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Price Discrimination – What & Why?
Perfect (First-Degree) Price Discrimination
Basics of Price Discrimination
Third
Bus 33001:
Microeconomics
Andrew McClellan
Assistant Professor of Economics
University of Chicago Booth School of Business
Week 8
Andrew McClellan
Microeconomics
Week 8
Price Discrimination – What & Why?
Perfect (First-Degree) Price Discrimination
Basics of Price Discrimination
Third
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Andrew McClellan
Microeconomics
Week 8
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Price Discrimination – What & Why?
Perfect (First-Degree) Price Discrimination
Basics of Price Discrimination
Third
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Week 8
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Price Discrimination – What & Why?
Perfect (First-Degree) Price Discrimination
Basics of Price Discrimination
Third
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Andrew McClellan
Microeconomics
Week 8
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Price Discrimination – What & Why?
Perfect (First-Degree) Price Discrimination
Basics of Price Discrimination
Third
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Andrew McClellan
Microeconomics
Week 8
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Price Discrimination – What & Why?
Perfect (First-Degree) Price Discrimination
Basics of Price Discrimination
Third
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Microeconomics
Week 8
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Related Questions
PART A: “There is constantly a shift in supply and demand curves and markets are never at equilibrium. As a result, there is no purpose of the concept of equilibrium.” Do you agree/disagree with this statement.
PART B: Resorts give discounts to individuals who book in advance and stay over a weekend. Individuals who book at the last minute and do not stay over a weekend usually pay full price. Explain the difference between the two groups’ demand for resorts and the resorts’ pricing decisions?
Ensure that you define any key terms used in your discussion.
arrow_forward
Price discrimination is the practice of selling the same good at more than one price when the price differences are not justified by cost differences.
Evaluate the following statement: "Price discrimination is possible only if no one can easily resell the good."
None of these choices
True, because this prevents the low-price segment of the market from reselling to the high-price segment
False, because it doesn't matter whether consumers can resell the good or not
False, because allowing for resale is more efficient
Which of the following kinds of price discrimination occurs when each customer in a single market is charged the maximum price he or she is willing to
pay?
Second-degree price discrimination
Third-degree price discrimination
This is not an example of price discrimination
Perfect price discrimination
arrow_forward
George has been selling 7,000 T-shirts per month for $7.00. When he increased the price to $9.00, he sold only 6,000 T-shirts.
Which of the following best approximates the price elasticity of demand?
-0.6769
-0.6154
-0.3077
-0.5538
Suppose George's marginal cost is $4 per shirt.
Before the price change, George's initial price markup over marginal cost was approximately . George's desired markup is .
Since George's initial markup, or actual margin, was than his desired margin, raising the price was
arrow_forward
Suppose a firm sells two goods, Good A and Good B. Use the following information to Calculate the mark-up and the profit-maximizing price that the firm should change for Good B.
Profit maximizing price of Good A = $6000
MC at profit-maximizing level of output of Good A = $1200
MC at profit-maximizing level of output of Good B = $400
Total revenue of Good A = $80000
Total revenue of Good B = $68000
Rothschild index of Good B = 0.6
Price elasticity of the market demand for Good B = -1.2
arrow_forward
Use the following roundtable summary on price discrimination from the DOJ and FTC – Roundtable on Price Discrimination - to answer the following questions.
a.) What conditions must be met in order for price discrimination to be feasible? What are the factors that determine the competitive implications of price discrimination?
b.) Summarize the difference between price discrimination used for “exploitative” purposes vs. “exclusionary” purposes. Explain which – and why – one form is legal but the other is not?
c.) Do you think there should be greater government regulations or oversight of firms’ ability to engage in price discrimination? Explain.
arrow_forward
Fill in the following table with degrees of competition, the price elasticity of demand and the
implications of the degree of competition and the price elasticity on the price of the product
at each stage of the product life cycle.
Stages of the
product life cycle
Introduction
Growth
Maturity
Decline
Degree of
competition
Price elasticity
Price of the product
arrow_forward
What is price discrimination? Explain how the theories of elasticity, if used, can help suppliers make decisions on product prices.
arrow_forward
The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $30, $20, $10,
$5, and $3 (one seller at each price). Five buyers are willing to buy one widget at the following prices: $10, $20, $30, $38, and $44 (one buyer at
each price).
For each price shown in the following table, use the given information to enter the quantity demanded and quantity supplied.
Quantity Demanded
Quantity Supplied
(widgets)
Price
($ per widget)
$3
$5
$10
$20
$30
$38
$44
(widgets)
arrow_forward
The elasticity of Supply is an important concept in Microeconomics as it relates to a business's ability to adjust its production and its production facility in response to market developments. Think of some examples of products and businesses that would have various degrees of Elasticity of Supply and share them here.
For example, what would be the Elasticity of Supply for an original piece of art? What does this imply for the adjustment in this market to a change in Demand?
How would you describe the Elasticity of Supply for a product such as peaches, plums, and other tree fruit? Consider first a brief period, such as weeks, and next a much longer period such as five years. How does the time horizon influence market adjustment when there is a change in Demand?
arrow_forward
12
Jim's Camera shop sells two high-end cameras, the Sky Eagle and Horizon. The demands and selling prices for these two cameras are as follows.
Ds = demand for the Sky Eagle
Ps= selling price of the Sky Eagle
DH = demand for the Horizon
PH = selling price of the Horizon
= 223 - 0.60P + 0.35PH
DH=270+ 0.10P - 0.64PH
Revenue
Ds
The store wishes to determine the selling price that maximizes revenue for these two products. Develop the revenue function R (in terms of Ps and PH only) for these two
models, and find the revenue maximizing prices (in dollars). (Round your answers to two decimal places.)
Price for Sky Eagle
Price for Horizon
Optimal revenue
R =
PS = $|
PH = $
R = $
arrow_forward
Question 2 Price elasticity of demand and the illegal market for meth in Wyoming
Draw the (illegal) market for meth in Wyoming. Since meth is highly addictive the demand is very inelastic. Supply is more elastic than demand. Label the equilibrium price and quantity, P* and Q*, respectively.
Now imagine that the Wyoming police manages to discover, raid and shut down a big meth producing lab. Add a new curve to your market diagram to show what happens as a result of this successful police work. Also comment on what is bigger: the change in price or the change in quantity ; and why that is the case
We saw in our lectures that legalizing cocaine would likely drop the street price of cocaine by an estimated 95%. Assuming the street price of meth would drop equally if legalized, what percentage change in quantity demanded of meth would we expect if the price elasticity of demand of meth is - 0.1?
arrow_forward
1,) Explain the price-demand relationship. What factors must sellers consider when setting prices in different type of markets?
2)list two new products pricing strategies . give an example for each one to show each strategy look like.
arrow_forward
Take a look at the three factors that affect elasticity in section 6.3, on pages, 205-207.
- Availability of Substitutes
- Percentage of Consumer's Budget
- Time Period of Adjustment
Explain how each of the factors would or would not affect the price elasticity of demand for a good or service that your company (or a company for which you have an interest) produces?
arrow_forward
Suppose you were asked to manage a golf course that was currently charging a uniform price. Would you suggest that the course continue with this price plan or switch to a two-part pricing plan? Explain your decision and how you would choose the optimal price.
arrow_forward
The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $18, $14, $12,
$6, and $3 (one seller at each price). Five buyers are willing to buy one widget at the following prices: $12, $14, $18, $28, and $34 (one buyer at
each price).
For each price shown in the following table, use the given information to enter the quantity demanded and quantity supplied.
Quantity Demanded Quantity Supplied
(widgets)
(widgets)
Price
($ per widget)
$3
$6
$12
$14
$18
$28
$34
In this market, the equilibrium price will be
per widget, and the equilibrium quantity will be
4
5
0
3
1
2
widgets.
arrow_forward
The patterns in demand can seem mysterious at first, but if you familiarize yourself with the ideas contained in customer demand theory, you can make reliable predictions about customer behavior. Many thinkers over many years developed this theory, and it helps anticipate reactions to changes in the way people market products and services."
Source: Johnston, K. (2023). https://smallbusiness.chron.com/customer-demand-theory-37253.html
Based on the scenario above discuss the demand determinants. Provide clear commodity examples in your discussion.
arrow_forward
Before economic reforms were implemented in the countries of Eastern Europe, regulation held the price of bread substantially below equilibrium. When reforms were implemented, prices were deregulated and they rose dramatically. As a result, the quantity demanded for bread dramatically fell and the quantity supplied for supplied rose sharply.
Change in Demand
Increase
Decrease
Did not Change
Indeterminate
Change in Supply
Increase
Decrease
Did not Change
Indeterminate
arrow_forward
According to the CEO of Turing Pharmaceuticals, what would he have done to the price of Daraprim if he could do things all over again? 1. increase the price even more 2. lower the price so that more people could afford it 3. wait to see what the competitor did 4. ask the government for a tax exemption
arrow_forward
In the market for alcoholic beverages, a business called Drive-thru Bottle Shop offers a variety of
different bottled wines to their customers. They stock many brands, some being very well-known, with
others less well known.
Answer the following questions:a. If a wine has significant brand recognition and customer loyalty, then
the point price elasticity of demand at a given price for this wine would
elastic than the point price elasticity
be
of demand of a similar wine where the wine maker has little brand recognition and customer loyal,
ceteris paribus. Type L for Less, M for More or E for Equally.
b. The demand for a particular wine sees customers purchase 6,000 bottles of wine when the price is
$7.99 per bottle, and only 5,000 bottles when the price was increased to $8.49 by the Drive-thru
Bottle Shop management. What is the price elasticity of demand using the mid-point formula?
Answer to the nearest two decimal places.
C. Assume the Drive-thru Bottle Shop is trying to maximise…
arrow_forward
SEE MORE QUESTIONS
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Publisher:Cengage Learning
Related Questions
- PART A: “There is constantly a shift in supply and demand curves and markets are never at equilibrium. As a result, there is no purpose of the concept of equilibrium.” Do you agree/disagree with this statement. PART B: Resorts give discounts to individuals who book in advance and stay over a weekend. Individuals who book at the last minute and do not stay over a weekend usually pay full price. Explain the difference between the two groups’ demand for resorts and the resorts’ pricing decisions? Ensure that you define any key terms used in your discussion.arrow_forwardPrice discrimination is the practice of selling the same good at more than one price when the price differences are not justified by cost differences. Evaluate the following statement: "Price discrimination is possible only if no one can easily resell the good." None of these choices True, because this prevents the low-price segment of the market from reselling to the high-price segment False, because it doesn't matter whether consumers can resell the good or not False, because allowing for resale is more efficient Which of the following kinds of price discrimination occurs when each customer in a single market is charged the maximum price he or she is willing to pay? Second-degree price discrimination Third-degree price discrimination This is not an example of price discrimination Perfect price discriminationarrow_forwardGeorge has been selling 7,000 T-shirts per month for $7.00. When he increased the price to $9.00, he sold only 6,000 T-shirts. Which of the following best approximates the price elasticity of demand? -0.6769 -0.6154 -0.3077 -0.5538 Suppose George's marginal cost is $4 per shirt. Before the price change, George's initial price markup over marginal cost was approximately . George's desired markup is . Since George's initial markup, or actual margin, was than his desired margin, raising the price wasarrow_forward
- Suppose a firm sells two goods, Good A and Good B. Use the following information to Calculate the mark-up and the profit-maximizing price that the firm should change for Good B. Profit maximizing price of Good A = $6000 MC at profit-maximizing level of output of Good A = $1200 MC at profit-maximizing level of output of Good B = $400 Total revenue of Good A = $80000 Total revenue of Good B = $68000 Rothschild index of Good B = 0.6 Price elasticity of the market demand for Good B = -1.2arrow_forwardUse the following roundtable summary on price discrimination from the DOJ and FTC – Roundtable on Price Discrimination - to answer the following questions. a.) What conditions must be met in order for price discrimination to be feasible? What are the factors that determine the competitive implications of price discrimination? b.) Summarize the difference between price discrimination used for “exploitative” purposes vs. “exclusionary” purposes. Explain which – and why – one form is legal but the other is not? c.) Do you think there should be greater government regulations or oversight of firms’ ability to engage in price discrimination? Explain.arrow_forwardFill in the following table with degrees of competition, the price elasticity of demand and the implications of the degree of competition and the price elasticity on the price of the product at each stage of the product life cycle. Stages of the product life cycle Introduction Growth Maturity Decline Degree of competition Price elasticity Price of the productarrow_forward
- What is price discrimination? Explain how the theories of elasticity, if used, can help suppliers make decisions on product prices.arrow_forwardThe widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $30, $20, $10, $5, and $3 (one seller at each price). Five buyers are willing to buy one widget at the following prices: $10, $20, $30, $38, and $44 (one buyer at each price). For each price shown in the following table, use the given information to enter the quantity demanded and quantity supplied. Quantity Demanded Quantity Supplied (widgets) Price ($ per widget) $3 $5 $10 $20 $30 $38 $44 (widgets)arrow_forwardThe elasticity of Supply is an important concept in Microeconomics as it relates to a business's ability to adjust its production and its production facility in response to market developments. Think of some examples of products and businesses that would have various degrees of Elasticity of Supply and share them here. For example, what would be the Elasticity of Supply for an original piece of art? What does this imply for the adjustment in this market to a change in Demand? How would you describe the Elasticity of Supply for a product such as peaches, plums, and other tree fruit? Consider first a brief period, such as weeks, and next a much longer period such as five years. How does the time horizon influence market adjustment when there is a change in Demand?arrow_forward
- 12 Jim's Camera shop sells two high-end cameras, the Sky Eagle and Horizon. The demands and selling prices for these two cameras are as follows. Ds = demand for the Sky Eagle Ps= selling price of the Sky Eagle DH = demand for the Horizon PH = selling price of the Horizon = 223 - 0.60P + 0.35PH DH=270+ 0.10P - 0.64PH Revenue Ds The store wishes to determine the selling price that maximizes revenue for these two products. Develop the revenue function R (in terms of Ps and PH only) for these two models, and find the revenue maximizing prices (in dollars). (Round your answers to two decimal places.) Price for Sky Eagle Price for Horizon Optimal revenue R = PS = $| PH = $ R = $arrow_forwardQuestion 2 Price elasticity of demand and the illegal market for meth in Wyoming Draw the (illegal) market for meth in Wyoming. Since meth is highly addictive the demand is very inelastic. Supply is more elastic than demand. Label the equilibrium price and quantity, P* and Q*, respectively. Now imagine that the Wyoming police manages to discover, raid and shut down a big meth producing lab. Add a new curve to your market diagram to show what happens as a result of this successful police work. Also comment on what is bigger: the change in price or the change in quantity ; and why that is the case We saw in our lectures that legalizing cocaine would likely drop the street price of cocaine by an estimated 95%. Assuming the street price of meth would drop equally if legalized, what percentage change in quantity demanded of meth would we expect if the price elasticity of demand of meth is - 0.1?arrow_forward1,) Explain the price-demand relationship. What factors must sellers consider when setting prices in different type of markets? 2)list two new products pricing strategies . give an example for each one to show each strategy look like.arrow_forward
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SEE MORE QUESTIONS
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Recommended textbooks for you
- Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, IncManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning