ECON 705 LSUS MODULE 7 - FINAL EXAM QUESTIONS WITH CORRECT ANSWERS

Price Discrimination CORRECT ANSWER Charging different buyers different prices for the same unit or charging the same buyer different prices for each unit or blocks of units First-Degree Price Discrimination CORRECT ANSWER charging the maximum price that each buyer is willing to pay for each unit purchased; buyer's reservation price; 5 for 1st; 4 for 2nd object; 3 for third object etc.; difficult in practice Buyer's Reservation Price CORRECT ANSWER the price charged in first-degree price discrimination and is what the buyer is willing to pay for each unit Second-Degree Price Discrimination CORRECT ANSWER aka volume discounting; selling in blocks or bundles to get rid of consumer surplus. Done through commodity bundling and block pricing Block Pricing CORRECT ANSWER charging different prices for different amounts or "blocks" of a good or service. Package of 24 soda; two-part pricing is a variation of this Two-Part Pricing CORRECT ANSWER charging a fixed fee for the right to purchase a good or service as a per-unit cost equal to marginal cost; adoreme memberships Commodity Bundling CORRECT ANSWER selling two or more different products at a single "bundled" price increase profit by extracting consumer surplus. Timken Third-Degree Price Discrimination CORRECT ANSWER practiced by theater, restaurants, amusement parks, retail outlets that offer senior, citizen, student, and youth discounts. Public relations appeal. How do first-degree price discrimination (perfect price discrimination) and consumer surplus interact? CORRECT ANSWER it is MR= price. no consumer surplus Price Skimming CORRECT ANSWER can be done by a firm that is first to the market with a product. Allows them to get the maximum people are willing and able to pay and then lowers the price to get more buyers. Allows them to get as much surplus as possible; a form of first-degree price discrimination Market Power CORRECT ANSWER has this if it can affect the market-clearing price of its product through output decisions. Sources of Market power CORRECT ANSWER -ownership of an important input -government barriers