Question 1

In the real world,

Accepted Answer

A)  all sellers charge one price equal to the marginal cost of production. 
B)  profitable sellers will set one price based on the average elasticity of demand of buyers. 
C)  many firms charge different prices based on consumers' willingness to pay. 
D)  all sellers charge one price set by the government. 
A)  all sellers charge one price equal to the marginal cost of production. 
B)  profitable sellers will set one price based on the average elasticity of demand of buyers. 
C)  many firms charge different prices based on consumers' willingness to pay. 
D)  all sellers charge one price set by the government.

Question 2

Table 16-3
   Julie plans to start a pet-sitting service. She surveyed her neighborhood to determine the demand for this service. Assume that each person surveyed demands only one hour of pet sitting services per period. Table 16-3 above shows a portion of her survey results.
-Refer to Table 16-3. If Julie charges $10 per hour, how many hours of pet sitting services will be purchased and by whom?

Accepted Answer

A)  2 hours (1 hour by Cara and 1 hour by Dawn) 
B)  1 hour by Cara only 
C)  1 hour by Dawn only 
D)  3 hours (1 hour each by Arun, Bernice, and Cara) 
A)  2 hours (1 hour by Cara and 1 hour by Dawn) 
B)  1 hour by Cara only 
C)  1 hour by Dawn only 
D)  3 hours (1 hour each by Arun, Bernice, and Cara)

Question 3

Odd pricing became common in the late 19th century. Although the origins of odd pricing are uncertain, several explanations for the practice have been given. Which of the following is one of these explanations?

Accepted Answer

A)  Odd pricing forced employees to give customers change. This made it more likely that employees would record sales rather than pocketing their customers' money. 
B)  Odd pricing began in an era when it was difficult for owners and managers of firms to determine the marginal cost of the goods and services they sold. Odd prices were rough estimates designed to cover costs plus earn firms a profit. 
C)  Odd pricing was begun in England in the 1700s when America was part of the British Empire. Members of the British Royal Court were given the task of pricing products. After independence, merchants in the United States carried on the practice of odd pricing. 
D)  After the passage of the Sherman Act in 1890, merchants used odd pricing as a means of avoiding prosecution for antitrust violations. 
A)  Odd pricing forced employees to give customers change. This made it more likely that employees would record sales rather than pocketing their customers' money. 
B)  Odd pricing began in an era when it was difficult for owners and managers of firms to determine the marginal cost of the goods and services they sold. Odd prices were rough estimates designed to cover costs plus earn firms a profit. 
C)  Odd pricing was begun in England in the 1700s when America was part of the British Empire. Members of the British Royal Court were given the task of pricing products. After independence, merchants in the United States carried on the practice of odd pricing. 
D)  After the passage of the Sherman Act in 1890, merchants used odd pricing as a means of avoiding prosecution for antitrust violations.

Question 4

Table 16-2
   Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2. The average cost of production is constant at $2 per tube.
-Refer to Table 16-2. Which of the following statements is true about the two markets?

Accepted Answer

A)  The demand in Middle Fall is more price elastic than the demand in West Fall. 
B)  The demand in Middle Fall is less price elastic than the demand in West Fall. 
C)  The demand in Middle Fall is more income elastic than the demand in West Fall. 
D)  The demand in Middle Fall is less income elastic than the demand in West Fall. 
A)  The demand in Middle Fall is more price elastic than the demand in West Fall. 
B)  The demand in Middle Fall is less price elastic than the demand in West Fall. 
C)  The demand in Middle Fall is more income elastic than the demand in West Fall. 
D)  The demand in Middle Fall is less income elastic than the demand in West Fall.

Question 5

Figure 16-5  
-Refer to Figure 16-5. Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the monopoly price. (This is also called a two-part tariff.) What is the per-unit price?

Accepted Answer

A)  $28 
B)  $24 
C)  $12 
D)  $8 
A)  $28 
B)  $24 
C)  $12 
D)  $8

Question 6

Figure 16-2   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. Suppose Plato Playhouse charges a single price of Pd for each performance. Which of the following statements is true?

Accepted Answer

A)  The company is selling more than the profit-maximizing quantity in the non-student market and less than the profit-maximizing quantity in the student market. 
B)  The company is selling less than the profit-maximizing quantity in the non-student market and more than the profit-maximizing quantity in the student market. 
C)  The company is selling less than the profit-maximizing quantity in both markets but it is maximizing its revenue. 
D)  The company is selling less than the profit-maximizing quantity in both markets. 
A)  The company is selling more than the profit-maximizing quantity in the non-student market and less than the profit-maximizing quantity in the student market. 
B)  The company is selling less than the profit-maximizing quantity in the non-student market and more than the profit-maximizing quantity in the student market. 
C)  The company is selling less than the profit-maximizing quantity in both markets but it is maximizing its revenue. 
D)  The company is selling less than the profit-maximizing quantity in both markets.

Question 7

Why might a producer practice price discrimination?

Accepted Answer

A)  to make its products more affordable to those with low incomes 
B)  to maximize economic efficiency 
C)  to maximize profits 
D)  to maximize quantity demanded 
A)  to make its products more affordable to those with low incomes 
B)  to maximize economic efficiency 
C)  to maximize profits 
D)  to maximize quantity demanded

Question 8

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 9

A successful strategy of price discrimination requires that a firm be a price taker.

Accepted Answer

A) True 
 B)False

Question 10

Consumers who will pay high prices to be among the first to own certain new products are called

Accepted Answer

A)  savvy consumers. 
B)  naive consumers. 
C)  gullible. 
D)  early adopters. 
A)  savvy consumers. 
B)  naive consumers. 
C)  gullible. 
D)  early adopters.

Question 11

With perfect price discrimination, the marginal revenue curve

Accepted Answer

A)  is below the demand curve. 
B)  is above the demand curve. 
C)  is equal to the demand curve. 
D)  is horizontal. 
A)  is below the demand curve. 
B)  is above the demand curve. 
C)  is equal to the demand curve. 
D)  is horizontal.

Question 12

Price discrimination is possible in which of the following market structures? 
a. perfect competition
b. monopoly
c. oligopoly
d. monopolistic competition

Accepted Answer

A)  a, b, c, and d 
B)  c and d only 
C)  b and c only 
D)  b, c, and d only 
A)  a, b, c, and d 
B)  c and d only 
C)  b and c only 
D)  b, c, and d only

Question 13

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 14

Are restaurant coupons a form of price discrimination? Why or why not?

Accepted Answer

Yes, coupons are a form of price discrim

Question 15

Price discrimination is the practice of

Accepted Answer

A)  charging different prices for the same good when the price differences are not due to differences in cost. 
B)  charging different prices for the same good when the price differences arise because of differences in cost. 
C)  charging different prices for different qualities of a product. 
D)  charging higher prices for brand-named goods and lower prices for generic versions of the goods. 
A)  charging different prices for the same good when the price differences are not due to differences in cost. 
B)  charging different prices for the same good when the price differences arise because of differences in cost. 
C)  charging different prices for different qualities of a product. 
D)  charging higher prices for brand-named goods and lower prices for generic versions of the goods.

Question 16

Early adopters are consumers who will pay a high price to be among the first to own new products.

Accepted Answer

A) True 
 B)False

Question 17

Many firms use odd pricing-charging prices such as $.99 instead of $1.00 and $9.99 instead of $10.00. One reason for this pricing strategy is that consumers will somehow believe that the difference in price appears to be greater than it actually is. Researchers conducted consumer surveys to determine whether this is actually the case. What was the result of these surveys?

Accepted Answer

A)  The surveys found that small differences in price cause small differences in quantity demanded. There is no evidence that odd pricing makes economic sense. 
B)  Although the results were not conclusive, there is some evidence that odd pricing makes economic sense. 
C)  The surveys found indifference regarding this strategy among most consumers, but hostility among other consumers. The latter group resented what they viewed as an attempt to fool them into buying products with odd prices. Researchers concluded that odd pricing is counterproductive. 
D)  The survey results were inconclusive because most consumers gave unreliable responses to the survey questions. 
A)  The surveys found that small differences in price cause small differences in quantity demanded. There is no evidence that odd pricing makes economic sense. 
B)  Although the results were not conclusive, there is some evidence that odd pricing makes economic sense. 
C)  The surveys found indifference regarding this strategy among most consumers, but hostility among other consumers. The latter group resented what they viewed as an attempt to fool them into buying products with odd prices. Researchers concluded that odd pricing is counterproductive. 
D)  The survey results were inconclusive because most consumers gave unreliable responses to the survey questions.

Question 18

Which of the following is not a requirement for a successful price discrimination strategy?

Accepted Answer

A)  A firm must have market power. 
B)  The firm must be able to prevent consumers who buy a product at a low price from reselling it to other consumers at a high price. 
C)  Managers must practice yield management. 
D)  Some consumers must have greater willingness to pay for the product than other consumers, and the firm must be able to know what prices consumers are willing to pay. 
A)  A firm must have market power. 
B)  The firm must be able to prevent consumers who buy a product at a low price from reselling it to other consumers at a high price. 
C)  Managers must practice yield management. 
D)  Some consumers must have greater willingness to pay for the product than other consumers, and the firm must be able to know what prices consumers are willing to pay.

Question 19

Suppose a restaurant is trying to determine how much to charge for a bowl of chili, and decides to run an experiment to see how much its customers are willing to pay by allowing them to set their own price for this menu item.
a. Is charging a customer the price he or she is willing to pay for the bowl of chili an example of price discrimination? Briefly explain.
b. What is it called when a firm knows every consumer's willingness to pay, and can charge every consumer a different price? What happens to consumer surplus in this situation?

Accepted Answer

a. This is an example of price discrimin

Question 20

An optimal two-part tariff pricing schedule maximizes consumer surplus.

Accepted Answer

A) True 
 B)False

Exam 16: Pricing Strategy

In the real world,

Odd pricing became common in the late 19th century. Although the origins of odd pricing are uncertain, several explanations for the practice have been given. Which of the following is one of these explanations?

Table 16-2 Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2. The average cost of production is constant at $2 per tube. -Refer to Table 16-2. Which of the following statements is true about the two markets?

Figure 16-5 -Refer to Figure 16-5. Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the monopoly price. (This is also called a two-part tariff.) What is the per-unit price?

Why might a producer practice price discrimination?

A successful strategy of price discrimination requires that a firm be a price taker.

Consumers who will pay high prices to be among the first to own certain new products are called

With perfect price discrimination, the marginal revenue curve

Price discrimination is possible in which of the following market structures? a. perfect competition b. monopoly c. oligopoly d. monopolistic competition

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

Are restaurant coupons a form of price discrimination? Why or why not?

Price discrimination is the practice of

Early adopters are consumers who will pay a high price to be among the first to own new products.

Which of the following is not a requirement for a successful price discrimination strategy?

An optimal two-part tariff pricing schedule maximizes consumer surplus.

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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