Economic

Q: The federal government often gives out tax credits for individuals who purchase fuel-efficient or electric vehicles. A car dealership, which attempts perfect price discrimination, would respond to this knowledge by a. targeting the same price since the individual must like the car, with or without the tax credit. b. targeting a lower price. The buyer needed an incentive in order to purchase the vehicle, so it can be assumed that the individual is more demand-elastic. c. targeting a higher price. The tax credit increases the buyers maximum willingness to pay. d. targeting the same price because theres no way for the dealership to know who has the tax credit and who doesnt. e. increasing the sticker price on all of its vehicles by the amount of the tax credit.

Q: In the context of this chapter, how can price discrimination increase profits for firms and increase the welfare of society? a. It cant; those are two mutually exclusive goals. b. When firms earn higher profits, governments collect additional tax revenue. c. When firms earn higher profits, they are able to employ more workers, leading to a more prosperous economy. d. Firms are able to capture more revenue by selling their product to more consumers, which means that more buyers are able to acquire a desired product. e. It cant; welfare-minded societies tend to overregulate business profits.

Q: If total welfare is equal to the entire area under the demand curve, what other information do we know with certainty? a. Consumer surplus is maximized. b. Producer surplus is maximized. c. Deadweight loss is zero. d. Consumer surplus is equal to producer surplus. e. A firm has achieved perfect price discrimination.

Q: The study of price discrimination is both interesting and complex because a. there is no single model that represents how it is practiced in each firm or industry. b. the single model that represents all price discrimination allows economists to delve more deeply into practical analysis. c. monopolies are often shrouded in mystery and this practice opens a window into their day-to-day operations. d. students of economics can relate to the examples, but arent able to easily calculate how price discrimination is beneficial. e. the consumer or the producer has the potential to maximize surplus, leading to rigorously debated social concerns.

Q: When economists use the word perfect, what does it indicate about the outcome of a market? a. Deadweight gains are maximized and marginal output is equal to zero. b. Consumer surplus is maximized and economic growth results from accelerated consumer spending. c. Producer surplus is minimized because society is harmed by excessive firm profits. d. Social welfare is maximized, resulting from an absence of deadweight loss. e. Producer surplus and consumer surplus are exactly equal.

Q: ________ maximizes the quantity of goods sold because it matches each consumer with his or her willingness to pay.a. Perfect price discrimination b. Monopolistic competition c. Total surplusd. Marginal coste. Deadweight gain

Q: A common feature among perfect competition and perfect price discrimination is the elimination ofa. deadweight loss. b. consumer surplus. c. producer surplus.d. market efficiency.e. social welfare.

Q: ________ transfers the consumer surplus under perfect competition to the producer.a. Monopolistic competitionb. Deadweight loss c. Social welfared. Profit maximizinge. Perfect price discrimination

Q: Despite the fact that a single price can provide ________ for both producer and consumer, it causes ________, resulting from market inefficiency. a. surplus; deadweight loss b. deadweight loss; surplus c. price discrimination; producer surplus d. price discrimination; consumer surplus e. competition; misallocation

Q: Airlines have first-class or business-class seating, for which customers pay a higher price to receive more room, extra amenities, and more attentive service. Would this illustrate price discrimination? a. No, because first-class and economy-class tickets represent two entirely different products. b. No, because there is no additional value in purchasing a first-class ticket. c. Yes, because airlines are able to charge different prices to customers seeking an improved flying experience. d. Yes. Since wealthy travelers are the only individuals who can afford first-class travel, the airline is able to set pricing based on their increased ability to pay. e. Maybe. It is price discrimination only if no other airline offers first-class tickets for that travel route.

Q: As the quantity of different prices charged by a firm ________, the amount of ________ generated increases.a. decreases; social welfare b. decreases; producer surplus c. increases; profitd. increases; deadweight losse. increases; consumer surplus

Q: Service providers like cable companies have tiered pricing and also charge their customers according to a schedule of fees. Sometimes customers are able to get fees or service charges waived for a certain amount of time if they contact customer service and threaten to cancel their service. This type of negotiation is an attempt to practicea. good customer service.b. misleading pricing. c. elastic price discrimination.d. competitive pricing.e. perfect price discrimination.

Q: Bakeries will often offer a discount on items that were made the day before but did not sell. How is this an example of price discrimination? a. Discounting the items, as opposed to giving them away, prevents customers from attempting to resell them. b. Making items of high enough quality to sell the following day means that a bakery has a certain degree of market power. c. It connects the bakery with buyers who value day-old products but arent willing to pay the full price for a product that isnt fresh. d. Individuals with an inelastic demand for baked goods will travel to a different bakery if their preferred bakery runs out of fresh product. e. The bakery is unable to distinguish between types of buyers with fresh product, so it is forced to keep old baked goods in order to maximize profit.

Q: Dine-in restaurants typically have their lowest business volume on Monday and Tuesday nights. Besides appealing to consumers on a budget, how might a restaurant benefit from charging discounted prices on these nights? a. Demand on these nights will increase to the point where the restaurant can remove the price discounts. b. Profits on these nights will surge, allowing the restaurant to close during other nights of the week. c. By creating an incentive for consumers, a restaurant is able to capture revenue that it wouldnt otherwise. d. Price discrimination is always successful, so a restaurant can turn an unprofitable situation into a profitable one. e. Customers on a budget tend to tip their servers better, increasing the supply of staff willing to work on these nights.

Q: Many food retailers offer loyalty cards that track purchases and offer free items to customers after a certain threshold of purchases. Is this an example of price discrimination? a. Yes. The store is separating its customers based on how much they spend, and the free items represent a value to the customer that differs from that which is received by other types of patrons. b. Yes. Since the store is tracking purchases, it can offer individual customers discounted prices on items that are purchased most frequently. c. No. Since every customer has the option to receive a loyalty card, there is no differentiation in benefits received by customers. d. No. Since the rewards arent a discount in price, it wouldnt qualify as price discrimination. e. No. Because the retailer might discontinue the card at any time, the customer may never receive the earned free items.

Q: A potential complication for successful price discrimination is a. multiple demand elasticities among consumers. b. the presence of a price maker in a market full of price takers. c. a product or service for which consumers value differently. d. other industry firms also practicing price discrimination. e. the potential for consumers to resell a product or service.

Q: When we say that firms must be price makers in order to practice price discrimination, it means that this activity cannot occur with a. competitive firms. b. monopolists. c. monopolistic competitors. d. relatively elastic demand. e. indistinguishable buyers.

Q: What is the primary benefit of price discrimination? a. There is no benefit; discrimination of any kind is wrong. b. Charging multiple prices generates more profit for firms and matches more buyers and sellers in the marketplace. c. It converts firms that were price makers into price takers. d. All surplus is transferred from the producer to the consumer. e. It takes a market with varying demand elasticities and makes them more inelastic.

Q: How does coupon clipping allow for price discrimination? a. Coupon mailers are sent out only to economically disadvantaged households. b. Businesses are able to reward those customers who truly want their product by offering them a better deal than the casual consumer. c. Because coupon users are less price-sensitive, they require large differences in price to be apparent before they will be convinced to make a purchase. d. One price is charged to people who put forth the effort to use the coupon, while another price is charged to consumers for whom the marginal cost of finding and using the coupon is greater than the marginal benefit of a lowered price. e. It allows for price discrimination only if the consumer engages in extreme couponing, where the risks outweigh the rewards.

Q: A local discount store offers customers three options for printing their photos: a self-printing kiosk, one-hour photos, and next-day prints. The most likely reason this type of firm bothers to offer so many different options to its bargain-hunting consumers is because a. offering alternatives to customers leads to greater consumer satisfaction. b. some photos take longer to print than others, which allows firms to lower costs. c. the variance in impatience on the part of the consumer allows the firm to maximize profit. d. the different alternatives help consumers realize which service offers the best price. e. the competing stores also offer these same options, so it allows the discount store to remain competitive.

Q: Post-Thanksgiving consumers are already separated into distinct groups: those who shop on Black Friday and those who do not shop on Black Friday: A carnival of capitalism, Black Friday is the day after Thanksgiving, when retailers across the country dangle deep discounts to lure customers out of bed. Black Friday is also the official beginning of the holiday-buying frenzy. As retailers battled to draw customers into their stores on Black Friday, online merchants were plotting a cunning ambushoffering an arsenal of mobile-only deals intended to pick off shoppers as they wait in line. In 2011, with a record-breaking Black Fridayshoppers spent $816 million online, 26 percent more than in 2010. Cyber Monday, the Monday after Thanksgiving, might have started as a made-up occasion to give underdog e-commerce sites a day of their own, but it has become an undeniably real thingsurprising even to the people who invented it. The excerpt indicates that Cyber Monday and online sales a. discourage the violent Black Friday behavior that has become more prevalent in recent years. b. encourage shopper loyalty to brand leaders who can offer lower prices than their in-store rivals. c. split shoppers into two groups: those who like to shop on Fridays and those who like to shop on Mondays. d. further separate Black Friday shoppers into two distinct groups: those who like to find deals in person and those willing to get better deals online. e. sort shoppers into groups who like to shop during work hours and those who like to shop during the holiday atmosphere provided by Black Friday. ANS: D DIF: Moderate REF: Price Discrimination on Campus

Q: Teryn booked a flight to Boston for her little sisters wedding. When she boarded the plane, she found out that Frugal Fred, in the seat beside her, paid $100 less for his ticket. Teryn paid a higher price for her flight since she is more a. price-elastic because she is the maid of honor at her sisters wedding. b. price-inelastic because she would not dream of missing her sisters wedding. c. price-sensitive because she does not like it when people get better deals than she does. d. price-insensitive because she would have been just as happy to go to Boston any other weekend. e. price-static because she always has the same demand for trips to Boston, regardless of the event.

Q: Which of the following situations is considered price discrimination? a. McDonalds is offering food products for $1 if you order from the dollar menu. b. Barnes & Noble offers books at a lower-than-market price to members, who must pay an annual fee. c. Karen uses TripAdvisor.com to research hotel recommendations online. d. Best Buy is offering a discount on older model television sets. e. QT, a chain of gas stations, typically supplies gasoline at lower prices to fleet vehicles.

Q: The local coffee shop, Latt Caf, has a frequent-buyer program that offers a 5 percent discount to customers who like its business page on Facebook. This allows the firm to price discriminate because a. everyone will now know where to go for the best coffee in town. b. increasing its customer base lowers prices for all consumers. c. customers who are sensitive to price will take the time to go to the website. d. only java-obsessed customers are eligible for the discount. e. price-conscious customers are usually unwilling to sign up for discounts.

Q: At the Kickin Chicken Family Restaurant, which of the following menu items represents the companys attempt to price discriminate? a. A large soft drink costs $2.99, whereas a small soft drink costs $1.99. b. The chicken little tenders with fries menu name sells as an entre at $8.99, while a kickin chicken tender basket with fries menu name sells as an appetizer at $6.99; both have the same amount of tenders and fries. c. Takeout orders of dark meat buckets of chicken are $5.00 per bucket, while an order of white meat chicken costs $6.00 per bucket. d. The small-size potato salad is $1.49, while the large potato salad is $1.99. e. The bawk-buck menu highlights restaurant items that are available for $1.00 or less every day.

Q: Second degree discrimination, represented by the $5 foot-long sandwich available from Subway, occurs when the price per unit a. is consistent over time. b. varies from month to month. c. varies with the quantity sold. d. varies from producer to producer. e. is determined by the consumers willingness to pay.

Q: Consider the pricing strategy outlined in the following excerpt about a smart vending machine and use it to answer the following questions:Taking full advantage of the law of supply and demand, the Coca-Cola Company has quietly begun testing a vending machine that can automatically raise prices for its drinks in hot weather. This technology is something the Coca-Cola Company has been looking at for more than a year, said Rob Baskin, a company spokesman, adding that it had not yet been placed in any consumer market. . . . The process appears to be done simply through a temperature sensor and a computer chip, not any breakthrough technology, though Coca-Cola refused to provide any details yesterday. While the concept might seem unfair to a thirsty person, it essentially extends to another industry what has become the practice for airlines and other companies that sell products and services to consumers. The falling price of computer chips and the increasing ease of connecting to the Internet has made it practical for companies to pair daily and hourly fluctuations in demand with fluctuations in priceeven if the product is a can of soda that sells for just 75 cents.In a price-discrimination setting, people with the most inelastic demanda. pay the lowest price for the same good.b. pay the same price as everybody else.c. pay the highest price for the same good.d. pay either a higher or a lower price.e. do not buy the good.

Q: Selective private colleges advertise high tuition rates, but have the flexibility to discount the tuition for each student on an individual basis. This type of near-perfect price discrimination practiced in the real world is most similar to that which occurs in aa. movie theater. b. restaurant chain. c. jewelry store.d. nightclub.e. retail store.

Q: A campus financial aid office uses what tool to separate students into distinct groups based on family income? a. National Aid for Federal Teaching Assistance (NAFTA) b. College Student Aid Federal Fund (CSAFF) c. Free Application for Federal Student Aid (FAFSA) d. Federal Aid to Student Organization (FATSO) e. Federal Stafford Loan Program Report (FSLPR)

Q: In the research paper Personalized Dynamic Pricing of Limited Inventories by Aydin and Ziya (2007), the authors note that [I]mplementing personalization [with regard to pricing] to such a full extent may be impractical. Instead, a seller may want to use a personalization strategy where there is an announced price and single discount level that can possibly be offered to a customer depending on the signal from the customer. An everyday example of this would be a discount on a. movie tickets when the customer signals that he or she is single. b. movie tickets when the customer signals that he or she is a student. c. Twilight movie tickets when the customer signals that he or she is a Twilight fan. d. Avengers movie tickets when the customer signals that he or she is a silent-film fan. e. concessions when the customer signals that he or she is on a diet. ANS: B DIF: Moderate REF: Price Discrimination at the Movies

Q: Senior citizens typically receive many discounts in movie theaters, among other places, because they a. have very elastic demands. b. are poorer than the average population. c. have very inelastic demands. d. can be distinguished easily from other types of consumers. e. are retired and dont work anymore.

Q: Concession pricing in movie theaters separates moviegoers into what distinct groups? a. those who want to eat while watching movies and those who do not b. moviegoers who value snacks over being caught engaging in the illegal activity of smuggling in snacks c. free-riders who would rather eat their friends popcorn instead of buying their own d. revenue-building nonsnackers who attend more movies on average than those who purchase concessions e. a price-inelastic group of nonsnackers and snack smugglers and a price-elastic group of concession area snackers

Q: Evening showtimes are more popular with moviegoers. Movie theaters discount afternoon ticket prices in order to sell more tickets during the daytime hours. Unlike the customers who go to the movies in the evenings, the afternoon customers tend to be a. retirees who have already paid for many movies over their lifetimes. b. stay-at-home parents who have relatively inelastic demand compared to the rest of the moviegoing population. c. movie theater employees who could sneak in and see the movie for free; the low price deters such deceptive behavior. d. retirees, people on vacation, and those who do not work during the day and who tend to have more price-elastic demands. e. people who work or attend school and must be presented with a low price to offset their high opportunity cost of calling in sick for work or school.

Q: Many electronic brands such as Apple, Hewlett-Packard, and Epson typically offer refurbished products at lower prices. In this case, these companies are a. not discriminating prices because the refurbished products are different from the new products. b. price discriminating because they offer a similar product at a lower price. c. price discriminating because they offer those discounts only online. d. not discriminating because people can buy the same products in retail stores. e. not discriminating because they are price takers, not price makers.

Q: When a nightclub advertises ladies night and allows women to enter the club without a cover charge (whereas men are still required to pay an entrance fee), the club is charging different prices in an attempt to a. attract the best clientele and build a reputation as an exclusive club. b. discriminate between those who are willing to pay for entry and those who have an inelastic demand for an active nightlife. c. appeal to different segments of its customer base by allowing certain groups to sometimes gain free entry. d. offset the surplus of single men who tend to discriminate between nightclubs based on price. e. price discriminate, which maximizes the amount of money the club can receive from its customers.

Q: An example of price discrimination is when a. movie theaters do not allow children into R-rated movies without a parent or guardian. b. you can purchase a new PC for half the price of a new Mac, even though they are both computers. c. Procter & Gamble charges $9 for a bottle of Tide laundry detergent, while the store brand costs the consumer significantly less, despite being somewhat similar products. d. out-of-state students pay more for the same education as in-state students. e. a grocery store charges $3.00 for a box of Froot Loops on Tuesday, but charges $2.80 for a box of Froot Loops on Wednesday.

Q: The following table summarizes six potential customersu2019 ages and willingness to pay for a solo skydiving experience from SkyMasters. The aircraft has room for eight people, including the pilot and skydiving instructor. The marginal cost of adding each additional passenger is $100. SkyMasters holds significant market power for its region.Use this information to answer the following questions:CustomerMaximum Willingness to PayAgeHarold$40050Leslie$35042Jay$30045Kristen$25021Ivana$20020Matt$15018If SkyMasters decides to price discriminate based on age, which customer(s) will not skydive based on the price that should be offered to that particular age group?a. Jay b. Harold and Jay c. Kristen and Haroldd. Matte. Ivana

Q: Which consumers would not purchase any ice cream sandwiches if the firm decides to price discriminate and charge a different price in each city? a. Alvin, Albert, and Roger b. Albus and Reginald c. Alvin, Albert, Albus, Roger, and Reginald d. Robert and Reginald e. Robert and Albus

Q: Refer to the following table. Imagine there are two cities (City A and City R) and you are the only provider of ice cream sandwiches for both. Use this information to answer the following questions: Maximum Willingness to Pay (MWP) for Ice Cream SandwichesCity AMWPCity RMWPAladdin$16Richard$15Alan$12Ramon$14Alvin$10Robert$13Albert $8Roger$11Albus $6Reginald $4 Note: Unit cost is $7 for each ice cream sandwichIf an individual could charge a different price to each consumer in both cities (perfect price discrimination), how much more would this person earn compared to when he or she can charge a single price to everyone (monopoly)?a. $40 b. $39 c. $35d. $18e. $10

Q: An outlet mall tends to be more attractive to shoppers who havea. inelastic supply. b. elastic demand. c. inelastic demand.d. elastic supply.e. unit-elastic demand.

Q: In the movie Legally Blonde, a sales associate at an exclusive boutique store attempts to convince the main character to pay full price for a dress that was on the clearance rack because the salesperson incorrectly believes that the buyer is uninformed about the quality of the product and has an inelastic demand (she has a function to attend that same evening). In this case, the salesperson is attempting to practice perfecta. sales tactics. b. competition. c. product management.d. price discrimination.e. producer surplus.

Q: The following figure depicts the downward-sloping market demand (D) curve for a five-day western Caribbean cruise on Carnival Cruise Lines. The price (P) is per person in U.S. dollars, and the quantity (Q) is the number of passenger tickets sold. This figure also shows the companyu2019s relevant marginal revenue (MR) curve and marginal cost (MC) curve. Use this figure to answer the following questions:If this cruise line is a monopoly that charges a single price of $600 per passenger, what is the amount of consumer surplus?a. $400,000 b. $600,000 c. $800,000d. $1.2 millione. $1.6 million

Q: SHORT ANSWER1. Why would a restaurant choose to make most of its profit on alcoholic drinks, yet only break even on food?

Q: Charging a different price to each consumer results in an interesting situation. A firm is able to achieve the efficiency of a(n) ________ while also producing the output that a(n) ________ would choose.a. monopolist; governmentb. monopolist; societyc. firm; consumerd. elastic consumer; inelastic consumere. competitive market; monopolist

Q: The following figure depicts a generalized downward-sloping market demand (D) curve for a product. It also shows the firmu2019s relevant marginal revenue (MR) curve and marginal cost (MC) curve. Use this figure to answer the following questions:If the firm moves from a monopolist model that charges a single price to a perfect competition model, there would be ________ in total welfare.a. a loss of $160 b. a loss of $80 c. a gain of $40d. a gain of $120e. no change

Q: One of the benefits of perfect price discrimination over a monopoly is that it can increasea. marginal welfare..b. total welfare. c. average welfare.d. cost of productione. marginal cost.

Q: Despite creating maximum market efficiency, perfect price discrimination is often disliked by consumers because it transfers the gains in trade froma. consumers to producers. b. producers to consumers. c. firms to producers.d. buyers to consumers.e. firms to buyers.

Q: When a market model moves from that of a monopoly to one in which perfect price discrimination is practiced, the deadweight loss a. increases. b. remains unchanged. c. can increase or decrease depending on the type of loss. d. decreases. e. fluctuates.

Q: Suppose the market for golf clubs has moved from a perfectly competitive market to one that is completely dominated by firms practicing perfect price discrimination. Which of the following statements is true about the change in welfare? a. The change creates a deadweight loss. b. Societys total welfare is zero after the change. c. There is a decrease in deadweight loss accompanied by a decrease in producer surplus. d. Some surplus has been lost to society, but consumers are better-off overall. e. All of the surplus previously enjoyed by consumers has been shifted to producers.

Q: The reason economists use the term perfect for firms that are able to charge each customer a price exactly equal to the price the customer is willing to pay is because it a. is a perfect example of capitalism. b. always works perfectly, just like the theoretical model. c. describes a market outcome that produces no deadweight loss. d. charges each customer his or her own perfect price. e. works perfectly to benefit the producers selling the product.

Q: For the companies that are able to engage in price discrimination, the practice a. is profitable. b. increases the welfare of consumers. c. is sometimes inefficient for the market. d. is difficult to maintain over the long run. e. decreases the welfare of producers.

Q: Perfect price discrimination transfers the gains from trade from ________, but it also creates maximum efficiency. a. firms to buyers b. consumers to producers c. corporations to sole proprietorships d. producers to consumers e. monopolies to profit-maximizing firms

Q: Refer to the following table to answer the following questions:QuantityCity ACity BCity C1$20$15$142$17$13$133$14$11$124$11$9$115$8$7$10Kaleb is the only provider of bottled water for three cities. Because he has access to a natural spring, the marginal cost to produce an additional bottle is $0. Imagine he could price discriminate perfectly in this market. How much more profit would his firm earn if he practiced perfect price discrimination instead of practicing imperfect price discrimination (charging different prices in each city)?a. $55 b. $30 c. $25d. $20e. $10

Q: Mirabella Creations is a custom jewelry company that specializes in unique, handmade, wearable artwork. Each piece of jewelry offered for sale is made after an extensive customer consultation that results in a one-of-a-kind piece of heirloom jewelry. To maximize profits, the firm owner should charge a. the same price to all customers. b. the price that the market will bear. c. a price that will cover the firms fixed costs. d. a price that is close to each customers willingness to pay. e. a price that is competitive with mass-market jewelers available in their service area.

Q: Which of the following examples is the closest to perfect price discrimination? a. nontransferable goods that are sold in an auction b. Internet-access package deals for new and old customers c. monthly versus daily bus tickets d. daily deals in an electronics store e. clubs offering waived cover charges for ladies night

Q: Consider the following scenario to answer the following questions: The Varsity, located in downtown Atlanta, is the worlds largest drive-in restaurant. Located near the Georgia Tech campus, the drive-in attracts two distinct types of customerscollege students and visitors to Atlanta. The owners are considering offering a student discount of $1 off their combo meal, which is regularly priced at $9. There are 5,000 students interested in purchasing a combo meal, with a maximum willingness to pay of $8. There are 5,000 visiting customers interested in purchasing the combo meal, with a maximum willingness to pay of $9. Assume that each customer, at most, will purchase a single meal and the marginal cost is $5.If the Varsity decides to practice price discrimination, what will be the amount of consumer surplus if it charges most customers $9 for a standard combo meal, but charges a reduced price of $8 for only those customers who show their student identification cards?a. $0 b. $500 c. $1,000d. $2,500e. $5,000

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