module 13
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
Disneyland sells goods that are largely:
bundled
Arbitrage is ____ in one market and ____ in another market.
buying low; selling higher
Price discrimination is considered bad when ____, but good when ____.
it decreases output; it increases output
In order for a firm to successfully use tying,:
it must be difficult for other firms to sell the second good.
An important lesson of price discrimination is that:
it only increases profits when the demand curves in two different markets are not the same.
How does price discrimination increase social surplus?
It expands the output that a firm would otherwise produce.
Why would firms use the practice of tying?
It is a subtle way to charge higher prices to those consumers with a high willingness to pay, and a lower price to consumers with a low willingness to pay.
What was one of the reasons that GSK was selling Combivir for such low prices in Africa as compared to Europe?
Lower prices were charged for humanitarian reasons.
Which of the following statements is TRUE about price discrimination?
Price-discriminating monopolists often produce more output than single-price monopolists and increase total surplus in the process.
Which of the following is NOT an example of tying?
automobiles and engines
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?
arbitrage
Which of the following is NOT an example of bundling?
cell phones and phone calls
Bundle pricing makes sense for cable operators because:
customers have a high willingness to pay for some channels and a low willingness to pay for others.
If cable television operators did not practice bundling, we would most likely see:
ewer cable television stations.
Bundling can increase efficiency especially when:
ixed costs are high and marginal costs are low.
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
Universities practice price discrimination by:
offering students different levels of scholarship support.
Total surplus increases with practice of price discrimination only if:
output increases.
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.
Which of the following is an example of tying?
restrictions that prohibit patrons from bringing their own wine to restaurants
Price discrimination can be defined as:
selling the same product at two different prices in two different markets.
Price discrimination is:
sometimes better and sometimes worse than single pricing.
Consumers are ____ with price discrimination than with single pricing.
sometimes better off
Bundling can increase efficiency when fixed costs are high because the fixed costs are:
spread across more consumers.
Tying is:
the practice of a firm selling one product that requires the consumer to purchase another of the firm's products.
If a monopolist is able to perfectly price discriminate, then:
there will be zero deadweight loss to society.
Price discrimination is considered bad when:
total surplus decreases.
The difference between tying and bundling in pricing strategies is that:
tying does not require the purchase of both goods, but bundling does.
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.