inquizitive 11 - price discrimination
In thinking about how the pandemic of 2020 impacted markets, which of the following are examples of price discrimination? Which are not?
Example of Price Discrimination: - Toilet paper quickly became a hot commodity during the pandemic, with retailers charging less per unit for packs of toilet paper than they charged for just single rolls. - During the pandemic, restaurants continued to offer discounted Early Bird specials to seniors. - Vera Bradley, a popular woman's retailer, sells two versions of face masks. It costs the firm the same amount of money to produce each mask. However, it sells the mask made of recycled material to customers who identify as eco-friendly for a higher price. It sells the other nonrecycled-material mask to price-sensitive customers. Not an Example of Price Discrimination: - Stores across the United States created "Seniors Hours" during the pandemic, limiting access to stores during certain times to consumers over 60 or with health concerns.
Which of the following are examples of price discrimination?
Example: - A computer producer offers a mail-in rebate after purchase. Not an Example: - A golf course charges different prices for 9 or 18 holes. - A coffee shop charges different prices for different sizes of cups of coffee.
A satellite radio company is the sole supplier of a brand-new service providing commercial-free music that competes with existing free, broadcast-radio music delivered via antennas. The service is automatically activated for a 6-month introductory free-trial period, and is only available to people who purchase a new car with a specially equipped receiver. After the trial period, customers must call the company to activate and retain the service. Match each customer below to the radio company's best profit-maximizing price strategy.
High price: - Joe, who explains that he needs music to sing along with while he commutes two hours each day for work. Medium price: - Natasha, who says that she likes the service, but who commutes less than a half hour each day for work. Low price: - Ricardo explains that he is indifferent to the new service, and has not yet sampled many of the stations.
Price discrimination has various welfare effects. Drag each word or phrase to the appropriate blank space in order to complete the paragraph correctly. Under price discrimination, _____ decreases because the number of consumers able to purchase the good or service increases. This always has the effect of increasing _____. Depending on the nature of the price discrimination, _____ may decrease, but total welfare for society will _____.
deadweight loss, producer surplus, consumer surplus, increase
Which of the following is an effect of implementing price discrimination?
quantity sold increases
The owners of a movie theater are deciding which price(s) to charge each customer to see a movie. The marginal cost is $4 per customer, and the possible prices and quantity of customers are shown in the graph below. If the owners charge a higher price of $16 for each movie, then they will have a total profit of _____. If the owners charge a lower price of $12 for each movie, then they will have a total profit of _____. If the owners choose to charge only a single price, then they should charge the _____ price; however, if the owners are able to price discriminate and charge both $12 and $16, then they will earn a profit of _____.
$1,200, $1,600, lower, $2,000
In which of the following scenarios would the firm in question not be able to price-discriminate?
A fast food chain cannot discriminate customers who really love their food versus customers who merely enjoy it.
Which of the following firms would be able to price-discriminate most successfully?
An amusement park that is the only one in the state The amusement park has a high degree of market power that would allow it to price-discriminate successfully in a number of different ways. One possible way would be for the park to offer discounts for advance purchases of all-day passes, and higher prices for customers who purchase tickets upon arrival to the park.
A firm that operates in a perfectly competitive market is similar to a monopoly firm that is able to perfectly price discriminate in which of the following ways?
Correct: - Deadweight loss is eliminated. - Quantity sold will be the same - Total surplus is maximized Incorrect: - Price charged would be the same
When firms price-discriminate, they charge different groups of consumers different prices based on the consumers' varying willingness to pay for a good or service. Which of the following are instances of price discrimination?
Correct: - Firms offer clip-out coupons that provide a discount to customers who present them in the store. - A night club has a Ladies' Night for which women do not pay a cover charge while men do. Incorrect: - A potato chip manufacturer charges a higher price in Hawaii than California because of transportation costs.
Which of the following occurs if a monopolist firm changes from uniform pricing to perfect price discrimination?
Correct: - The prior consumer surplus is transferred to the producer. - The producer's revenue increases. Incorrect: - Because the surplus of additional transactions goes to the producer, deadweight loss does not change. - Because more product is being sold, the consumer surplus increases.
Select the options that illustrate the ways in which firms get consumers to reveal their demand elasticity.
Correct: - locating discount outlets far from major population centers - limiting outside food and drink at the movie theater - making people show a coupon in order to receive a discount Incorrect: - having a kids' menu with no age limit
Match each type of market to its welfare effect.
Creates inefficiency: - monopolist that charges a single price Maximizes benefit to producers: - perfect price discrimination Maximizes benefit to consumers: - perfectly competitive
T/F: Firms are able to price-discriminate when resale is impossible and groups of individuals are difficult to distinguish.
False Firms cannot price-discriminate if they cannot distinguish among consumers with different valuations
Fill in the blanks to complete the following sentence about price discrimination. _____ price discrimination occurs when a firm charges _____ groups of customers _____ prices based on known differences in their price elasticity of demand.
Imperfect, different, different
Label each type of behavior as reflecting either elastic or inelastic demand.
Inelastic: - attending an out-of-state public university - avoiding the Black Friday sales the day after Thanksgiving Elastic: - seeing a movie showing at 1:30 in the afternoon - taking kids to a restaurant that offers discounts for children under a certain age - buying in bulk to get a low price
Order the following businesses based on the likelihood that the firm will be able to attain near perfect price discrimination. Order the options from least to most likely to occur.
Least likely to occur: - vendor selling almonds at a farmer's market 2nd most likely to occur: - movie theater that charges two different prices based on show time Most likely to occur: - automobile dealership that negotiates a unique price for each customer
Match the condition that allows price discrimination to the characteristic of the product or service.
Prevent resale: - A software firm sells software that can only be installed on three computers. Distinguish groups of buyers: - A headphone maker issues a rebate to those who mail in a form. - A movie theater can ask for proof of a consumer's age.
Some firms charge more for the "female" version of a product. Why might firms charge women more than men for similar products such as clothing, accessories, personal care, and home healthcare products?
Reason(s): - women have more inelastic demand than men - higher costs to produce the "female" version of a product - greater demand for the "female" version of a product Not a Reason: - women have more elastic demand than men
Different market and firm structures operate at different levels of efficiency. Using the graph below, match the types of firms with the correct efficiency labels for consumer and producer surplus and deadweight loss.
Single price monopoly: - A is consumer surplus, B is producer surplus, and C is deadweight loss. Perfect price discrimination: - A, B, and C are all producer surplus. Perfect competition: - A, B, and C are all consumer surplus
The city government of Santa Fe, New Mexico, has implemented a highly successful tiered water-pricing system based on volume of water use. Why was this water conservation strategy successful?
The city government was able to divide people into groups according to their elasticity of demand for water
T/F: Students who are accepted through early decision to a college or university, which represents a binding agreement to attend that college, are less likely to receive financial aid. This is an example of price discrimination.
True Since these students are signaling that they value a spot at this university more than other students do, demand is relatively inelastic. The university knows they can be charged a higher price.
Which of the following are ways in which firms price-discriminate?
Way(s) in which Firms Price-Discriminate: - advertising flyers with cut-out coupons - senior citizen discounts Not Way(s) in which Firms Price-Discriminate: - selling refurbished products at a lower price than brand-new products - having a value menu at a fast-food restaurant alongside the regular menu
In 2020 during the height of the COVID-19 pandemic, President Trump issued an executive order calling for a removal of regulations that previously banned the importation of pharmaceuticals. Making the purchase of pharmaceuticals directly from foreign markets such as Canada and Mexico legal would allow U.S. markets easier access and lower costs for certain pharmaceuticals used in the treatment and prevention of COVID-19. Fill in the blanks to complete the passage below about pharmaceutical firms and price discrimination. The executive order meant that pharmaceutical firms would no longer be able to use price discrimination strategies. In order to price discriminate, two conditions regarding the _____ must be met. Companies must be able to: 1. _____, and 2. _____ of the good or service between customers.
buyer, differentiate customers, limit resale
The COVID-19 pandemic changed typical retail behavior, with many stores opting to close their physical locations on Black Friday and instead offer online discounts over a longer period than the traditional single day after Thanksgiving. Even some online retailers such as Amazon jumped in, offering deep discounts as early as October and almost certainly eliminating the price discrimination strategy that had been so effective in years prior. Fill in the blanks to complete the statement below about online discounts. The decision to offer longer-term online discounts shows that retailers felt that consumer demand for their goods had become more _____, because of uncertainty about the economy, and that by reducing prices they expected to _____ their total revenue.
elastic, increase
Fill in the blanks to complete the passage about price discrimination. In order to practice price discrimination, a firm must be a price _____. This means that it must also have some _____ so that it can charge more than one price. Both monopolies and _____ competitive companies use price discrimination to earn _____ profits.
maker, market power, monopolistically, higher
Most airlines charge a fee to check a bag. Fill in the blanks to complete the passage on price discrimination and airlines. Airlines can price-discriminate by determining people's _____ to pay for luggage accommodations in the cargo hold. Some customers are willing to pay a small marginal fee to check a bag for the sake of this convenience, other customers are not. In this way, the airline makes more _____ because it can divide customers into the _____ groups. Those who do not want to pay to check a bag often have _____ demand and will pack everything in a carry-on. Customers who have _____ demand for checked luggage will pay to check their bags.
willingness, revenue, two, elastic, inelastic
