Question : 11) A firm’s efforts to increase profit by price discrimination : 1387931

 

 

11) A firm’s efforts to increase profit by price discrimination can be undermined by

A) arbitrage by buyers.

B) consumer ignorance.

C) differences in elasticity of demand.

D) seller market power.

 

 

12) According to a New York Times article, shoppers from New York City have played a game of “retail arbitrage” by shopping at malls in Northern New Jersey, a state where there is no tax on clothing and shoes. Even after accounting for transaction costs, shoppers could still save money on their clothing and footwear purchases.

Source: Ken Belson and Nate Schweber, “Sales Tax Cut in City May Dim Allure of Stores Across Hudson,” New York Times, January 18, 2007.

 

Is the term “arbitrage” correctly used here?

A) Yes, because shoppers were able to purchase items at lower prices even after deducting their transaction costs.

B) No, “arbitrage” means buying at a low price and reselling at a higher price, but no resale takes place here.

C) Yes, arbitrage applies even if no resale takes place; in this case the profits are pocketed by the customers themselves.

D) No, “arbitrage” does not apply to markets that are not in the same geographic area.

 

13) Lou buys an Iron Man 2 poster at a garage sale for $30 and resells it on eBay to Kyle for $60. Which of the following statements is true?

A) The transaction has made Lou better off and Kyle worse off.

B) The transaction is economically inefficient.

C) The transaction has made Lou and Kyle better off.

D) It is not possible for Kyle to enjoy any consumer surplus from this transaction.

 

 

14) Lou buys an Iron Man 2 poster from Evan for $30 and resells it on eBay for $60. Which of the following statements is false?

A) Lou has earned some arbitrage profits, assuming that transaction costs are negligible.

B) The transaction has made Evan worse off because he undersold the poster.

C) Lou has probably incurred some costs in connection with this sale.

D) It is possible that Evan has earned some producer surplus from this transaction.

 

 

15) For many products, such as fast foods, a variety of prices can be found, but sellers with higher prices can expect to sell their products because

A)  consumers are not sensitive to prices.

B) arbitrage will quickly eliminate price differences.

C) firms differentiate products in many ways; for example, higher priced fast food restaurants may offer better service.

D) their demand is perfectly inelastic.

 

16) If firms differentiate their products in different ways and charge different price because of these differentiation factors, then

A) the law of one price is not violated.

B) transaction costs are being ignored.

C) the firm must not be maximizing profit.

D) demand must be perfectly elastic.

 

 

Table 16-1

 

COMPANY

PRICE

Amazon.com

$14.09

BarnesandNoble.com

16.82

Walmart.com

14.09

Rakuten.com

19.06

 

Table 16-1 shows the price for the hardcover version of the novel Inferno by Dan Brown at four online bookstores.

 

17) Refer to Table 16-1.  Which of the following can one conclude from the data above?

A) The data provides clear evidence of price discrimination in online bookstore market.

B) Amazon.com and Walmart.com are able to charge a lower price for the item because they are more cost efficient than the other two companies.

C) The items offered for sale are similar but not identical; the quality of service and delivery time might vary from store to store, which justifies the price differences.

D) Walmart.com and Amazon.com have deliberately underpriced their product to force the other two companies out of business.

 

18) The Athenian Theatre sells play tickets for the same play at different prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the front, around the stage. Which of the following statements is true?

A) This is an example of product differentiation but not price discrimination.

B) The theatre practices first-degree price discrimination by setting prices based on willingness to pay.

C) Since the cost of producing the play does not change with the seating configuration, this is evidence of price discrimination based on market segmentation.

D) Charging two different prices is an effective way to avoid an excess demand for play tickets; the higher price lowers quantity demanded to some extent.

 

 

19) The price of admission to Walt Disney World

A) can vary by your age and address.

B) is the same for everyone.

C) is kept low to attract customers, but Disney earns most of its profits by selling tickets to rides and attractions inside the park.

D) is kept low to attract customers, but prices of rides and attractions inside the park vary by your age, address and other factors.

 

20) In the 1950s, Walt Disney began to plan the development of a theme park that would eventually become Disneyland. Disney hired an economist to help determine whether the park would be a financial success. This economist surveyed managers of existing amusement parks for advice. Many of these managers

A) believed that a theme park would be very successful because the Disney name created a market among children and parents who had watched Disney cartoons and movies such as Snow White.

B) recommended that the theme park be located in California because population in the state would increase greatly in the future. Disney followed this advice.

C) recommended that Disney not build the park and leave the amusement park business to those who knew what they were doing.

D) recommended that Disney first build an audience for his park by offering the ABC television network a weekly program that would feature Disney movies, cartoons and original programming. Walt Disney followed this advice. Both the television program and Disneyland were financial successes.