Question 1

Consider the following actions undertaken by a firm:
A.charging a higher price for products of higher quality
B.charging different prices to different consumers for the same product when the variation cannot be explained by cost differences
C.charging different prices for products of different qualities
D.charging a lower price to match a competitor's price
Which of the above will be considered price discrimination?

Accepted Answer

Price discrimination refers to charging different prices to different customers for the same product, when the price difference cannot be attributed to cost differences. Option A is not price discrimination, as different quality products require different costs. Option B is price discrimination, as consumers pay different prices for the same product without any cost differences. Option C is also price discrimination, as customers pay different prices for products of different qualities, which may not justify the price difference. Option D is not price discrimination, as firms may match competitors' prices to remain competitive in the market. Therefore, the correct option is D, as only options B and D are considered price discrimination.

Question 2

Entrepreneurs who earn arbitrage profits are able to do so by extracting the total consumer surplus from buyers.

Accepted Answer

This statement is false. Entrepreneurs who earn arbitrage profits do so by taking advantage of market inefficiencies and price differences between different markets, not by extracting total consumer surplus from buyers. In fact, arbitrage opportunities often arise precisely because there is consumer surplus left over in one market due to price discrepancies or other factors. Entrepreneurs who engage in arbitrage may capture some of this surplus, but they do not necessarily extract it all from buyers.

Question 3

The following table contains the actual prices charged by four Web sites for the PlayStation 4 game Horizon Zero Dawn in October 2017.
  
Explain whether the information in this table contradicts the law of one price.

Accepted Answer

The answer of The following table contains the actual prices...

Question 4

Successful price discrimination cannot take place if

Accepted Answer

Perfectly competitive markets have identical products and perfect information, making it impossible for a firm to charge different prices to different buyers. This eliminates the possibility of successful price discrimination.

Question 5

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

Accepted Answer

The answer of Toot Sweets Bakery sells freshly baked muffins...

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

The answer of Which of the following products allows the...

Question 7

Which of the following are necessary conditions for successful price discrimination?
A.zero transactions costs
B.a perfectly competitive market structure
C.an imperfectly competitive market structure
D.at least two different markets with different price elasticities of demand
E.at least two different markets with different price elasticities of supply

Accepted Answer

Price discrimination requires an imperfectly competitive market structure (C) and at least two different markets with different price elasticities of demand (D) to charge different prices.

Question 8

Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn.Which of the following is a reason for this?

Accepted Answer

The reason most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn is because it is easier to limit resale in movie admissions but not in popcorn. This means that the theatre can control who gets the discounted tickets (such as seniors or students) and limit the number of people who benefit from the discount. However, with popcorn, anyone can buy it regardless of age or status, making it harder for the theatre to limit who gets the special pricing. Additionally, the markup on movie popcorn is typically very high, which means that the theatre would not want to forgo this source of revenue by offering discounts.

Question 9

Under what circumstances will the law of one price hold, and when might it not hold?

Accepted Answer

The answer of Under what circumstances will the law of...

Question 10

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

Accepted Answer

Price discrimination is based on charging customers different prices based on their willingness to pay, which is a rational economic decision. On the other hand, discrimination based on race or gender is based on arbitrary characteristics that have nothing to do with a person's ability to pay or consume a good or service. Discrimination based on arbitrary characteristics is illegal because it discriminates against people based on factors beyond their control.

Question 11

Are sellers who practice arbitrage taking advantage of buyers?

Accepted Answer

The answer of Are sellers who practice arbitrage taking advantage...

Question 12

The following table contains the actual prices charged by four Web sites for the 5-disc set of Finding Nemo in October 2017.
  
Explain whether the information in this table contradicts the law of one price.

Accepted Answer

The answer of The following table contains the actual prices...

Question 13

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

Accepted Answer

Price discrimination based on supplier's marginal cost of production is not a commonly used method for market segmentation. Other methods such as time of purchase, advance purchase, and buyer location are more commonly used by firms to segment the market.

Question 14

If a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations, then it is engaging in

Accepted Answer

Price discrimination refers to a firm charging different prices to different consumers for the same product, and it is not due to cost variation. This is often done to maximize profits by charging higher prices to those who are willing to pay more, while still selling to those with lower willingness to pay at a lower price. Odd pricing refers to using prices that end in odd numbers (e.g. $9.99) to make a product appear cheaper, cost-plus pricing refers to setting prices based on the cost of producing the product, and markup pricing refers to setting prices based on a percentage markup on the cost.

Question 15

Dell Computers allows potential consumers to customize personal computers to their desires.Dell's strategy is successful because offering bundles that more exactly meet a consumer's preference allows Dell to extract more consumer surplus.

Accepted Answer

The answer of Dell Computers allows potential consumers to customize...

Question 16

Charging different prices to different consumers for the same product when the price differences are not due to differences in cost is called arbitrage.

Accepted Answer

Arbitrage refers to the practice of taking advantage of a price difference between two or more markets. Charging different prices to different consumers for the same product is known as price discrimination.

Question 17

What is meant by the "law of one price"? In discussing the law of demand, Hubbard and O'Brien claim there has been only one example found of an exception to the law (that is, evidence of an upward-sloping demand curve).Are there exceptions to the law of one price?

Accepted Answer

The answer of What is meant by the "law of...

Question 18

Firms price discriminate

Accepted Answer

Firms price discriminate to increase profits by charging different prices to different customers for the same product or service.

Question 19

"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 answer of "Buy low and sell high is advice...

Question 20

Which of the following is a necessary condition for successful price discrimination?

Accepted Answer

Price discrimination is only possible when the seller has market power, meaning they have the ability to influence the price of a good or service in the market. Without market power, the seller cannot charge different prices to different groups of consumers. The other options (B, C, and D) are not necessary conditions for successful price discrimination.

Quiz 16: Pricing Strategy