Question

2. Price-discriminating firms charge higher prices to those who

• have greater incomes.

• have higher price elasticities of demand compared to others.

• have more inelastic demand.

• have many substitutes available to them.

• 3. Two customers, Fred and Lamont, walk into a Grady’s Used Pickups. Who probably has a more inelastic demand for one of Grady’s pickups: people like Lamont, who are good at shopping around, or people like Fred, who know what they like and just buy it?

• People like Fred

• People like Lamont

• 4. Where will you see more price discrimination: In monopoly-type markets with just a few firms or in competitive markets with many firms?

• Competitive markets

• Monopoly-type markets

• 5. Consider two groups of people who shop at the same Wal-Mart: the Convenience Shoppers and the Bargain Shoppers. Which of the following statements is most likely to be true?

• Wal-Mart is more likely to have monopoly power over Bargain Shoppers because this group is more likely to splurge on something on a whim rather than stick to their prearranged shopping list.

• Wal-Mart is more likely to have monopoly power over Bargain Shoppers because this group is more likely to stick to their prearranged shopping list rather than splurging on something on a whim.

• Wal-Mart is more likely to have monopoly power over Convenience Shoppers because this group is more likely to stick to their prearranged shopping list rather than splurging on something on a whim.

• Wal-Mart is more likely to have monopoly power over Convenience Shoppers because this group is more likely to splurge on something on a whim rather than stick to their prearranged shopping list.

• 6. When will a monopoly create more output: When the government bans price discrimination or when the monopoly is allowed to and can perfectly price discriminate?

• Monopoly-type markets

• Competitive markets

Answer 1

2) Price discrimination firms charge a higher price to those who have inelastic demand. Inelastic demand is when a change in price changes the quantity demanded in lesser proportion or the quantity demanded is less responsive to changes in price.

Hence the answer is option C)more inelastic demand.

3) Inelastic demand is when the change in price has less effect on change in quantity.

Lamont is good at shopping around, can compare prices, buy the best deal and could also have substitutes. Whereas Fred knows what they like ie could prefer a specific brand and chose to follow only it whatever the price. Such consumers have inelastic demand because they stick to their preferences and in such a case have less substitutes as compared to people like Lamont.

Answer is option A)people like Fred

4) Monopoly markets have more price discrimination because the monopolist is the price maker and hence would have the power to discriminate the buyers and charge accordingly to increase the profits.

On the other hand the perfect competitive firms are price takers, have no power over price and hence cannot discriminate.

So answer is monopoly.

5)The convenience shopers would be the ones who would put their convenience first, rather than the price or the cost. On the other hand , the bargain shopers would like to visit different malls or shops and find the best price.

So Wal-Mart would be able to have a greater monopoly on convenience shopers because they have a list and defering from the list would be inconvenient to them and so bothering less abouy the price, they would want to buy from the given list.

Hence answer is option C)

6)Output is more when there is perfect competition rather than monopoly. This is because the price is decided by the monopolist and the outcome would hence be less than where the firms are price takers.