UNIT 12

If students in the United States go online and import the much cheaper Indian version of your textbook instead of buying the American edition, how might this arbitrage nevertheless help the publisher of your textbook?

The students who go to the trouble to do this might have had low willingness-to-pay in the first place, so the arbitrage enables another layer of price discrimination.

Hewlett Packard's pricing scheme is to sell printers at relatively low price and ink cartridges at relatively high price. This practice is known as:

Tying

A sales manager at a car dealership revealed that he considers how much the customer appears to know about the car when he's negotiating a price. Ignorant people tend to pay a premium on their car. Price discrimination explains this "ignorance premium" since people who:

don't bother to research are probably less sensitive to price

Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. If the programs are sold as a bundle, what is the profit-maximizing price?

$110

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

Figure: Monopolist Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—Market A and Market B—what price should the monopolist charge in Market B?

$9

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.

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

On Black Fridays, most retail outlets have major storewide sales. Yet, as one of the busiest shopping days in the United States, one would expect prices to increase, not decrease. Price discrimination explains the answer to this question because price:

Insensitive shoppers will stay away to avoid the crowds

Which of the following conditions would prevent a firm from setting different prices in different markets?

Possibility of arbitrage for buyers between different markets

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:

Price discrimination

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, buy games at the low price, and re-sell them to adult gamers

Which of the following statements is TRUE?

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

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