ECON midterm 3

A monopolist's profits with price discrimination will be

higher than if the firm charged just one price because the firm will capture more consumer surplus

Economists typically measure efficiency using

total surplus

Mega Media Cable TV is able to purchase an exclusive right to sell a premium sports channel in its market area. Let's assume that Mega Media pays $100,000 a year for the exclusive marketing rights to the sports channel. Since Mega Media has already installed cable to all of the homes in its market area, the marginal cost of delivering the sports channel to subscribers is zero. The manager of Mega Media needs to know what price to charge for the sports channel service to maximize her profit. Before setting price, she hires an economist to estimate demand for the sports channel. The economist discovers that there are two types of subscribers who value premium sporting channels. First are the 3,000 die-hard sports fans who will pay as much as $150 a year for the new channel. Second, the premium sports channel will appeal to 20,000 occasional sports viewers who will pay as much as $25 a year for a subscription to it. If Mega Media Cable TV is unable to price discriminate, what price will it choose to maximize its profit, and what is the amount of the profit?

price= $25; profit=$475,000

A supply curve can be used to measure producer surplus because it reflects

seller's costs.

cost is a measure of the

seller's willingness to sell

In reality, perfect price discrimination is

rarely possible

At the equilibrium price of a good, the good will be sold by those sellers

whose cost is less than the price

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

willingness to pay

Consumer surplus is

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350. Denise's consumer surplus is

$150

Round-trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy?

-Airlines are practicing imperfect price discrimination to raise their profits -Airlines charge a different rate based on the different nature of peoples' travel needs -Airlines are attempting to charge people based on their willingness to pay

If a monopolist can practice perfect price discrimination, the monopolist will

-Eliminate consumer surplus -eliminate dead weight loss -maximize profits

Chuck would be willing to pay 20$ to attend a dog show, but he buys a ticket for 15$. Chuck values the dog show at

20$

Which of the following is not an example of price discrimination by a firm?

A natural gas company charging customers a higher rate in the winter than in the summer

which of the following will cause an increase in consumer surplus?

A technological improvement in the production of the good.

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is

zero

How does a competitive market compare to a monopoly that engages in perfect price discrimination?

in both cases, total social welfare is the same.

Which of the following is not an example of price discrimination?

An ice cream parlor charges a higher price for ice cream than for sherbert

The process of buying a good in one market at a low price and selling the good in another market for a higher price in order to profit from the price difference is known as

Arbitrage

If the government allowed a free market for transplant organs such as kidneys to exist, critics argue that such a market would

Benefit rich people but not poor people

When there is a technological advance in the pork industry, consumer surplus in that market will

increase

An example of positive analysis is studying

How market forces produce equilibrium

Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts?

It increases

suppose a monopolist is able to charge each customer a price equal to that customer's willingness-to-pay for the product. Then the monopolist is engaging in

Perfect price discrimination

Financial aid to college students, quantity discounts, and senior citizen discounts are all examples of

Price discrimination

Price discrimination is the business practice of

Selling the same good at different prices to different customers

If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that

The market for wallpaper is in equillibrium

Which of the following will cause an increase in producer surplus?

The price of a substitute increases

total surplus

The total value of the good to buyers minus the cost to sellers of providing the good.

Producer surplus directly measures

The well-being of sellers

An example of normative analysis is studying

Whether equilibrium outcomes are socially desirable

Which of the following statements comparing monopoly with competition is correct?

With perfect price discrimination, the total surplus under monopoly can be the same as under competition.

Which of the following statements best describes the changes that would occur if this firm were to switch from operating as a single price profit-maximizing monopolist to perfect price discrimination?

a. The quantity would increase from I to J, the profit would increase from BCFE to ACG, and the deadweight loss would decrease from EFG to zero.

A market force that can prevent firms from price discriminating is

arbitrage

Producer surplus is the area

below the price and above the supply curve

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

maximizes the combined welfare of buyers and sellers

If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?

consumer surplus decreases

All else equal, what happens to consumer surplus if the price of a good decreases?

consumer surplus increases

Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his

cost of building fences

A firm cannot price discriminate if it

operates in a competitive market

The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as

price discimrination