Question

1. The US Department of Education was established as a new cabinet department in 1982. College costs (tuition, room, board, books, expenses), after adjustment for inflation, have gone up from $8,000 in 1980 to more than $20,000 today. Is this a coincidence? Discuss how the government may be helping colleges raise total costs through collusive behavior and first-degree price discrimination.

2.     Drug firms engage in third-degree price discrimination when they sell their products overseas for a lower price than in the US. Why do drug firms choose to serve markets in which the price is controlled, such as Canada? How did they get the US FDA to help them keep the two markets separate (high demanders in the US, low demanders in Canada)?

3.        Concert promoters are monopolists, yet they often choose not to charge the profit-maximizing price for their concerts. Explain and illustrate with one or more diagrams how they set ticket prices, the impact their decision has on the size of the crowd, and the opportunity this situation creates for ticket scalpers.

4.     Chicago teachers and sumo wrestlers were shown by Levitt and Dubner to have engaged in cheating when faced with powerful incentives. For one of these groups, describe the incentives they faced, their actions that were detected by our authors, and the results of this cheating. You might wish to use a force field analysis to illustrate the incentives and decision making by the participants (potential cheaters).

Answer 1

2) the United States ends up Paying more for drugs since it is much richer than the rest of the world and tends to spend a large fraction of that wealth on health care. Furthermore, in most countries, a single governmental health care provider bargains over drug prices. America's health care system is much more fragmented, which is trends to reduce the bargaining power of health care providers in negotiating drug prices.

Price description  is not popular with consumers, especially those paying the higher price. What does economics say about whether this kind of differential pricing is good or bad? To answer this question, we have to ask what price would prevail if only one price could be charged.

Imagine an antimalarial drug that lots of people in Canada might buy at $2 a dose and a few people in America might buy at $10 a dose. If the Ugandan market is more than five times the American market, the drug company, if it could set only one price, would make more revenue by setting that price at $2. If the manufacturing cost of the drug is small enough, this would also be the more profitable price.