Economy Ch.14,15,18

How did IBM price discriminate its laser printers?

IBM offered two different printers: a fast printer and a slow printer.

Which of the following is TRUE?I. The market supply curve for labor can be upward sloping or downward sloping.II. As wages increase, the market labor supply curve slopes upward because some people are willing to work more hours.III. As wages increase in the health care industry, the market labor supply curve slopes upward because some workers from other industries decide to get jobs in health care.

II and III only

Which of the following statements is TRUE with respect to economies of scale?I. It is cheaper for 500 manufacturers to make 30,000 cars each.II. It is cheaper for five manufacturers to make 3,000,000 cars each.III. Bigger firms mean fewer firms.

II and III only

Airlines price discriminate according to time of ticket purchase.

True

An oligopoly is a market that is dominated by a small number of large firms

True

Asphalt firms between 2005 and 2007 in Kentucky are an example of tacit collusion.

True

Cartels in manufactured goods are difficult to maintain because other firms can enter the market and easily produce substitute products.

True

Cartels such as OPEC are difficult to maintain because cheating is a dominant strategy for all firms involved.

True

Governments create barriers to entry with licenses or other regulations that limit entry.

True

If a firm can practice perfect price discrimination, its profits will always rise.

True

In the United States, the government has antitrust laws to prevent firms from acting like cartels, although the government has created cartels in milk and other agricultural products.

True

Loyalty programs increase monopoly power, making the demand curve more inelastic and increasing prices.

True

One way a cartel gets its power is by controlling a natural resource that is found in large quantities in a few places.

True

Senior citizens tend to have a more elastic demand for movie theatre tickets, and thus typically pay a lower price.

True

The higher the profits for each firm in a cartel, the harder it is to maintain the cartel.

True

The prisoner's dilemma describes a scenario in which each player, acting out of self-interest, will make a decision that results in all players being worse off.

True

To price discriminate, firms must identify a customer's or a group of customers' willingness to pay.

True

Tying is an example of price discrimination in which customers must buy a second product from the same firm that sold the first product.

True

In the prisoner's dilemma, a dominant strategy:

always exists.

The market wage of computer programmers is determined by:

an upward sloping supply curve of labor and a downward sloping demand curve for labor.

When customers drive discrimination, owners:

are not always so keen to hire undervalued, victimized workers.

A high demand for labor in one industry will:

attract workers from another industry.

A group of suppliers who tries to act as if they are a monopoly is called a(n):

cartel.

OPEC is a ________ that has been able to maintain high oil prices for ________ periods of time.

cartel; not very long

Which of the following is NOT an example of bundling?

cell phones and phone calls

If a white NBA player generates more fan interest than an equally capable black player, we might expect the white player to be paid more, which is a form of ________ discrimination.

customer

Unions raise wages by:

decreasing supply of labor in the industry.

The more a firm knows about ________, the easier it is for the firm to ________.

demand; price discriminate

Which of the following is NOT a kind of preference-based discrimination?

discrimination using statistics

Cartels do not last because their members find them difficult to maintain, since:

each firm in the cartel can gain from secret price cuts.

A firm will hire a worker whenever that worker's marginal product of labor is:

greater than the worker's wage.

The wages of office cleaners in the United States are ________ than the wages of office cleaners in India because ________.

greater; American offices are more productive, hence more valuable to keep clean

In general, price discrimination exists because:

higher prices are charged because some customers are willing to pay more.

Compared to a competitive market, firms operating in a cartel will charge a price that is:

higher than the competitive price.

The market supply of labor is upward sloping because:

higher wages would attract more workers into the industry.

Compared with imperfect price discrimination, deadweight loss under a nondiscriminating monopoly is:

higher.

Airlines try to differentiate their customers by willingness to pay based on:

how long in advance a person books their flight.

Loyalty programs, such as frequent flyer plans, tend to:

increase prices.

In a market economy, discrimination by employers will NOT:

increase the firm's profits.

When labor demand increases, the wage is expected to:

increase.

Which of the following is NOT a reason why cartels tend to collapse and lose their power?

mistakenly raising the price too high

Evidence suggests that a successful market economy would:

not succeed by maintaining formal segregation on a widespread basis.

Universities practice price discrimination by:

offering students different levels of scholarship support.

Governments:

support some cartels and try to break up others.

Which of the following would be most difficult to arbitrage?

tax preparation services

Firms will hire additional workers as long as:

the marginal revenue of that worker is greater than the worker's wage.

Augusta National is an exclusive country club in Augusta, Georgia, that does not allow women to be members. The primary reason for this is most likely that:

the members of Augusta National do not want women on their course—an example of customer discrimination.

Some workers have lower wages than others because:

there are variations in the difficulty of the work.

Which of the following statements is TRUE?I. Union members earn higher wages because unions restrict the supply of labor.II. Unions are similar to cartels in that they restrict competition among workers.III. Countries with more union members earn more than countries with fewer union members.

I and II only

Cartel agreements tend to fail:I. if they produce manufactured rather than natural goods.II. if they produce natural rather than manufactured goods.III. in the long run as demand curves become more elastic.

I and III only

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.

I and III only

The Gillette Fusion razor sells for approximately $10.00, and a four-set of replacement blades sells for over $8. Which of the following statements is TRUE?I. Consumers with a high willingness to pay for being clean-shaven will buy many replacement blades.II. Consumers with a low willingness to pay for being clean-shaven will rarely buy replacement blades.III. Gillette's high price for the replacement blades is a method to extract consumer surplus from those consumers with a high desire to be clean-shaven.

I, II, and III

A firm practices price discrimination by selling at a high price in its larger market, market A, and a lower price in its smaller market, market B. If this firm is forced to sell at a single price in both markets and opts for the original price in market A, the new single-pricing strategy makes consumers in:

market A no worse off but consumers in market B worse off.

Workers tend to earn more in more productive economies because there is a larger labor force in such economies.

False

Which of the following is NOT a result of the network effect?

"Network effects" tend to limit the size of the firm.

Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. If the programs are sold separately, what are the profit-maximizing prices?

$100 for Word; $90 for Excel

Assume Xs earn $5 less per hour than Ys and a firm employs 200 workers. There are 8 working hours in the day, 5 working days a week, and 50 working weeks a year. If the firm discriminates and hires only Ys, how much profit will it lose in a year? (Assume Xs have the same work skills as Ys.)

$2,000,000

Suppose that Southwestern Airlines flight 171 will depart BWI for Detroit in 3 hours. The marginal cost and average cost of flying a customer are $35 and $68, respectively. Southwestern Airlines can increase its profits by selling a ticket for no less than:

$35.

Suppose that there are four consumers whose maximum willingness to pay for a good are $20, $15, $8, and $4, respectively. A firm can produce and sell the good at a constant marginal cost of $6. If the firm practiced perfect price discrimination, its total revenues would equal:

$43.

In the 1970s, the Department of Justice sued:

AT&T.

Some bars host a "ladies' night," on which women get drinks free or at a discount. Aside from differing elasticities of demand, why might bars want to charge a lower price to women than to men?

An increased quantity of drinks sold to women will attract male customers.

Which of the following is NOT a reason why a student may choose to attend college?

Attending college lowers your opportunity cost of working.

The textbook for your economics class is available in an American version and in a much cheaper Indian version that has the same text but no colors for the graphs (the difference in prices is much higher than the difference in costs). Why is this the case?

Demand in the United States is much more inelastic than demand in India.

Which of the following is the BEST example of a firm operating in an oligopoly market?

ExxonMobil, one of the seven major refiners of oil

A compensating differential is the difference in wages that are offered to different workers who are sometimes working the same job.

False

A perfectly price-discriminating monopolist charges consumers the average of their maximum willingness to pay.

False

Businesses can increase their incentives to lower prices by using loyalty plans.

False

Iran and Iraq disbanded from OPEC when engaging in war from 1980 to 1988.

False

It is better to have a rare disease than an equally severe common one.

False

It is easy for a cartel to behave monopolistically.

False

Oligopolies are large dominant firms that can influence the industry output but not the industry price.

False

Price discrimination discourages innovation and new product development in industries with high fixed costs.

False

The main way that unions raise wages is through increasing the demand for labor.

False

To maximize profits, firms should always charge a higher price in the market with the more elastic demand.

False

Tying is a legal strategy, but bundling is illegal in the United States.

False

With an oligopoly, if a group of firms is not able to coordinate or collude, prices will not be higher than in a competitive market.

False

Which of the following best explains why people booking airline tickets just prior to their departure dates tend to pay a higher price than those that book a long time in advance?

Individuals booking tickets just a few days in advance tend to have a more inelastic demand for airline tickets.

If job A and job B are identical in all aspects, except that job B pays higher wages, what will happen over time?

Job A workers will become job B workers, decreasing the supply of labor to job A and increasing the supply of labor to job B until wages are equal but lower in job B.

If women conspired together and demanded that any man wishing to take them on a date must take them to a nice restaurant, why would this be unsustainable?

Some women will secretly allow guys to take them to cheaper restaurants.

Adults have more money than teenagers and perhaps more inelastic demand for video games than teenage video gamers. Why might it be difficult to price discriminate based on this fact?

Teenage gamers could exploit arbitrage opportunities, buying games at the low price and reselling them to adult gamers.

Which of the following BEST describes the influence of labor unions on workers?

The benefit of labor unions to workers is immediately evident, while the harm is longer term and harder to see.

Which of the following statements is TRUE?

The rising returns to human capital labor market issues may be attributable to the growing importance of advanced technology.

The demand for plumbers is the same in country A and country B, but the plumbers in country A earn less than the plumbers in country B. What can explain this difference?

The supply of plumbers is greater in country A than country B.

Barriers to entry include:

These are all barriers to entry.

Companies rarely make money on game consoles (e.g., 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?

They charge more for people who like to play a lot of video games.

Which of the following is the main principle behind price discrimination?

To maximize profit the firm should set a higher price in markets with more inelastic demand. If the demand curves are different, it is more profitable to set different prices in different markets than a single price that covers all markets. Arbitrage makes it difficult for a firm to set different prices in different markets, thereby reducing the profit from price discrimination.

Which of the following statements is TRUE?

To maximize profits, monopolists will always set a higher price in markets with more inelastic demand curves.

Which of the following statements is TRUE?

When a cartel cheater increases quantity beyond the profit-maximizing quantity of a monopoly, the cheater hurts other cartel members.

Compared with a similar job that requires little human capital labor market issues, a job that requires a large amount of human capital labor market issues will likely pay:

a higher wage rate.

Tying is a form of price discrimination in which one good called the ________ is tied to a second good called the ________.

base good; variable good

LexisNexis sells ______ access to online periodicals.

bundled

High prices maintained by a cartel usually make the cartel less successful because a high price of the good:

encourages a search for new supplies. leads to more conservation. motivates demand to switch to substitutes of the goods.

If cable television operators did not practice bundling, we would most likely see:

fewer cable television stations.

Unions may ________ the wages of their members but they might ________ the wages of everyone else.

increase; decrease

The introduction of fun into a job ______ labor ______.

increases; supply

Which of the following is NOT a reason why cartels collapse?

increasing production costs

Discrimination by employees:

is a situation in which one group of workers doesn't want to work with another group of workers.

In the case of a perfectly price-discriminating monopolist, the price of the last unit sold:

is equal to marginal cost.

The milk cartel in the United States:

is made legal and enforced by the government, and any firm that breaks the cartel is fined.

One reason some people earn more than others is that they have more education, training, and experiences, what economists call:

labor market issues.

Tacit collusion occurs when firms:

limit competition with one another but do so without explicit agreement or communication.

Airlines price discriminate by offering both business-class and economy-class service on flights (it's not just the cost of the service that varies; the markup is higher on business class). If they wanted to ensure that everyone who could afford to travel business class did so, what might they do?

make the seats in economy class extra small and cramped, and serve terrible food

A firm will hire a worker as long as the:

marginal product of labor is greater than or equal to the wage earned by the worker.

A cartel member has _____ incentive to increase quantity than a standard monopolist does.

more

Pfizer sells Atgam in New Zealand for $14 per pill and in Brazil for $8 per pill. This implies that the demand curve in New Zealand must be ________ than in Brazil.

more inelastic

Government policy toward cartels and oligopolies typically leads to all of the following, EXCEPT:

more innovation.

Cheaters in cartels make ________ profit when the other cartel members ________ their promise.

more; keep

If the marginal product of labor is decreasing in labor, then a market labor demand curve is:

negatively sloped.

Perfect price discrimination creates:

no deadweight loss.

In order for the strategy of tying to work, Hewlett Packard (HP) must tie its printers to HP ink cartridges, and:

no firm can enter the market for HP ink.

A firm receives the largest profit from cheating on a cartel agreement when:

none of the other cartel members cheats.

Price discrimination is used when a seller faces different demand curves in different markets because:

profits are greater than when selling at a single price.

Which of the following is an example of price discrimination through tying?

razors and blades

A crime scene cleaner earns about three to four times more than an office cleaner, even though neither job requires a college degree. This difference in wages:

reflects a compensating differential.

Which of the following is NOT an easy way to split markets in order to practice price discrimination?

relying on the self-reported marital status of customers

Suppose there are two types of cable TV viewers. The first type places a high value on sports channels (e.g., ESPN, Fox Sports, and the Golf Channel) and a low value on all other channels. The second type places a high value on music channels (e.g., VH1, MTV3, and CMT) and a low value on all other channels. In this case, we would expect cable operators to:

sell sports and music channels in one bundle to both types of viewers.

Price discrimination is:

sometimes better and sometimes worse than single pricing.

The individual supply curve for labor:

starts sloping up and then bends back as wages rise.

If your economics class were graded on a curve and everyone agrees to study only half as much, everyone would get the same grade that they otherwise would earn. You, however, will earn an A if you study more than the others, a C if you study the same amount as others, and an F if everyone else studies more than you. You don't like studying, but you'd rather study and get an A than get a C without studying, or study and get a C than get an F without studying. If everyone else cuts back their studying, what is it in your best interest to do?

study and get an A

There was a dramatic fall in the price of oil in:

the early 1980s.

In an oligopolistic market, prices will tend to be closer to the competitive price:

the greater the number of firms in the industry.

The marginal product of labor is:

the increase in a firm's revenues created by hiring an additional laborer.

If two products from a company are designed to perfectly complement each other (in a one-to-many ratio), then the products are:

tied.

Labor market issues are:

tools of the mind; the stuff in people's heads that makes them productive.

Which of the following factors is NOT significant in leading to the collapse of a cartel?

transparency of action among members

To maximize profit using the practice of price discrimination, firms set different prices according to the characteristics that are correlated with buyers':

willingness to pay.

Customers are _____ refusing to join the loyalty plan only if _____ of them refuse.

worse off; all or most