EC Online. Chapter 14 Review for Exam

Although price discrimination may increase the profits of drug companies, it reduces the incentive for drug companies to develop new drugs. Select one: a. True b. False

b.False

GlaxoSmithKline attempts to prevent arbitrage of its drug Combivir by selling different color pills, which are in special bar-coded packages, to identify and track distributors in different markets. Select one: a. True b. False

a. True

To succeed at price discrimination the monopolist must prevent arbitrage. Select one: a. True b. False

a. True

How did IBM price discriminate its laser printers? Select one: a. IBM provided special financing terms to different customers. b. IBM offered printers in different colors. c. IBM offered two different printers: a fast printer and a slow printer. d. IBM charged seniors lower prices than businesses.

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

Tying is a form of price discrimination in which one good, called the base good, is tied to a second good called the variable good. Select one: a. True b. False

a. True

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? Select one: a. The insurance companies are not practicing price discrimination. b. The insurance companies are using a bundling/tying strategy. c. The insurance companies are practicing inter-temporal price discrimination. d. The insurance companies are practicing price discrimination.

a. The insurance companies are not practicing price discrimination.

After a severe hurricane in South Carolina, the price of electric generators quadrupled. People living outside of South Carolina purchased electric generators in their home states and drove them to South Carolina to sell at a much higher price. What is this an example of? Select one: a. arbitrage b. price gouging c. marginal-price geography d. perfect price discrimination

a. arbitrage

Airlines try to differentiate their customers by willingness to pay based on: Select one: a. how long in advance a person books their flight. b. All of the answers are correct. c. a person's weight. d. the ethnicity of a person's last name.

a. how long in advance a person books their flight.

Why is student financial aid a profit maximizing decision for universities? Select one: a. because the university gains goodwill by providing financial aid b. because as long as the students on financial aid pay some amount that is still greater than the marginal cost of attending the classes, the university still gains positive marginal profit c. because universities only give financial aid to a very small number of students d. because the university is able to charge no more than a dollar over the marginal cost of attending classes

b. because as long as the students on financial aid pay some amount that is still greater than the marginal cost of attending the classes, the university still gains positive marginal profit

Perfect price discrimination results in: Select one: a. zero dollars of consumer surplus. b. marginal revenue becoming equal to the marginal cost of the product for every unit sold. c. maximization of consumer surplus. d. marginal revenue being in excess of the price charged for the good.

b. marginal revenue becoming equal to the marginal cost of the product for every unit sold.

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 (VH1, MTV3, and CMT) and a low value on all other channels. In this case, we would expect cable operators to: Select one: a. sell only sports channels to the first type of viewers and sell only music channels to the second type of viewers. b. use fixed-cost pricing. c. sell sports and music channels in one bundle to both types of viewers. d. use "à la carte" pricing.

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

Arbitrage is ________ in one market and ________ in another market. Select one: a. selling low; buying high b. selling high; buying high c. buying high; selling low d. None of the answers is correct.

d. None of the answers is correct.

Why are patients who suffer from rare terminal diseases more likely to die if the cost of new drug development is about the same for rare and more common terminal diseases? Select one: a. Drug firms practice perfect price discrimination. b. Drugs for rare and common diseases can be sold as bundled goods. c. Federal regulations require that drugs for common diseases get developed before drugs for rare diseases. d. The market is larger for more common diseases and so it is more likely drugs would be developed for the common diseases.

d. The market is larger for more common diseases and so it is more likely drugs would be developed for the common diseases.

Bundling and tying are: Select one: a. considered illegal in many countries. b. often done at the same time. c. the same practices, in essence. d. different practices of price discrimination.

d. different practices of price discrimination.

To perfectly price discriminate, a firm must have full information of: Select one: a. market price. b. total cost of production. c. efficient level of output. d. every customer's willingness to pay.

d. every customer's willingness to pay.

Pfizer sells Atgam in New Zealand for $14/pill and Brazil for $8/pill. This implies that the demand curve in New Zealand must be ________ than in Brazil. Select one: a. closer to perfectly elastic b. less inelastic c. more elastic d. more inelastic

d. more inelastic

A museum in Russia has two entrances: one for locals (written in Russian) and one for tourists (written in English). People who enter through the entrance written in Russian will end up paying 81.93 Rubles ($3.00). English-speaking tourists will use the entrance written in English, but they will end up paying 409.67 Rubles ($15.00). This practice is an example of: Select one: a. price exploitation. b. international price mediation. c. price manipulation. d. price discrimination.

d. price discrimination.

Which of the following is an example of price discrimination? Select one: a. tax-exempt status for non-profit organizations b. value meals at fast food restaurants c. holiday sales at retail stores d. senior citizen discounts

d. senior citizen discounts