Question 1

How did IBM price discriminate its laser printers?

Accepted Answer

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. 
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 2

Taking advantage of price differences for the same good by buying low in one market and selling high in another market is called:

Accepted Answer

A)  sabotage. 
B)  fuselage. 
C)  arbitrage. 
D)  seigniorage. 
A)  sabotage. 
B)  fuselage. 
C)  arbitrage. 
D)  seigniorage.

Question 3

Companies rarely make money on the game consoles (for example, Xbox and PlayStation): most of the money made is from selling the games themselves, which cannot be used on other game consoles. How does this allow these companies to price discriminate?

Accepted Answer

A)  They charge more for people who like to play a lot of video games. 
B)  They charge less for people who refuse to play any video games. 
C)  They are using bundling by charging the same for a wide variety of video games. 
D)  They are using tying by charging a lot for game consoles. 
A)  They charge more for people who like to play a lot of video games. 
B)  They charge less for people who refuse to play any video games. 
C)  They are using bundling by charging the same for a wide variety of video games. 
D)  They are using tying by charging a lot for game consoles.

Question 4

Without price discrimination,:

Accepted Answer

A)  firms in industries with high fixed costs will have less incentive to innovate. 
B)  total surplus will be higher in all industries. 
C)  we would most likely see more product variation. 
D)  consumers with more elastic demands would most likely see lower prices. 
A)  firms in industries with high fixed costs will have less incentive to innovate. 
B)  total surplus will be higher in all industries. 
C)  we would most likely see more product variation. 
D)  consumers with more elastic demands would most likely see lower prices.

Question 5

Which of the following is an example of tying?

Accepted Answer

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 
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 6

Explain the two basic principles of successful price discrimination.

Accepted Answer

Principle 1: If the demand curves are di

Question 7

Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. How much more does the seller make if it bundles than if it sells the products individually?

Accepted Answer

A)  $10 
B)  $20 
C)  $30 
D)  $40 
A)  $10 
B)  $20 
C)  $30 
D)  $40

Question 8

Bundling and tying are:

Accepted Answer

A)  essentially the same practices. 
B)  different forms of price discrimination. 
C)  often done at the same time. 
D)  considered illegal in many countries. 
A)  essentially the same practices. 
B)  different forms of price discrimination. 
C)  often done at the same time. 
D)  considered illegal in many countries.

Question 9

Which of the following statements is TRUE?

Accepted Answer

A)  Successful price discrimination requires that younger people always pay more than older people. 
B)  Successful price discrimination requires that older people always pay more than younger people. 
C)  Price discrimination is a common practice. 
D)  Price discrimination is used by airlines and movie theaters infrequently. 
A)  Successful price discrimination requires that younger people always pay more than older people. 
B)  Successful price discrimination requires that older people always pay more than younger people. 
C)  Price discrimination is a common practice. 
D)  Price discrimination is used by airlines and movie theaters infrequently.

Question 10

In order for a firm to successfully use tying,:

Accepted Answer

A)  the firm must sell the base good for 50% 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. 
A)  the firm must sell the base good for 50% 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 11

In which of the following industries may price discrimination be good?

Accepted Answer

A)  industries with poor consumers 
B)  industries with high fixed costs of production 
C)  industries with low marginal costs of production 
D)  Price discrimination is never good, as it lowers total surplus in society. 
A)  industries with poor consumers 
B)  industries with high fixed costs of production 
C)  industries with low marginal costs of production 
D)  Price discrimination is never good, as it lowers total surplus in society.

Question 12

To which of the following groups would a monopolist typically charge the lowest price?

Accepted Answer

A)  individuals with a very elastic demand 
B)  individuals with a very inelastic demand 
C)  senior citizens 
D)  vacationers 
A)  individuals with a very elastic demand 
B)  individuals with a very inelastic demand 
C)  senior citizens 
D)  vacationers

Question 13

Use the following to answer questions:
Figure: Price-Discriminating Monopolist  
-(Figure: Price-Discriminating Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets-Market A and Market B-if the monopolist were to charge a uniform price PU between the two markets, in which range would the price fall?

Accepted Answer

A)  $6 U U U U < $14 
A)  $6 U U U U < $14

Question 14

Price discrimination may be:

Accepted Answer

A)  good in industries with high fixed costs. 
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. 
A)  good in industries with high fixed costs. 
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 15

Perfect price discrimination is always bad, while imperfect price discrimination can be either good or bad.

Accepted Answer

A) True 
 B)False

Question 16

Use the following to answer questions:
Figure: Monopolist  
-(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets-Market A and Market B-what price should the monopolist charge in Market A?

Accepted Answer

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

Question 17

Jonathan values Word at $100 and Excel at $90, and Ashley values Word at $80 and Excel at $60. Why does bundling fail to raise the seller's profits in this case?

Accepted Answer

A)  Jonathan's and Ashley's values for Word and Excel are negatively correlated. 
B)  Jonathan's and Ashley's values for Word and Excel are positively correlated. 
C)  Word and Excel don't work well with each other. 
D)  Word and Excel are valued highly even when bought separately. 
A)  Jonathan's and Ashley's values for Word and Excel are negatively correlated. 
B)  Jonathan's and Ashley's values for Word and Excel are positively correlated. 
C)  Word and Excel don't work well with each other. 
D)  Word and Excel are valued highly even when bought separately.

Question 18

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 monopolist produces until price equals marginal cost.

Accepted Answer

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

Question 19

Which of the following would be most difficult to arbitrage?

Accepted Answer

A)  pharmaceutical drugs 
B)  automobiles 
C)  aluminum 
D)  tax preparation services 
A)  pharmaceutical drugs 
B)  automobiles 
C)  aluminum 
D)  tax preparation services

Question 20

It is easier to price discriminate on services than on goods.

Accepted Answer

A) True 
 B)False

Exam 14: Price Discrimination

How did IBM price discriminate its laser printers?

Taking advantage of price differences for the same good by buying low in one market and selling high in another market is called:

Companies rarely make money on the game consoles (for example, Xbox and PlayStation): most of the money made is from selling the games themselves, which cannot be used on other game consoles. How does this allow these companies to price discriminate?

Without price discrimination,:

Which of the following is an example of tying?

Explain the two basic principles of successful price discrimination.

Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. How much more does the seller make if it bundles than if it sells the products individually?

Bundling and tying are:

Which of the following statements is TRUE?

In order for a firm to successfully use tying,:

In which of the following industries may price discrimination be good?

To which of the following groups would a monopolist typically charge the lowest price?

Price discrimination may be:

Perfect price discrimination is always bad, while imperfect price discrimination can be either good or bad.

Use the following to answer questions: Figure: Monopolist -(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets-Market A and Market B-what price should the monopolist charge in Market A?

Jonathan values Word at $100 and Excel at $90, and Ashley values Word at $80 and Excel at $60. Why does bundling fail to raise the seller's profits in this case?

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 monopolist produces until price equals marginal cost.

Which of the following would be most difficult to arbitrage?

It is easier to price discriminate on services than on goods.

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters