Question

1 True/False
For each of the following statements say whether it is true or false and explain why using a couple of sentences, graphs or equations.

(a) If marginal cost of serving two markets is identical, then an internationally discriminating monopolist would set the same price in both markets.

(b) Granting a market economy status to China would make it more difficult to impose antidumping duties on Chinese firms.

Answer 1

a) Monopoly price discrimination does not depend on marginal cost of production . Main conditions necessary for price discrimination are : difference in elasticity of demand ( charge a higher price to group with lower Price elasticity of demand ) , consumers cannot easily switch from one supplier to another ( time or geographical limits ) . In first degree price discrimination each individual is charged their reservation price . In second degree block pricing is followed . So we can clearly see that MC is not an indicator of price discrimination .

Answer : FALSE

b) If a country exports a good to a foreign market and charges a price that is fairly low than it normally charges on its own home market then that is known as dumping . Anti dumping is a protectionist policy , a tariff that is imposed on such goods to protect domestic markets and to prevent such dumping . WTO allows governments to take actions against dumping when the damage is quite severe . It is an aggrement with counties based on trade rules . So when China gets the status of market economy , it will be difficult for China to dump goods into other countries . Antidumping duties can be easily imposed on Chinese firms .

Answer : FALSE