Chapter 16

Two-part tariff

A situation in which consumers pay one price (or tariff) for the right to buy as much of a related good as they want at a second price.

Price discrimination

Charging different prices to different customers for the same product when the price differences are not due to differences in cost.

According to economists, does the practice of selling and reselling goods on eBay have a useful economic purpose?

Yes; if people are willing to participate, they must be made better off.

Arbitrage means

buying a product at a low price and reselling it at a high price.

Which of the following is an example of odd pricing?

charging $4.99 instead of $5.00

To price discriminate, the firm should be able to segment the market so that

consumers who buy the product at a low price cannot resell it at a high price.

Charging different prices to different buyers is not considered price discrimination if the difference in price is due to differences in

cost

Successful price discrimination requires, among others, that consumers have

different price elasticities of demand.

Firms will be able to price discriminate when the law of one price

does not hold and it is impossible to resell a product

Firms in perfect competition___________ price discrimination.

don't practice

The price discrimination across time routinely practiced by book publishers appears to be attributed primarily to what event?

early adoption of hardcover copies by the most devoted book fans

Yield management refers to

firms gathering information on consumers' preferences and using it to rapidly adjust prices.

Successful price discrimination policy by a firm results in

higher profits for the firm.

Price discrimination is successful if the firm

is able to segment the market

Who is more likely to have a more elastic demand for airline seats?

leisure travelers.

A successful price discriminating firm charges a higher price to consumers with

less elastic demand.

In price discrimination, if the firm can segment the market, then the firm will charge a higher price to consumers whose demand is

less elastic than other consumers

Colleges that use yield management technique usually offer ___________ financial aid packages to students who apply for ___________, given other things being equal.

less generous; early admission

In general, companies that take demand into account will charge __________ markups on products that are ________ price elastic.

lower; more

Which of the following is an example of two-part tariff pricing strategy?

pay an initial fee for the right to buy the product and an additional fee for each unit of the product purchased

Which of the following is known as first-degree price discrimination?

perfect price discrimination

To practice price discrimination, firms must

prevent arbitrage.

One exception to the law of one price occurs when firms offset the higher price they charge for a product by

providing superior services to customers.

Which of the following is an example of cost-plus pricing technique?

set the price of a product by adding a percentage markup to the average cost

In a firm selling multiple products, what is the intent of cost-plus pricing?

to cover all costs, including those that are difficult to assign

What name is given to the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods and services?

transactions costs

The pricing strategies used by wholesale stores such as Costco, Sam's Club and BJ's are examples of

two-part tarif

According to economists, which of the following is a condition under which cost-plus pricing could be the best way to determine the optimal price?

when the firm has difficulty estimating its demand curve

Which of the following is a result of perfect price discrimination?

zero consumer surplus

Which of the following are key results of price discrimination?

Profits decrease, and consumer surplus decreases.

Which of the following act outlawed price discrimination if its effect is to reduce competition in an industry?

Robinson-Patman Act

Transactions costs

The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services.

Which of the following facts related to odd pricing was found in surveys of consumers about their willingness to purchase a product?

The quantity demanded of goods with odd prices was greater than predicted using an estimated demand curve.

In case of perfect price discrimination, each consumer pays

a price equal to the consumer's willing to pay.

What are the views of economists about cost-plus pricing?

a. Cost-plus pricing is simply a mistake that firms should avoid. b. Cost-plus pricing ignores demand. c. Cost-plus pricing does not appear to maximize profits because it ignores marginal cost.

Which of the following are pricing schemes associated with a two-part tariff?

a. annual memberships and hourly court rental fees at tennis clubs b. monthly fees for cellular phone subscriptions c. fees for shopping privileges at a certain store

Which of the following industries uses sophisticated methods to calculate the price of each unit sold each day?

airlines

Price discrimination occurs when firms charge different prices to different consumers for the same product when the price differences

aren't due to differences in cost.

The law of one price will hold

as long as arbitrage is possible.

In cost-plus pricing, a percentage markup is added to which of the following measures?

average cost