Economics 101: Principles of Economics

1. Economics 101: Principles of Economics Questions?

4. Necessary conditions for Price Discrimination (1) Seller must have some monopoly power (2) Seller must have a way of estimating max a customer is WTP That is, have to identify two or more types of customers, who have diff ?�s (3) Seller must be able to prevent arbitrage (resale of the product for profit) How is arbitrage prevented? Necessary conditions for Price Discrimination (1) Seller must have some monopoly power (2) Seller must have a way of estimating max a customer is WTP That is, have to identify two or more types of customers, who have diff ?�s (3) Seller must be able to prevent arbitrage (resale of the product for profit) How is arbitrage prevented?

6. Monopoly on popcorn. No, theatre owner also has monopoly on restrooms, napkins, aisles to the seats What would a restroom fee do? Make the movie theatre less attractive to moviegoers. Have to lower Pticket. When I go see The Sixth Sense, I get scared, but I�m also indifferent between paying $7 for ticket +$3 for popcorn, or $6 for ticket + $4 for popcorn, $1 for ticket & $9 for popcorn. So why make tickets more expensive than popcorn? --- If popcorn is cheaper, people might buy more! So Ppopcorn = MCpopcorn& ? Pticket Theatre owner knows that some people like popcorn more than others. Purpose of expensive popcorn is to extract different sums from different customers. This only works if popcorn lovers are WTP more for evenings out. If they weren�t, owner should charge $15/ticket with $0 for popcorn -- some go to see the movie, others would go to get the popcorn. Theatres are in the business of selling �evenings at the movies� which, at customer�s discretion, can include popcorn or not. (High Ppopcorn, Low Pticket) works because those who are WTP high prices for �evenings at the movies� and those who eat lots of popcorn are, on average, the same people! If they weren�t & popcorn-lovers were from lower income groups, popcorn would be free & you�d get a discount for agreeing to eat some ?. Monopoly on popcorn. No, theatre owner also has monopoly on restrooms, napkins, aisles to the seats What would a restroom fee do? Make the movie theatre less attractive to moviegoers. Have to lower Pticket. When I go see The Sixth Sense, I get scared, but I�m also indifferent between paying $7 for ticket +$3 for popcorn, or $6 for ticket + $4 for popcorn, $1 for ticket & $9 for popcorn. So why make tickets more expensive than popcorn? --- If popcorn is cheaper, people might buy more! So Ppopcorn = MCpopcorn& ? Pticket Theatre owner knows that some people like popcorn more than others. Purpose of expensive popcorn is to extract different sums from different customers. This only works if popcorn lovers are WTP more for evenings out. If they weren�t, owner should charge $15/ticket with $0 for popcorn -- some go to see the movie, others would go to get the popcorn. Theatres are in the business of selling �evenings at the movies� which, at customer�s discretion, can include popcorn or not. (High Ppopcorn, Low Pticket) works because those who are WTP high prices for �evenings at the movies� and those who eat lots of popcorn are, on average, the same people! If they weren�t & popcorn-lovers were from lower income groups, popcorn would be free & you�d get a discount for agreeing to eat some ?.

7. Why do grocery stores print coupons in the newspaper? No point to coupons if everyone redeemed them. To lure a certain type of customer Coupon clippers, on average, are more sensitive to price Why ? Why do grocery stores print coupons in the newspaper? No point to coupons if everyone redeemed them. To lure a certain type of customer Coupon clippers, on average, are more sensitive to price Why ?

10. The salad bar costs more if you don�t order dinner too. Take more if you don�t order dinner, so two different products. Doctors charge wealthy patients more than poorer ones. Price discrimination? Maybe if it costs the same to supply care, but maybe wealthy patients are more demanding of time, more likely to call, more likely to sue. Taos Pueblos welcomes tourists. Charge is $5/car + $5/camera. More cameras costs more money -- price discrimination? Maybe, groups with many cameras might be more eager to see the sites: Yes. But, more cameras are likely more intrusive, so those people must pay more: No. Taxis sometime charge one rate for a couple and higher rate for 2 strangers. Price discrimination? Yes -- same cost but couples are more price sensitive No -- more expensive to serve the 2 strangers. The salad bar costs more if you don�t order dinner too. Take more if you don�t order dinner, so two different products. Doctors charge wealthy patients more than poorer ones. Price discrimination? Maybe if it costs the same to supply care, but maybe wealthy patients are more demanding of time, more likely to call, more likely to sue. Taos Pueblos welcomes tourists. Charge is $5/car + $5/camera. More cameras costs more money -- price discrimination? Maybe, groups with many cameras might be more eager to see the sites: Yes. But, more cameras are likely more intrusive, so those people must pay more: No. Taxis sometime charge one rate for a couple and higher rate for 2 strangers. Price discrimination? Yes -- same cost but couples are more price sensitive No -- more expensive to serve the 2 strangers.