Deck 14: Labor Markets and Income

Question 1

(Figure: Market for Lithotripters) Refer to the figure.Suppose that a German manufacturer can sell its kidneylithotripter in two markets: Country X and Country Y. If thisfirm is interested in maximizing profits, it should set a price of________ in Country X and ________ in Country Y.

A)d; z
B)b; d
C)b; z
D)a; d

Answer 1

C

Question 2

(Figure: Monopolist) Refer to the figure. Based on the demandcurves for a monopolist's product in two different markets-Market A and Market B-if the monopolist were to charge auniform price PU between the two markets, that price wouldfall in what range?

A)$5 < PU < $9
B)$5 < PU < $10
C)$9 < PU < $10
D)$7 < PU < $10

Answer 2

C

Question 3

Price discrimination is defined as selling:

A)the same products at the same prices to the same customers.
B)different products at the different prices to the same customers.
C)the same product at different prices to different customers.
D)different products at the same prices to different customers.

Answer 3

C

Question 4

After a severe hurricane in South Carolina, the price ofelectric generators quadrupled. People living outside of SouthCarolina purchased electric generators in their home statesand drove them to South Carolina to sell at a much higherprice. What is this an example of?

A)arbitrage
B)perfect price discrimination
C)price gouging
D)marginal-price geography

Question 5

(Figure: Monopolist) Refer to the figure. Based on the demandcurves for a monopolist's product in two different markets-Market A and Market B-what price should the monopolistcharge in Market A?

A)$5
B)$10
C)$7
D)any price higher than $10.

Question 6

Which of the following is NOT a principle of pricediscrimination?

A)It is more profitable to set different prices in markets with different demand curves than a single price that covers all
Markets.
B)To maximize profit the firm should set a higher price in markets with more elastic demand.
C)To maximize profit the firm should set a higher price in markets with more inelastic demand.
D)Arbitrage makes it difficult for a firm to set different prices in different markets thereby reducing the profit from price
Discrimination.

Question 7

Figure: Monopolist (Figure: Monopolist) Refer to the figure. Based on the demandcurves for a monopolist's product in two different markets-Market A and Market B-what price should the monopolistcharge in Market B?

A)$9
B)$5
C)$7
D)any price higher than $5.

Question 8

Pfizer sells Atgam in New Zealand for $14/pill and Brazil for$8/pill. This implies that the demand curve in New Zealandmust be ________ than in Brazil.

A)more inelastic
B)less inelastic
C)more elastic
D)closer to perfectly elastic

Question 9

Which of the following statements is FALSE?
I) If the demand curves are different, it is more profitable toset a single price than different prices in markets
II)To maximize profit the firm should set a lower price inmarkets with more elastic demand
III) The presence of arbitrage makes it easy for a firm to pricediscriminate.

A)I and II only
B)II only
C)III only
D)I and III only

Question 10

(Figure: Monopolist) Refer to the figure. Based on the demandcurves for a monopolist's product in two different markets-Market A and Market B-through the process of pricediscrimination, how much profit is the monopolist making inMarket A?

A)$270
B)$450
C)$830
D)$627.50

Question 11

An important lesson of price discrimination is that:

A)price discrimination will always lead to lower profits in one of the two markets.
B)firms can increase profits by differentiating their product attributes.
C)all firms can perfectly price discriminate.
D)it only increases profits when the demand curves in two different markets are not the same.

Question 12

(Figure: Monopolist) Refer to the figure. Based on the demandcurves for a monopolist's product in two different markets-Market A and Market B-if the monopolist were to charge auniform price of $10 in both markets, how much profit wouldthe monopolist lose?

A)$234.75
B)$146.25
C)$48.75
D)$97.50

Question 13

The chapter opens with a story about GlaxoSmithKline (GSK)and Combivir, the anti-AIDS drug. What was one of thereasons that GSK was selling Combivir for such low prices inAfrica as compared to Europe?

A)It is much cheaper to produce the drug in Africa than in Europe.
B)Government regulations in Europe forced it to charge higher prices.
C)African governments imposed price ceilings.
D)Lower prices were charged for humanitarian reasons.(True Answer )Correct

Question 14

Price discrimination is used when a seller faces differentdemand curves in different markets because:

A)no other pricing methods are feasible.
B)the practice eliminated waste.
C)profits are greater than selling at a single price.(True Answer )Correct
D)profits are less than when selling at monopoly prices.

Question 15

(Figure: Price Discriminating Monopolist) Refer to the figure.Based on the demand curves for a monopolist's product in twodifferent markets-Market A and Market B-if themonopolist were to charge a uniform price PU between the twomarkets, that price would fall in what range?

A)$6 < PU < $14
B)$6 < PU < $10
C)$10 < PU < $16
D)$10 < PU < $14

Question 16

A museum in Russia has two entrances: one for locals (writtenin Russian) and one for tourists (written in English). Peoplewho enter through the entrance written in Russian will end uppaying 81.93 Rubles ($3.00). English-speaking tourists will usethe entrance written in English, but they will end up paying 409.67 Rubles ($15.00). This practice is an example of:

A)price manipulation.
B)price exploitation.
C)international price mediation.
D)price discrimination.

Question 17

(Figure: Monopolist) Refer to the figure. Based on the demandcurves for a monopolist's product in two different markets-Market A and Market B-through the process of pricediscrimination, how much profit is the monopolist making inMarket B?

A)$260
B)$780
C)$1,040
D)$520

Question 18

Price discrimination can be defined as:

A)selling different products to the same consumers in the same market.
B)selling the same product in two different markets.
C)selling the same product at two different prices in two different markets.
D)exporting goods to foreign countries.

Question 19

To maximize profit the monopolist should set a:

A)lower price in markets with less elastic demand.
B)lower price in markets with more inelastic demand.
C)higher price in markets with more elastic demand.
D)higher price in markets with more inelastic demand.(True Answer )Correct

Question 20

To maximize profit GlaxoSmithKline sets a higher price forCombivir in Europe than in Africa because demand curve inAfrica is:

A)lower and more inelastic.
B)lower and more elastic.
C)higher and more inelastic.
D)higher and more elastic.

Question 21

For price discrimination to work, the young should ________than/to the old.

A)be charged less for a product
B)be charged more for a product
C)sometimes be charged more and sometimes charged less
D)be charged a price equal to the marginal cost

Question 22

Arbitrage prevention is:

A)always easy to achieve.
B)not necessary to practice price discrimination.
C)easier in the case of selling services.
D)easier in the case of selling goods.

Question 23

Which of the following is a real example of pricediscrimination?

A)Airlines set different prices for business people and vacationers.
B)Publishers charge high prices on hardback and low price on paperback books.
C)IBM's regular version of a printer that prints at 10 pages per minute is more expensive than the Series E that prints five
Pages per minute.
D)All of these examples are real.

Question 24

Rohm and Haas were considering:

A)putting arsenic in its plastics to prevent it from being resold to dentists.
B)dyeing all of its women's underwear pink so that fewer men would buy it.
C)charging the Pentagon 500 times the going market price for Styrofoam cups.
D)declaring bankruptcy to sell its granite countertops below the government mandated minimum price.

Question 25

Which of the following is the main principle behind pricediscrimination?

A)If the demand curves are different, it is more profitable to set different prices in different markets than a single price that
Covers all markets.
B)To maximize profit the firm should set a higher price in markets with more inelastic demand.
C)Arbitrage makes it difficult for a firm to set different prices in different markets thereby reducing the profit from price
Discrimination.
D)All of the answers are correct.

Question 26

In general, price discrimination exists because:

A)higher prices are required when costs are higher.
B)lower prices are possible when profits are not a goal of the entrepreneur.
C)higher prices are charged because some customers are willing to pay more.
D)lower prices encourage arbitrage.

Question 27

To maximize profit using the practice of price discrimination,firms set different prices according to the characteristics thatare correlated with buyers':

A)age.
B)purpose of consumption.
C)income.
D)willingness to pay.

Question 28

Which of the following is NOT an easy way to split markets inorder to practice price discrimination?

A)using age of customers
B)releasing different versions of a product over time
C)relying on the self-reported marital status of customers
D)using characteristics that are correlated with a consumer's willingness to pay

Question 29

Which of the following is the fundamental condition thatwould allow a firm to practice price discrimination?

A)All customers possess identical willingness to pay for the product.
B)The good can be purchased at one market and resold at another market.
C)There are two or more different demand curves for the good.
D)Demand for the good is high.

Question 30

How did IBM price discriminate its laser printers?

A)IBM provided special financing terms to different customers.
B)IBM offered two different printers: a fast printer and a slow printer.
C)IBM offered printers in different colors.
D)IBM charged seniors lower prices than businesses.

Question 31

A subtle form of price discrimination is for firms to offer:

A)the same version of a product for the purpose of separating customers into different markets.
B)the same version of a product for the purpose of separating customers into the same market.
C)different versions of a product for the purpose of separating customers into different markets.
D)different versions of a product for the purpose of separating customers into the same market.

Question 32

One would expect more arbitrage to occur between twomarkets if:

A)the products are differentiated in terms of their fundamental characteristics.
B)the products have built in tracking mechanisms that enable the discovery of the distributors.
C)the demand curves in the two markets are essentially the same.
D)products are non-differentiated and the different markets have good transportation networks between them.(True
Answer )Correct

Question 33

Which of the following would be an effective method for firmsto ensure profit from price discrimination when the possibilityof arbitrage exists?

A)set a single price for all markets
B)supply products only to one market
C)make products sold to each market have an exclusive feature
D)request law enforcement to eliminate the possibility of arbitrage

Question 34

Which of the following conditions would prevent a firm fromsetting different prices in different markets?

A)possibility of arbitrage for buyers between different markets
B)law enforcement preventing smuggling from occurring
C)government intervention forcing the firm to reduce the level of output
D)government imposition of a price ceiling

Question 35

Which of the following does not practice price discriminationon a regular basis?

A)universities
B)farmers
C)movie theaters
D)airline companies

Question 36

Airlines try to differentiate their customers by willingness topay based on:

A)how long in advance a person books their flight.(True Answer )Correct
B)a person's weight.
C)the ethnicity of a person's last name.
D)All of the answers are correct.

Question 37

Which of the following lists of products and services would bethe most resistant to arbitrage?

A)gasoline, movie tickets, consumer bleach
B)dental root canals, haircuts, and cosmetic surgery (True Answer )Correct
C)third party car stereos, full-service restaurant meals, and novels
D)computer software, computer hardware, and tickets to sporting events

Question 38

Which of the following is an example of price discrimination?

A)value meals at fast-food restaurants
B)senior citizen discounts
C)tax-exempt status for non-profit organizations
D)holiday sales at retail stores

Question 39

Which of the following statements is TRUE regardingarbitrage?

A)It is easier to prevent arbitrage for some products than for others.
B)The U.S.Constitution prevents the government from engaging in arbitrage prevention.
C)Arbitrage may increase the profits for firms, depending on the elasticity of demand in the market.
D)Firms will still be able to price discriminate across markets even when arbitrage is present.

Question 40

Which of the following is an example of price discrimination?

A)You pay less for a movie ticket if you show your student ID.
B)Business travelers pay more for airline tickets.
C)Faculty members pay less for computers they order on Apple's Web site.
D)All of the answers are correct.

Question 41

What is perfect price discrimination?

A)This occurs when a seller charges each separate consumer an amount that is exactly equal to his or her maximum
Willingness to pay.
B)This occurs when a seller is able to charge two different prices in different markets.
C)This occurs when consumer surplus is maximized in a given market.
D)All of the answers are correct.

Question 42

(Figure: PPD Monopolist) Refer to the figure. A monopolistwho cannot price discriminate earns profit equal to area(s)________, and a monopolist practicing perfect pricediscrimination earns profit equal to areas ________.Figure: PPD Monopolist

A)b; ab
B)ab; abc
C)b; abc
D)b; bc

Question 43

Which of the following is NOT an example of pricediscrimination?

A)children's menus in restaurants
B)peak and non-peak rates for cell phone usage
C)product innovations leading to lower prices
D)standby seats sold last minute by airlines

Question 44

(Figure: PPD) Refer to the figure. Which of the followingstatements best explains why a firm that perfectly pricediscriminates would sell additional units beyond c units ofoutput?

A)If the firm can perfectly price discriminate it can charge a price equal to the consumers' willingness to pay, which for all
Units beyond c is higher than the firm's marginal cost for those
Units.
B)The firm will continue to increase profits as long as consumers' willingness to pay is greater than zero.
C)A firm will not sell beyond c units of output.The marginal cost is greater than consumers' willingness to pay for these
Units.
D)A firm will not sell beyond c units of output.The marginal cost is greater than the firm's marginal revenue for these
Units.

Question 45

Which of the following statements is TRUE?
I) Perfect price discrimination maximizes consumer surplus
II)Perfect price discrimination maximizes gains from trade
III) Under perfect price discrimination, the monopolistproduces until price equals marginal cost.

A)I only
B)I and II only
C)II and III only
D)I, II, and III

Question 46

(Figure: PPD) Refer to the figure. A firm that perfectly pricediscriminates will sell:

A)a units of output.
B)b units of output.
C)c units of output.
D)d units of output.

Question 47

Which of the following conditions must be TRUE for perfectprice discrimination?
I) The seller must have very good information about thebuyer's willingness to pay
II)Marginal revenue must equal demand
III) The marginal cost of production must be constant.

A)I only
B)I and II only
C)I and III only
D)I, II, and III.

Question 48

Which of the following is a necessary condition for perfectprice discrimination?

A)The firm must have very good information about its customers.
B)The firm can only have one market.
C)The demand curve for the product must be inelastic.
D)The firm must have no competition.

Question 49

Corresponding to the practice of price discrimination,Williams College offers different levels of financial aid tostudents based on students':

A)age.
B)family income.
C)high school GPA.
D)ACT/SAT scores.

Question 50

Why is student financial aid a profit-maximizing decision foruniversities?

A)because universities only give financial aid to a very small number of students
B)because as long as the students on financial aid pay some amount that is still greater than the marginal cost of attending
The classes, the university still gains positive marginal
Profit
C)because the university is able to charge no more than a dollar over the marginal cost of attending classes
D)because the university gains goodwill by providing financial aid

Question 51

Williams College used ________ as a means to ________.

A)student financial aid; price discriminate (True Answer )Correct
B)payroll deductions; lower tuition
C)its nonexempt tax status; raise tuition
D)government subsidies; increase profits

Question 52

A perfect price-discriminating seller:

A)cannot prevent arbitrage.
B)charges a single price.
C)maximizes consumer surplus.
D)eliminates deadweight loss.

Question 53

To perfectly price discriminate, a firm must have fullinformation of:

A)efficient level of output.
B)market price.
C)total cost of production.
D)every customer's willingness to pay.

Question 54

Which of the following regarding the outcome of perfect pricediscrimination is true?

A)Consumer surplus increases.
B)Deadweight loss increases.
C)Producer surplus increases.
D)The economy becomes more efficient.

Question 55

(Figure: Perfect Price Discrimination) Refer to the figure.Which curve represents the Marginal Revenue (MR) curve forthe monopolist who practices perfect price discrimination?

A)the marginal cost curve
B)the demand curve
C)the average cost curve
D)a downward sloping line that lies beneath the demand curve.

Question 56

(Figure: PPD) Refer to the figure. Which of the followingstatements best explains why a firm that perfectly pricediscriminates would sell additional units beyond a units ofoutput?

A)A firm will not sell beyond a units of output.The firm will only sell exactly a, as it is the profit-maximizing rate of output
For this firm.
B)The marginal cost is less than consumers' willingness to pay for these units.
C)The marginal cost is greater than consumers' willingness to pay for these units.
D)A firm will not sell beyond a units of output, since the marginal cost is greater than the marginal revenue for these
Units.

Question 57

Using a strategy of price discrimination, a firm can increase itsprofits by offering lower prices to its customers who arewilling to pay above the firm's:

A)average costs.
B)marginal costs.
C)fixed costs.
D)total costs.

Question 58

Charging each customer his or her maximum willingness topay is:

A)unethical.
B)perfect price discrimination.
C)not a profit-maximizing strategy.
D)impossible in practice.

Question 59

A top-performing used-car salesman is able to sell his cars toeach customer at their maximum willingness to pay, a practiceknown as:

A)insightful pricing.
B)pricing market-to-market.
C)perfect price discrimination.
D)price tying.

Question 60

A perfectly price discriminating monopolist produces until:

A)P = MC.
B)MR = MC.
C)P = MR.
D)MR = AC.

Question 61

Price discrimination is considered bad when ________, butgood when ________.

A)it increases output; it decreases output
B)it decreases output; it increases output (True Answer )Correct
C)it increases deadweight loss; it decreases deadweight loss
D)it increases prices; it decreases prices

Question 62

Why would firms use the practice of tying?

A)It allows firms to tie goods that are highly valued together with goods that are not highly valued, hence increasing profits
For firms.
B)It is a way to force consumers to buy more than what they would without tying.
C)It is a subtle way to raise prices for those consumers who have a low willingness to pay.
D)It is a subtle way to charge higher prices to those consumers with a high willingness to pay, and a lower price to consumers
With a low willingness to pay.

Question 63

The difference between tying and bundling in pricingstrategies is that:

A)they both are strategies that firms use to maximize profit.
B)tying does not require the purchase of both goods, but bundling does.
C)tying involves the combination of goods that are complements, whereas bundling involves the combination of
Substitutes.
D)tying does not lead to as much profit as bundling does.

Question 64

Which of the following statements is TRUE about pricediscrimination?

A)Price discrimination makes consumers worse off due to higher prices.
B)Price discrimination leads to deadweight loss and therefore makes the market less efficient.
C)Price-discriminating monopolists often produce more output than single-price monopolists and increase total
Surplus in the process.
D)Price discrimination is illegal in the United States.

Question 65

The Gillette Fusion razor sells for approximately $10.00, and afour-set of replacement blades sells for over $8. Which of thefollowing statements is TRUE?
I) Consumers with a high willingness to pay for being clean-shaven will buy many replacement blades
II)Consumers with a low willingness to pay for being clean-shaven will rarely buy replacement blades
III) Gillette's high price for the replacement blades is amethod to extract consumer surplus from those consumerswith a high desire to be clean shaven.

A)I and II only
B)II and III only
C)III only
D)I, II, and III

Question 66

Pharmaceuticals with high fixed costs can benefit with thepractice of price discrimination because:

A)high fixed costs create incentive for pharmaceuticals to sell more.
B)charging different prices to different customers generates different levels of fixed costs.
C)profit from customers paying high prices allows pharmaceuticals to cover part of the fixed costs.
D)extra profit from customers paying low prices allows pharmaceuticals to cover part of the fixed costs.(True Answer
)Correct

Question 67

Which of the following statements is TRUE?
I) People with common diseases live longer than people withrarer diseases
II)Developing drugs for common diseases is a lot lessexpensive than developing drugs for rare diseases
III) It is more profitable to make drugs for common diseasesbecause the market is bigger than it is for rare diseases.

A)I and II only
B)I and III only
C)II only
D)III only

Question 68

Perfectly price discriminating monopolists charge:

A)each consumer his or her maximum willingness to pay, so consumer surplus is zero.
B)all consumers the average of their willingness to pay, so consumer surplus is maximized.
C)each consumer his or her maximum willingness to pay, so consumer surplus is maximized.
D)all consumers the average of their willingness to pay, so consumer surplus is zero.

Question 69

Which of the following is an example of tying?

A)restrictions that prohibit patrons from bringing their own wine to restaurants
B)set menus at a restaurant
C)buy-one-get-one-free offers
D)―value meals‖ at fast-food restaurants

Question 70

Tying is a form of price discrimination in which one good,called the ________ is tied to a second good called the________.

A)base good; variable good
B)physical; service good
C)physical good; nonphysical good
D)mother good; spawned good

Question 71

Price discrimination may be:

A)good in industries with high fixed costs.(True Answer )Correct
B)good in industries with high marginal costs.
C)less efficient if the number of consumers in the market is low.
D)less efficient if it leads to higher prices.

Question 72

Which of the following is NOT an example of tying?

A)game consoles and game cartridges
B)cell phones and phone calls
C)printers and print cartridges
D)automobiles and engines

Question 73

Tying is:

A)the practice of a firm selling one product that requires the consumer to purchase another of the firm's products.(True
Answer )Correct
B)the practice of buying one unit at full price and the second unit at half off.
C)the same thing as buy one get one free.
D)the practice of a firm's paying the sales tax in exchange for a consumer's purchase of an extended warranty.

Question 74

Total surplus increases with practice of price discriminationonly if:

A)consumer surplus increases.
B)producer surplus increases.
C)price increases.
D)output increases.

Question 75

Suppose that GSK sells one of its drugs for $25/pill in theUnited States and $13/pill in Canada. Which of the followingstatements is true?
I) The price discrimination benefits the Canadians since theypay a lower price
II)The price discrimination benefits the Americans sinceGSK's larger profits means more research and development ofnew drugs for Americans
III) Price discrimination is beneficial in industries with largefixed costs, since price discrimination increases the size of themarket, helping to spread large costs over a greater number ofconsumers.

A)I only
B)I and II only
C)I and III only
D)I, II, and III

Question 76

Consumers are ________ with price discrimination than withsingle-pricing.

A)always better off
B)sometimes better off
C)never better off
D)neither better off nor worse off

Question 77

Tying is:

A)the practice of selling complement goods together.
B)a way for firms to lower costs.
C)a type of price discrimination.
D)typically easy to spot.

Question 78

In order for a firm to successfully use tying:

A)the firm must sell the base good for 50 percent more than the second good.
B)the firm must sell the base good at a lower price than the second good.
C)the firm must charge the same price for the base good and the second good.
D)it must be difficult for other firms to sell the second good.

Question 79

Price discrimination is:

A)always better than single pricing.
B)always worse than single pricing.
C)sometimes better and sometimes worse than single pricing.
D)illegal in many countries.

Question 80

In industries with high fixed costs, price discrimination:

A)is less common.
B)helps firms access more markets.
C)cannot help firms cover fixed costs.
D)is not practiced internationally.