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Economic
Q:
If a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations, then it is engaging in
A) odd pricing.
B) cost-plus pricing.
C) price discrimination.
D) markup pricing.
Q:
The following table contains the actual prices charged by four Web sites for a Blu-ray disc of the movie The Twilight Saga: Breaking Dawn - Part 2 in October 2013.Amazon$21.51Wal-Mart19.96J&R20.39DVD Planet18.71Explain whether the information in this table contradicts the law of one price.
Q:
The following table contains the actual prices charged by four Websites for the PlayStation 3 game The Last of Us in October 2013.Target$59.99Wal-Mart53.22Best Buy59.99GameStop59.99Explain whether the information in this table contradicts the law of one price.
Q:
What is meant by the "law of one price"? In discussing the law of demand, Hubbard and O'Brien claim there has been no evidence of an exception to the law (that is, no evidence of an upward-sloping demand curve). Are there exceptions to the law of one price?
Q:
"Buy low and sell high is advice given to people who want to make a profit by buying and selling shares of stock. Arbitrage is defined as buying a product in one market at a low price and reselling it in another market at a high price. Therefore, when stock brokers buy and sell stocks to earn a profit they are engaging in arbitrage." Evaluate this statement; state whether it is true or false and explain your answer.
Q:
Under what circumstances will the law of one price hold, and when might it not hold?
Q:
Are sellers who practice arbitrage taking advantage of buyers?
Q:
Dell Computers allows potential consumers to customize personal computers to their desires. Dell's strategy is successful because offering bundles that more exactly meets a consumer's preference allows Dell to extract more consumer surplus.
Q:
Entrepreneurs who earn arbitrage profit are able to do so by extracting the total consumer surplus from buyers.
Q:
Charging different prices to different consumers for the same product when the price differences are not due to differences in cost is called arbitrage.
Q:
The law of one price holds exactly only if there are transactions costs associated with buying a product in one location and selling it in another location.
Q:
Differentiating products to suit customers' tastes is a form of price discrimination.
Q:
In a perfectly competitive market, in the long run, arbitrage profits will be bid away.
Q:
The law of one price states that identical products should sell for the same price everywhere as long as transactions costs are zero.
Q:
The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.
Q:
Transactions costs refer to
A) the implicit costs of production.
B) the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services.
C) the raw material cost of production.
D) the cost of transporting goods from one destination to another.
Q:
The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called
A) yield management.
B) elasticity management.
C) brand management.
D) marketing.
Q:
Arbitrage refers to the act of
A) resolving a dispute in front of an arbitrator instead of a court of law.
B) buying a product in one market at a low price and reselling in another market at a higher price.
C) trading in the foreign exchange market.
D) suing a producer for illegal business practices.
Q:
According to the law of one price
A) if transaction costs are zero, identical goods should sell for the same price everywhere.
B) if transactions costs are zero, firms must sell a product at a price equal to its marginal cost.
C) if transactions costs are zero, all firms must earn the same profit margin.
D) there must be no differences in the cost of producing identical goods by different producers.
Q:
Harvey Morris bought dishes and pitchers made of blue glass during the Great Depression at a flea market. He later resold these items on eBay. The profits Harvey earned from these sales are
A) subject to a retail profits tax.
B) are not economic profits because Harvey did not add value to the items but took advantage of the buyers who were not aware of how much Harvey paid for the items.
C) the result of arbitrage.
D) accounting profits but not economic profits.
Q:
Many people sell goods through eBay at prices that are higher than the prices they paid for these goods. Economists consider these transactions as
A) examples of zero sum games, since the value of the goods sold is exactly equal to the prices paid for them.
B) unproductive since the goods sold have been produced in the past.
C) examples of exploitation of buyers of the goods by the sellers.
D) examples of arbitrage.
Q:
According to the law of one price, identical products should sell for the same price everywhere if
A) consumers have knowledge of the prices charged for products in different markets.
B) transactions costs are zero.
C) firms can prevent consumers from engaging in arbitrage.
D) there are no tariffs or other restrictions on imports or exports.
Q:
The law of one price
A) states that consumers can only buy one good or service at a time.
B) is a law passed by Congress that prohibits firms from selling a product at two different prices in the same market at the same time.
C) states that consumers will pay any price for a product that has a perfectly inelastic demand curve.
D) states that identical products should sell for the same price everywhere.
Q:
Harry attended a baseball card show in New York City where he bought a number of rookie cards of Pittsburgh Pirates baseball players from the 1950s and 1960s. Harry then sold the cards in Pittsburgh, Harry's hometown, where he knew the cards sold for higher prices. The profits Harry earned from these transactions are called
A) arbitrage profits.
B) normal profits.
C) accounting profits.
D) implicit profits.
Q:
The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services are called
A) exchange costs.
B) implicit costs.
C) transactions costs.
D) selling costs.
Q:
What is meant by the "law of one price"?
A) Identical products should sell for the same price everywhere.
B) A law was passed in 1913 that made it illegal to sell the same good or service to different people for different prices.
C) This is a section of the Sherman Act that forced trusts (for example, the Standard Oil Company) to charge the same price for the same good or service in different states.
D) Foreign companies should not be allowed to sell a product in the United States for prices different from prices these companies charge in other countries.
Q:
Which of the following will prevent firms from engaging in price discrimination?
A) yield management
B) arbitrage
C) transactions costs
D) odd pricing
Q:
Many firms use technology to gather information on the preferences of consumers and their responses to changes in prices. This information is then used to adjust prices of the firms' goods and services. This practice is called
A) price discovery.
B) empirical research.
C) yield management.
D) econometrics.
Q:
Today, Walt Disney World charges different customers different prices for admission. This pricing strategy is called
A) arbitrage.
B) odd pricing.
C) cost-price pricing.
D) price discrimination.
Q:
When Disneyland opened in 1955, what prices were charged for admission and rides?
A) Admission was free; customers paid for rides.
B) All customers paid the same price for admission; rides were free.
C) Admission prices varied by your age, home address and occupation; rides were free.
D) All customers paid the same low price for admission; customers were also charged prices for rides.
Q:
Walt Disney began planning for Disneyland in the early 1950s. When he began to consider how the amusement park would be funded
A) he decided to use the profits earned from his company's cartoons and motion pictures.
B) he had trouble raising the required funds. Eventually, he convinced a television network to fund the amusement park in exchange for providing a weekly television program.
C) he decided to borrow money from Hollywood banks. The banks quickly agreed to loan Disney the money because of Disney's reputation and previous success.
D) he had trouble raising the required funds from banks, so he decided to issue "Disney bonds." He had no trouble paying the interest and principal on the bonds with profits from Disneyland.
Q:
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.
Q:
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.
Q:
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.
Q:
Table 16-1COMPANYPRICEAmazon.com$14.09BarnesandNoble.com16.82Walmart.com14.09Rakuten.com19.06Table 16-1 shows the price for the hardcover version of the novel Inferno by Dan Brown at four online bookstores.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 item offered for sale is 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 under-priced their product to force the other two companies out of business.
Q:
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.
Q:
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.
Q:
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.
Q:
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.
Q:
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.
Q:
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.
Q:
The law of one price states
A) federal and state statutes that prohibit price discrimination.
B) that all customers should pay the same price.
C) that identical products should sell for the same price everywhere.
D) government regulation of prices for all firms.
Q:
Assuming zero transaction cost, if your local grocer buys oranges at a low price from an orchard and resells them to you at a higher price, then the grocer's revenue minus costs is known as
A) arbitrage profits.
B) transactions profits.
C) pure profits.
D) excess profits.
Q:
Buying at a low price in one market and reselling at a higher price in another market will
A) not generate any profit because of transportation costs.
B) not generate any profit because of transactions costs.
C) eventually eliminate all of the price differences.
D) eventually eliminate most, but not necessarily all, of the price differences.
Q:
Why might an amusement park switch from charging admission to the park and charging for the rides to charging for admission but not charging for the rides?
Q:
When you buy at a low price in one market then sell at a higher price in another market you are engaging in
A) odd pricing.
B) arbitrage.
C) an antitrust prohibited practice.
D) price discrimination.
Q:
What is cost-plus pricing? Why do some firms use cost-plus pricing even when the firms' managers have the resources to devise a pricing strategy that would result in greater profits?
Q:
The expenses you encounter when you buy in one market and sell in a distant market are known as
A) production costs.
B) fixed costs.
C) transactions costs.
D) sunk costs.
Q:
Firms engage in odd pricing when they charge prices that appear to be less than they really are; for example, charging a price of $4.95 instead of $5.00 and $.99 instead of $1.00. How have researchers tried to determine whether odd pricing is successful in convincing consumers that odd prices are less than they really are?
Q:
The law of one price holds exactly only if
A) antitrust laws are being enforced.
B) buyers have complete information.
C) transactions costs are zero.
D) it is impossible for buyers to resell the good.
Q:
Assume a firm is able to use an optimal two-part tariff.
a. Is the outcome economically efficient? Why or why not?
b. What happens to consumer surplus?
c. Does this represent perfect price discrimination? Why or why not?
Q:
Yield management is the practice of
A) determining production functions to minimize production costs.
B) forecasting competitors' responses to price changes.
C) using buyer data to rapidly adjust prices.
D) using information technology to find the best interest rate.
Q:
Many book publishers use cost-plus pricing to establish prices for some of their books. Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?
Q:
Arbitrage
A) is the act of buying an item at a low price and reselling the item at a higher price.
B) is the act of selling an item on consignment and collecting a huge portion of the proceeds to compensate for the seller's time.
C) is the act of buying an item at a low price, bundling it with another and selling the new package at a much higher price.
D) is any act of buying and selling that results in the seller earning an above normal profit.
Q:
What is odd pricing? Why do some merchants use odd pricing?
Q:
In the real world
A) all sellers charge one price equal to the marginal cost of production.
B) profitable sellers will set one price based on the average elasticity of demand of buyers.
C) many firms charge different prices based on consumers' willingness to pay.
D) all sellers charge one price set by the government.
Q:
Economists believe that cost-plus pricing may be the best way for a firm to determine its optimal product price when the firm's marginal cost and average cost are about the same and when it is difficult to estimate the product's demand curve.
Q:
Price discrimination
A) is the practice of charging different prices to different customers based on a seller's personal preferences and prejudices.
B) is the practice of charging different prices to different customers based on the different costs of supplying the product to different customers.
C) is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost.
D) is the practice of giving preferential treatment to certain groups of customers based on their long-standing relationship to the producer.
Q:
There is no evidence that odd pricing succeeds in convincing consumers that prices are lower than they really are.
Q:
In an optimal two-part tariff pricing schedule, consumer surplus is zero.
Q:
The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World.
Q:
If marginal costs differ quite substantially from average total costs, then using a cost-plus pricing schedule will not lead to the profit maximizing price.
Q:
An optimal two-part tariff pricing schedule maximizes consumer surplus.
Q:
A two-part tariff refers to a pricing schedule under which a buyer must pay a fixed fee for the right to purchase the product, in addition to a per-unit price.
Q:
Movie theaters often charge different people different prices for admission. Why don't theaters charge different prices for popcorn and other food items?
A) Although the elasticity of demand for admission differs among customers, most people have the same the elasticity of demand for food items.
B) Concession stand personnel are too busy to ensure that different people pay different prices for food items.
C) Once people are in the theater, concession stands have monopoly power and can charge everyone the same high prices for food.
D) It is difficult to limit the resale of food items from those who pay low prices to those who would have to pay high prices from the concession stand.
Q:
Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
Refer to Figure 16-7. The owners of the Lizard Lounge are considering the following four pricing options:
a. A single price scheme where the cocktail price equals the monopoly price.
b. A single price scheme where the cocktail price equals the competitive price.
c. A two-part tariff: a monopoly cocktail price and a cover charge that will generate total revenue equal to the area X.
d. A two-part tariff: a competitive cocktail price and whatever cover charge that will generate a total revenue equivalent to the area X + Y + Z.
Which pricing scheme(s) achieve the economically efficient outcome?
A) schemes a and c
B) scheme b
C) schemes b and d
D) scheme d only
Q:
Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
Refer to Figure 16-7. The owners of the Lizard Lounge are considering the following four pricing options:
a. A single price scheme where the cocktail price equals the monopoly price.
b. A single price scheme where the cocktail price equals the competitive price.
c. A two-part tariff: a monopoly price for cocktails and a cover charge that will generate total revenue equal to the area X.
d. A two-part tariff: a competitive price for cocktails and a cover charge that will generate total revenue equal to the area X + Y + Z.
Under which scheme are the Lounge customers better off?
A) scheme a
B) scheme b
C) scheme c
D) scheme d
Q:
Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
Refer to Figure 16-7. The owners of the Lizard Lounge are considering the following four pricing options:
a. A single price scheme where the price of cocktails equals the monopoly price.
b. A single price scheme where the cocktail price equals the competitive price.
c. A two-part tariff: a monopoly price for cocktails and a cover charge that will generate total revenue equal to the area X.
d. A two-part tariff: a competitive price for cocktails and a cover charge that will generate total revenue equal to the area X + Y + Z.
Which scheme will earn the largest profit?
A) scheme a
B) scheme b
C) scheme c
D) scheme d
Q:
Figure 16-6 Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
Refer to Figure 16-6. With this pricing scheme - a competitive price for the classes and a one-time membership fee - what amount of producer surplus will Sensei earn?
A) the area A + B + C + D + E.
B) the area E + F.
C) the area H + G + F.
D) the area A + B + C + D + E + F + G + H
Q:
Figure 16-6 Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
Refer to Figure 16-6. If Sensei charges the competitive price for his classes, what is the maximum amount of admission fee that he can collect from his customers?
A) the area A + B
B) the area A + B + C + D
C) the area A + B + C + D + E
D) the area A + C + D + G + H
Q:
Figure 16-6 Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
Refer to Figure 16-6. Suppose instead of charging the monopoly price for his classes, Sensei charges the competitive price. What is the competitive price and what is the quantity demanded at this price?
A) P0, Q1
B) P0, Q0
C) P1, Q0
D) P1, Q1
Q:
Figure 16-6 Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
Refer to Figure 16-6. With a two-part pricing scheme - a monopoly price for classes and a one-time membership fee - what is the amount of producer surplus Sensei will earn?
A) an amount equal to the area A + B + C + D
B) an amount equal to the area E + F
C) an amount equal to the area A + C + H
D) an amount equal to the area A + B + C + D + H + G
Q:
Figure 16-6 Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
Refer to Figure 16-6. Sensei's friend, Marcel, suggests that he charge a one-time membership fee to use the martial arts school, in addition to a per-class charge. Suppose Sensei charges the monopoly price for each class and also imposes a one-time membership fee. What is the maximum amount of revenue from the membership fee he can collect from all his customers?
A) an amount equal to the area A + B
B) an amount equal to the area E + F
C) an amount equal to the area H + G
D) an amount equal to the area A + C + H
Q:
Figure 16-6 Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
Refer to Figure 16-6. If Sensei acts as a monopolist and charges the profit-maximizing price, what is his producer surplus?
A) the area B + D + G
B) the area A + B + C + D + H + G
C) the area C + D + H + G
D) the area A + C + H
Q:
Figure 16-6 Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
Refer to Figure 16-6. If Sensei acts as a monopolist and charges the profit-maximizing price, what is the consumer surplus received by his customers?
A) the area A + B + C + D
B) the area A + B + C + D + E
C) the area A + B
D) the area A + C + H
Q:
Figure 16-6 Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
Refer to Figure 16-6. If Sensei acts as a monopolist, his profit-maximizing price is ________ and the number of classes sold is ________.
A) P0; Q0
B) P0; Q1
C) P1; Q0
D) P1; Q1
Q:
Consider a discount retailer such as Costco which uses a two-part tariff pricing strategy. The Costco membership fee
A) buys the consumer the right to make future purchases at Costco.
B) is a resalable asset to the consumer.
C) is a resalable asset to the producer.
D) is used by Costco to cover its fixed costs of production.
Q:
Many golf courses charge members an annual membership fee as well as a fee each time they golf. One reason for this is
A) golf courses do not want their members to overuse their fairways. Charging for each round of golf played reduces fairway maintenance costs.
B) charging both fees allows the courses to transfer more consumer surplus into profit than charging only an admission fee.
C) charging both fees allows the courses to transfer more producer surplus into profit than charging only an admission fee.
D) research has shown that charging both fees increases the likelihood that golfers will renew their memberships.
Q:
The Walt Disney Company is in a position to use a two-part tariff policy in setting prices for admission and rides at Disney World. If this strategy resulted in maximum profit, Disney would convert all consumer surplus into profit. Which of the following explains why Disney does not maximize its profits from admission and rides?
A) To maximize its profits, Disney would have to know the demand curves of each of its customers. Since this is not possible, Disney is not able to convert all consumer surplus into profit.
B) Disney purposely charges less than the profit-maximizing price for admission to Disney World because it does not want to risk alienating its customers.
C) Disney purposely charges less than the profit-maximizing price for admission to Disney World in order to earn more profit from sales of food, lodging and other related services.
D) Disney does not charge the profit-maximizing price for admission because it wants to keep admission affordable for children who will be more likely to visit Disney World when they become parents.
Q:
The Walt Disney Company is in a position to use a two-part tariff by charging for admission and also charging for rides inside its two theme parks, Disneyland and Disney World. Which of the following statements regarding Disney's pricing strategy is true?
A) At one time, admission fees were charged at both parks but all rides were free. Disney has since changed its pricing policy; it earns higher profits by charging for both admission and rides.
B) At one time, customers had to pay for admission and rides at Disneyland and Disney World. Disney has since changed its pricing policy; it earns higher profits by charging for admission but not for rides.
C) At one time, customers had to pay for admission and rides at Disneyland and Disney World. Disney has since changed its pricing policy; it earns higher profits by charging for rides but not for admission.
D) At one time, fees for admission and rides at both parks were set at their profit-maximizing levels. Disney has since changed its pricing policy; it uses a cost-plus pricing strategy for admission and does not charge for rides.