Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
13 Cards in this Set
- Front
- Back
|
the process where a product is bought at a lower price in one market and resold in another market with a higher price
|
arbitrage
|
|
|
the costs involved in trading (in addition to the price of the product)
|
transaction costs
|
|
|
if transaction costs are low, arbitrage induces the price of an item to converge to a common amount. If the price was higher in one place, people would engage in arbitrage to take advantage of the lower price in another place. With competition, the price in both places would tend to converge
|
law of one price
|
|
|
the price strategy where the seller charges a different price from different consumers based on the willingness to pay of each consumer. The cost of selling to the different consumers is assumed to be the same
|
price discrimination
|
|
|
A local sub restaurant offers a 20% discount for large orders (say, above 10 subs) because the marginal cost of producing subs is lower with large orders (it is easier to make and deliver many subs at once). Is this restaurant practicing price discrimination? Explain.
|
No. It has to be based on how much each consumer is willing to pay
|
|
|
A corn farmer cannot price discriminate. Why?
|
The price is set by the market
|
|
|
Although poor people are less willing to pay for movie tickets, they don't get discounts like students do. Why can't movie theaters price discriminate towards poor customers?
|
You need to be able to identify poor people, in order to discriminate against them
|
|
|
Why isn't there price discrimination in the car market? Or in the housing market?
|
You don't want to change a price average people won't pay
|
|
|
Using the concept of price discrimination, explain the following price strategies:
Meijer gives discount coupons for the purchase of given products |
Usually coupons try to get you to come back and for people who would not normally buy that product
Resale not likely |
|
|
Using the concept of price discrimination, explain the following price strategies:
Airline companies charge lower prices for tickets sold months before the trip than for tickets sold days before |
Not a perfect competitive market
Can't resell the tickets How you distinguish who wants to pay less |
|
|
Using the concept of price discrimination, explain the following price strategies:
First-class flight ticket is much more expensive than economy coach flight ticket even though the cost of providing extra services for first class passengers is just a little bit higher |
Create first class, rich people will want to sit there, even if the service is the same
Is a good thing economically |
|
|
Using the concept of price discrimination, explain the following price strategies:
Sears offers 50% discount in the purchase of a second pair of shoes |
More trade - consumers have diminishing consumer surplus
Discounts help them sell more Making money if they sell more than the marginal cost |
|
|
Using the concept of price discrimination, explain the following price strategies:
Publishers publish hardcover editions first at high price, but later publish paperback editions at much lower prices |
Some people are more willing to pay for a book than others
Only sell hardcover at first, the people that buy it really want to read the book and buy it |
