Question 1

The law of one price holds exactly only if

Accepted Answer

The law of one price holds exactly when there are no transaction costs, as this allows for arbitrage opportunities to equalize prices across markets.

Question 2

The law of one price states

Accepted Answer

The law of one price asserts that identical products should sell for the same price in different locations when prices are expressed in a common currency, assuming no transportation costs and no differential taxes. This principle underlies the concept of purchasing power parity in international finance.

Question 3

Laila buys a Spider -Man 3 poster from Edward for $30 and resells it on eBay for $60. Which of the following statements is false?

Accepted Answer

Edward selling the poster for $30 does not necessarily mean he is worse off; he may have acquired it for less than $30, thus still earning a profit or producer surplus.

Question 4

Table 12-1 shows the price for the novel, Harry Potter and The Deathly Hallows at four online bookstores.
-Refer to Table 12 -1. Which of the following can one conclude from the data above?

Accepted Answer

The variation in price among different stores for a similar item suggests differences in service quality, delivery time, or other factors that could justify the price differences, rather than indicating clear evidence of price discrimination or deliberate underpricing strategies.

Question 5

The Opera Theatre sells play 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

The answer of The Opera Theatre sells play tickets for...

Question 6

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

Accepted Answer

Price discrimination is legal because it is based on economic factors like willingness to pay, rather than arbitrary characteristics like race or gender, which are protected under anti-discrimination laws.

Question 7

Taj Almolok Sweets Bakery sells freshly baked muffins from 6.30 am at $1.20 per muffins. By 4 pm in the afternoon, the remaining muffins are marked down to $0.60 each. Which of the following statements is true?

Accepted Answer

Taj Almolok Sweets is marking down the price of muffins later in the day to sell remaining stock, which helps minimize losses from unsold inventory.

Question 8

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

Accepted Answer

The primary reason long-distance calls are more expensive during weekdays between 8 am and 5 pm is due to the inelastic demand from businesses that need to communicate with suppliers or customers during standard business hours. They have fewer alternatives during these times, leading to higher prices.

Question 9

From an economic perspective, price discrimination is desirable because

Accepted Answer

Price discrimination allows firms to capture more consumer surplus by charging different prices to different consumers based on their willingness to pay. This can lead to increased profits without a loss in economic surplus. These higher profits can incentivize firms to innovate, potentially leading to beneficial product innovations.

Question 10

When colleges use yield management techniques, they

Accepted Answer

Yield management in colleges involves adjusting financial aid offers based on the price sensitivity (elasticity) of students' demand for education. Students more sensitive to price changes (more price elastic) receive higher financial aid offers to encourage their enrollment, while those less sensitive (less price elastic) receive lower offers. This strategy aims to maximize enrollment and revenue.

Question 11

Jannah is a marketing consultant. Irene and Dalia are potential customers interested in commissioning Jannah to undertake a market survey and compile the findings in a report. Irene is willing to pay $500 for the service while Dalia is willing to pay $800. Suppose that the opportunity cost of Jannah's time is $1,200. Assume that Irene and Dalia do not know each other. If Jannah charges the same price per copy to both Irene and Dalia,

Accepted Answer

Since Jannah's opportunity cost is $1,200, and neither Irene ($500) nor Dalia ($800) is willing to pay that amount or more, Jannah would not undertake the job as it does not cover her opportunity cost.

Question 12

Jannah is a marketing consultant. Irene and Dalia are potential customers interested in commissioning Jannah to undertake a market survey and compile the findings in a report. Irene is willing to pay $500 for the service while Dalia is willing to pay $800. Suppose that the opportunity cost of Jannah's time is $1,200. Assume that Irene and Dalia do not know each other. If the price is $500 per copy,

Accepted Answer

Jannah's opportunity cost is $1,200, which is higher than what both Irene ($500) and Dalia ($800) are willing to pay. Therefore, even though both might want her services at their respective prices, Jannah would not find it worthwhile to undertake the job since the payment does not cover her opportunity cost.

Question 13

Jannah is a marketing consultant. Irene and Dalia are potential customers interested in commissioning Jannah to undertake a market survey and compile the findings in a report. Irene is willing to pay $500 for the service while Dalia is willing to pay $800. Suppose that the opportunity cost of Jannah's time is $1,200. Assume that Irene and Dalia do not know each other. If the price is $800 per copy,

Accepted Answer

Jannah's opportunity cost is $1,200, which is higher than the $800 Dalia is willing to pay, so Jannah will not undertake the job.

Question 14

Jannah is a marketing consultant. Irene and Dalia are potential customers interested in commissioning Jannah to undertake a market survey and compile the findings in a report. Irene is willing to pay $500 for the service while Dalia is willing to pay $800. Suppose that the opportunity cost of Jannah's time is $1,200. Assume that Irene and Dalia do not know each other Which of the following statements is true?

Accepted Answer

Jannah maximizing economic surplus means charging each customer their maximum willingness to pay, which is $500 for Irene and $800 for Dalia, totaling $1300, exceeding the opportunity cost of $1200.

Question 15

In Bahrain, the famous Australian casual restaurant, The Crepe Café, offers a lunch menu that has exactly the same meals as the dinner menu but at much lower prices. The same pricing strategy is applied by Applebees, Steak House, and some Indian restaurants across the Gulf region. Based on the information above, what can you conclude about the price elasticity of demand for going out for dinner?

Accepted Answer

The fact that restaurants offer the same meals at lower prices for lunch than for dinner suggests that demand for dinner is less elastic. This means customers are less sensitive to price changes for dinner, allowing restaurants to charge more during dinner times.

Question 16

At The Crepe Café in Bahrain, the regular dinner main course costs on average 3.2 Bahrain dinars (BHD) (US$1 = 0.377), with an additional BHD1.2 for a salad and a soft drink. But if you go to The Crepe Café at lunchtime, between 11 and 3, you will get the same main course, a salad, and a soft drink for only BHD2.9.

Accepted Answer

The information provided suggests that The Crepe Café offers a lower price for the same meal during lunch hours to attract more customers, which implies that customers have a high elasticity of demand during these hours. There's no indication that the quantity or quality of food changes.

Question 17

Some consumer electronic products such as plasma TVs, DVD players and digital cameras, are introduced at very high prices but over time, their prices start falling (beyond what could be attributed to falling costs as companies take advantage of economies of scale and cheaper technologies) . Which of the following is the best explanation for this observation?

Accepted Answer

After the initial demand from early adopters is met, companies lower prices to attract a broader, more price-sensitive consumer base.

Question 18

Some Arab countries established governmental agencies that aim at protecting the markets from illegal price discrimination practices because

Accepted Answer

All the choices provided are reasons why some Arab countries have established governmental agencies to protect markets from illegal price discrimination practices. These agencies aim to prevent monopolistic practices, ensure competition is not reduced, and promote a competitive economic environment based on free and fair competition principles.

Question 19

Fullah Playhouse, a theatre company in Kuwait city, caters to two groups of customers: students and the non-student population. Figure 12-2 shows the demand curves for the two groups of customers.
-Refer to Figure 12 -2. Suppose Fullah Playhouse price discriminates. Which of the following statements is true?

Accepted Answer

Price discrimination allows the theatre company to capture more consumer surplus by charging higher prices to those willing to pay more, effectively subsidizing lower prices for those less willing to pay.

Question 20

Fullah Playhouse, a theatre company in Kuwait city, caters to two groups of customers: students and the non-student population. Figure 12-2 shows the demand curves for the two groups of customers. -Refer to Figure 12 -2. Suppose Fullah Playhouse charges a single price of P_dfor each performance. Which of the following statements is true?

Accepted Answer

The answer of  Fullah Playhouse, a theatre company in...

Quiz 12: Pricing Strategy