Chapter 11 Sample Problems

Which is the best example of a firm that price discriminates? a. Coldstone b. Old Navy c. Target d. Regal Cinemas

d. Regal Cinemas

Where is price discrimination at work? a. buying a value meal at Wendy's b. shopping at Old Navy c. buying a new computer at Walmart d. going to China Buffet for lunch, instead of dinner

d. going to China Buffet for lunch, instead of dinner

Describe the difference between 1st, 2nd and 3rd degree price discrimination and provide an example of each.

- 1st degree price discrimination occurs when the sellers attempts to charge you your exact willingness to pay. Example: You negotiate with a car dealer over the purchase price. - 2nd degree price discrimination occurs when you receive a discount for making a bulk purchase. Example: You buy one item and get the second item half off. - 3rd degree price discrimination occurs when distinct groups of customers pay different prices based on differences in their price elasticity of demand. Example: Admission prices to movies.

Determine whether each of the following examples is best characterized by price discrimination, perfect price discrimination, or no price discrimination. a. The public bus line offers unlimited rides on the weekends for all of its customers.

Even though the same offer is made to all customers, this is still an example of price discrimination. Those who use the bus to get to work during the week have a more inelastic demand and pay more for the bus on average. Casual travelers who just ride on the weekends would pay an average price of zero

A well-respected golf instructor charges each customer a fee just under the customer's maximum willingness to pay for lessons. PD?

This is a good example of perfect price discrimination. The golf instructor knows the customer's willingness to pay and charges a price just below it. The golf instructor charges a different price to each individual.

Senior citizen tickets for basketball games are $5. PD?

This is a simple example of price discrimination. Senior citizen tickets are cheaper to entice those patrons, who have more elastic demand, to attend the game. Tickets for those with more inelastic demand are set at a higher price.

A restaurant offers a 20% discount for customers who order dinner between 4 and 6 p.m. PD?

This is an example of price discrimination. The restaurant offers a discount for those who are price sensitive and are willing to eat at nonpeak hours.

A book store has a half-price sale on last year's editions. PD?

This is an example of price discrimination. The store discriminates on the basis of people who are willing to pay higher prices for current models versus people who are more price sensitive and would prefer to pay less, even if doing so means buying an older version.

In order to be able to effectively price discriminate a firm must a. have a downward-sloping demand curve, be able to prevent resale, and identify at least two groups of customers with different elasticities of demand. b. have a perfectly elastic demand curve, be able to prevent resale, and identify at least two distinct set of customers. c. have an inelastic demand curve, encourage resale of the product, and charge a high price to those with the most elastic demand. d. have a perfectly elastic demand curve, encourage resale of the product, and identify at least two distinct set of customers.

a. have a downward-sloping demand curve, be able to prevent resale, and identify at least two groups of customers with different elasticities of demand.

Which of the following is NOT a good example of price discrimination? a. UT charges a lower price to students than non-students for football tickets. b. Target places all its leftover Easter candy on 50% clearance. c. Manufacturers offering a lower price to coupon shoppers. d. Disneyland charging $20 less for seniors than "regular" aged individuals.

b. Target places all its leftover Easter candy on 50% clearance.

When an airline price discriminates, this leads to a. fewer customers flying. b. more customers flying. c. higher prices. d. lower prices.

b. more customers flying.

For price discrimination to be effective, a. The firm must charge everyone the highest price they can. b. The firm must lower its price to attract more customers. c. The firm must identify at least two groups of customers with different elasticities of demand. d. The firm must charge those with elastic demand more, and those with inelastic demand less.

c. The firm must identify at least two groups of customers with different elasticities of demand.

Which of these is an example of second-degree price discrimination? a. a jewelry store gives you a bigger discount because your clothes are shabby. b. a clothing store near a university offers a 10% discount to students. c. a pizza shop offers a buy two, get one free discount when you buy three large pies. d. Airlines charge flyers more to travel on Mondays.

c. a pizza shop offers a buy two, get one free discount when you buy three large pies.