Question 1

Which of the following is NOT an example of price discrimination through bundling?

Accepted Answer

A)  cable TV 
B)  a newspaper 
C)  a ticket to Disneyland 
D)  a bag of chips 
A)  cable TV 
B)  a newspaper 
C)  a ticket to Disneyland 
D)  a bag of chips

Question 2

Which of the following is NOT an example of price discrimination?

Accepted Answer

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

Question 3

Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. If the programs are sold as a bundle, what is the profit-maximizing price?

Accepted Answer

A)  $90 
B)  $100 
C)  $110 
D)  $140 
A)  $90 
B)  $100 
C)  $110 
D)  $140

Question 4

If students in the United States go online and import the much cheaper Indian version of your textbook instead of buying the American edition, how might this arbitrage nevertheless help the publisher of your textbook?

Accepted Answer

A)  It makes the prices in India and the United States more equal. 
B)  It saves money on the color ink for the graphs. 
C)  The students who go to the trouble to do this might resell the books for the higher American price and make a profit. 
D)  The students who go to the trouble to do this might have had low willingness-to-pay in the first place, so the arbitrage enables another layer of price discrimination. 
A)  It makes the prices in India and the United States more equal. 
B)  It saves money on the color ink for the graphs. 
C)  The students who go to the trouble to do this might resell the books for the higher American price and make a profit. 
D)  The students who go to the trouble to do this might have had low willingness-to-pay in the first place, so the arbitrage enables another layer of price discrimination.

Question 5

A sales manager at a car dealership revealed that he considers how much the customer appears to know about the car when he's negotiating a price. Ignorant people tend to pay a premium on their car. Price discrimination explains this "ignorance premium" since people who:

Accepted Answer

A)  don't bother to research probably don't want a car that much. 
B)  do research probably know that gas is very expensive and thus require a cheaper car. 
C)  don't bother to research are probably less sensitive to price. 
D)  do research are probably wealthier and thus less sensitive to price. 
A)  don't bother to research probably don't want a car that much. 
B)  do research probably know that gas is very expensive and thus require a cheaper car. 
C)  don't bother to research are probably less sensitive to price. 
D)  do research are probably wealthier and thus less sensitive to price.

Question 6

Which of the following is NOT an example of bundling?

Accepted Answer

A)  cell phones and phone calls 
B)  computer software 
C)  automobiles and engines 
D)  McDonald's value meals 
A)  cell phones and phone calls 
B)  computer software 
C)  automobiles and engines 
D)  McDonald's value meals

Question 7

Insurance companies charge men a higher price for automobile insurance than women. The costs of insuring men are higher because they get into more accidents than do women. Which of the following statements is TRUE?

Accepted Answer

A)  The insurance companies are practicing price discrimination. 
B)  The insurance companies are not practicing price discrimination. 
C)  The insurance companies are practicing inter-temporal price discrimination. 
D)  The insurance companies are using a bundling/tying strategy. 
A)  The insurance companies are practicing price discrimination. 
B)  The insurance companies are not practicing price discrimination. 
C)  The insurance companies are practicing inter-temporal price discrimination. 
D)  The insurance companies are using a bundling/tying strategy.

Question 8

Gillette's practice of selling razors at a relatively low cost but marking up the price significantly on its blades when Gillette razors will only work with Gillette blades is an example of:

Accepted Answer

A)  bundling. 
B)  tying. 
C)  marginal pricing. 
D)  perfect price discrimination. 
A)  bundling. 
B)  tying. 
C)  marginal pricing. 
D)  perfect price discrimination.

Question 9

Tying is uncommon.

Accepted Answer

A) True 
 B)False

Question 10

In markets with different demand curves for the same good, different prices generate less profit than a single price.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

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

Question 12

A monopolist that is able to perfectly price discriminate will end up producing a level of output:

Accepted Answer

A)  less than the efficient market output. 
B)  greater than the efficient market output. 
C)  equal to the efficient market output. 
D)  less than the level of output of a monopolist that does not price discriminate. 
A)  less than the efficient market output. 
B)  greater than the efficient market output. 
C)  equal to the efficient market output. 
D)  less than the level of output of a monopolist that does not price discriminate.

Question 13

If the demand curve for Pfizer's Norvasc, a blood pressure medication, is more elastic in Mexico than it is in the United States, how could Pfizer use this information to maximize their profits?

Accepted Answer

A)  They could segment the markets and charge a lower price for Norvasc in Mexico than in the United States. 
B)  They could segment the markets and charge a higher price for Norvasc in Mexico than in the United States. 
C)  Since Mexico is a poorer country than the United States, in this situation it makes more sense for Pfizer to charge only one price in both countries. 
D)  They could choose to sell Norvasc only in the United States. 
A)  They could segment the markets and charge a lower price for Norvasc in Mexico than in the United States. 
B)  They could segment the markets and charge a higher price for Norvasc in Mexico than in the United States. 
C)  Since Mexico is a poorer country than the United States, in this situation it makes more sense for Pfizer to charge only one price in both countries. 
D)  They could choose to sell Norvasc only in the United States.

Question 14

Hewlett Packard's pricing scheme is to sell printers at relatively low price and ink cartridges at relatively high price. This practice is known as:

Accepted Answer

A)  leverage. 
B)  predation. 
C)  retail maintenance. 
D)  tying. 
A)  leverage. 
B)  predation. 
C)  retail maintenance. 
D)  tying.

Question 15

If output increases under price discrimination, social surplus usually:

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains the same. 
D)  changes in an indeterminate direction. 
A)  increases. 
B)  decreases. 
C)  remains the same. 
D)  changes in an indeterminate direction.

Question 16

Smuggling is an example of arbitrage.

Accepted Answer

A) True 
 B)False

Question 17

Multinational pharmaceuticals within World Trade Organization countries do not price discriminate by country of sale.

Accepted Answer

A) True 
 B)False

Question 18

In industries with high fixed costs, price discrimination:

Accepted Answer

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

Question 19

If demand curves are different in two markets, it is ______ to set different prices in each market than to set a single price.

Accepted Answer

A)  less profitable 
B)  equally profitable 
C)  more profitable 
D)  unprofitable 
A)  less profitable 
B)  equally profitable 
C)  more profitable 
D)  unprofitable

Question 20

To maximize profit the monopolist should set a:

Accepted Answer

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. 
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.

Exam 14: Price Discrimination

Which of the following is NOT an example of price discrimination through bundling?

Which of the following is NOT an example of price discrimination?

Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. If the programs are sold as a bundle, what is the profit-maximizing price?

If students in the United States go online and import the much cheaper Indian version of your textbook instead of buying the American edition, how might this arbitrage nevertheless help the publisher of your textbook?

A sales manager at a car dealership revealed that he considers how much the customer appears to know about the car when he's negotiating a price. Ignorant people tend to pay a premium on their car. Price discrimination explains this "ignorance premium" since people who:

Which of the following is NOT an example of bundling?

Insurance companies charge men a higher price for automobile insurance than women. The costs of insuring men are higher because they get into more accidents than do women. Which of the following statements is TRUE?

Gillette's practice of selling razors at a relatively low cost but marking up the price significantly on its blades when Gillette razors will only work with Gillette blades is an example of:

Tying is uncommon.

In markets with different demand curves for the same good, different prices generate less profit than a single price.

A monopolist that is able to perfectly price discriminate will end up producing a level of output:

If the demand curve for Pfizer's Norvasc, a blood pressure medication, is more elastic in Mexico than it is in the United States, how could Pfizer use this information to maximize their profits?

Hewlett Packard's pricing scheme is to sell printers at relatively low price and ink cartridges at relatively high price. This practice is known as:

If output increases under price discrimination, social surplus usually:

Smuggling is an example of arbitrage.

Multinational pharmaceuticals within World Trade Organization countries do not price discriminate by country of sale.

In industries with high fixed costs, price discrimination:

If demand curves are different in two markets, it is ______ to set different prices in each market than to set a single price.

To maximize profit the monopolist should set a:

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