maximized. 
B) consumers maximize their surplus 
C) the firm does not have to charge a fixed-fee portion. 
D) firms may not maximize profit. 
A) total revenue is maximized. 
B) consumers maximize their surplus 
C) the firm does not have to charge a fixed-fee portion. 
D) firms may not maximize profit.

Question 15

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Web site and in retail stores.Apple charges lower prices to college students and faculty members because

Accepted Answer

A) college students and faculty members have a more elastic demand for computers than the general public. 
B) Apple can deduct from its federal taxes some of the costs of the computers it sells to college students and faculty members. 
C) college students and faculty members have a more inelastic demand for computers than the general public. 
D) college students and faculty members typically buy more supplies from Apple (print cartridges,paper,etc. ,)than the general public. 
A) college students and faculty members have a more elastic demand for computers than the general public. 
B) Apple can deduct from its federal taxes some of the costs of the computers it sells to college students and faculty members. 
C) college students and faculty members have a more inelastic demand for computers than the general public. 
D) college students and faculty members typically buy more supplies from Apple (print cartridges,paper,etc. ,)than the general public.

Question 16

Which of the following is not a way by which price-discriminating firms can segment a market?

Accepted Answer

A) on the basis of time of purchase,for example long-distance calling 
B) by requiring an advance purchase,for example airline tickets 
C) on basis of the buyer's location,for example requiring out-of-state students to pay higher tuition 
D) on the basis of the supplier's marginal cost of production,for example requiring customers to pay a premium for customizing options 
A) on the basis of time of purchase,for example long-distance calling 
B) by requiring an advance purchase,for example airline tickets 
C) on basis of the buyer's location,for example requiring out-of-state students to pay higher tuition 
D) on the basis of the supplier's marginal cost of production,for example requiring customers to pay a premium for customizing options

Question 17

Plato Playhouse,a theatre company in the university town of Wegg,caters to two groups of customers: students and the non-student population.Figure 16-2 shows the demand curves for the two groups of customers.
-Refer to Figure 16-2.What is the price charged in the two markets?

Accepted Answer

A) price in the student market = price in the non-student market = Pa 
B) price in the student market = price in the non-student market = Pb 
C) price in the student market = Pd;price in the non-student market = Pe 
D) price in the student market = Pc;price in the non-student market = Pe 
A) price in the student market = price in the non-student market = Pa 
B) price in the student market = price in the non-student market = Pb 
C) price in the student market = Pd;price in the non-student market = Pe 
D) price in the student market = Pc;price in the non-student market = Pe

Question 18

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

Accepted Answer

A) True 
 B)False

Question 19

The Lizard Lounge is well known for its exotic cocktails.Figure 16-7 shows its estimated demand curve for cocktails.
-Refer to Figure 16-7.The owners of the Lizard Lounge are considering the following four pricing options: a.A single price scheme where the price of cocktails equals the monopoly price.
B.A single price scheme where the cocktail price equals the competitive price.
C.A two-part tariff: a monopoly price for cocktails and a cover charge that will generate total revenue equal to the area X.
D.A two-part tariff: a competitive price for cocktails and a cover charge that will generate total revenue equal to the area X + Y + Z.
Which scheme will earn the largest profit?

Accepted Answer

A) scheme a 
B) scheme b 
C) scheme c 
D) scheme d 
A) scheme a 
B) scheme b 
C) scheme c 
D) scheme d

Question 20

Racial discrimination and other forms of discrimination based on irrelevant factors are illegal.Can price discrimination be illegal as well?

Accepted Answer

In 1936,Congress passed the Robinson-Pat

Exam 16: Pricing Strategy

Buying at a low price in one market and reselling at a higher price in another market will

Reporters from the Wall Street Journal found that the office supply store Staples charged different prices for the same product to different online customers based primarily on

Because each customer pays according to her willingness to pay,a consumer maximizes her consumer surplus under first-degree price discrimination.

Even though it often does not result in profit maximization,some small firms use a cost-plus pricing strategy anyway because

In which market structure is it not possible to practice price discrimination?

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

A firm using a two-part tariff can produce the economically efficient outcome by

Cost-plus pricing would be consistent with selecting the profit-maximizing price when

Which of the following is necessary in order for a firm to successfully practice price discrimination?

If marginal cost is zero,with an optimal two-part tariff

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Web site and in retail stores.Apple charges lower prices to college students and faculty members because

Which of the following is not a way by which price-discriminating firms can segment a market?

Plato Playhouse,a theatre company in the university town of Wegg,caters to two groups of customers: students and the non-student population.Figure 16-2 shows the demand curves for the two groups of customers. -Refer to Figure 16-2.What is the price charged in the two markets?

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

Racial discrimination and other forms of discrimination based on irrelevant factors are illegal.Can price discrimination be illegal as well?

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

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