Price Discrimination Questions and Answers

Q11. 1 Your best income-earning opportunity appears to be an offer to be employed by a local programmer during the month of June and earn $2, 000. However, before taking the job, you accept a delight offer from a rival. In the event that you actually earn $2, 600 during the month, how much producer surplus have you acquired? Explain.

Producer surplus is the total amount that producers gain by advertising products at price P that is higher than the least that they might be willing to sell for. Opportunity = $2, 000 is the relevant marginal cost, developer surplus = $2, 600.

$2, 600-$2, 000 = $600 over the total amount represents the value of your company surplus.

Q11. 3 After having dropped during the 1970s and 1980s, the proportion of teenage smokers in the United States has risen sharply since the early on 1990s. To change this craze, advertising programs have been launched to discourage teenage smoking, fines for selling smoking to young adults have been toughened, and the excise tax on smoking cigarettes has been increased. Explain how each one of these public policies affects demand for smoking cigarettes by teens.

These fines have a favorable effect by causing an inward change in the demand curve for smokes. In both conditions a reduction in demand will be observed with a taxes and price increase, creating a reduction in the number demanded and an upwards movement over the demand curve. Is estimation that for each and every 10 percent decline in the price, youth smoking rises by almost 7 percent. Probably the most influential tool that policymakers have to lessen children smoking is excise fees that improve the price of cigarettes

Q11. 6 In 1990, Congress adopted a luxury duty to be paid by potential buyers of high-priced cars, yachts, private airplanes, and rings. Proponents observed the levy as an efficient method of taxing the abundant. Critics pointed out that those bearing the hardship of the tax may or might not be exactly like those who pay the duty (the idea of tax incidence). Explain how the elasticities of supply and demand in competitive market segments can have direct implications for the ability of purchasers and sellers to shift the burden of taxes imposed after them. Also clarify how elasticity information has implications for the quantity of interpersonal welfare lost due to the deadweight lack of taxation.

The demand for new luxury items produced and sold in america is relatively flexible, buyers can make to not do the purchase, or buy them from companies not subject to tax, in order to reduce their discretionary duty repayments. When demand is stretchy and offer is inelastic, such as these circumstance the largest talk about of duty burden comes on producers alternatively than buyers. The tax caused a steep to decline in domestic production, income to plummeted and employees got let go. They didn't retain in mind that the financial hardship of any tax can seldom be inferred by simply referencing the get together accountable for paying the tax. The burden of the tax will show up on that part of the market that tends to be less flexible.

Elasticity has repercussions in the amount of cultural welfare lost because of the deadweight loss of taxation. When elasticity of demand is a constant the deadweight loss of a tax is small when resource is relatively inelastic. When source is relatively flexible, the deadweight lack of a tax is large, positioning resource elasticity constant. Deadweight loss of a duty is small when demand is relatively inelastic and when demand is relatively stretchy the deadweight lack of a taxes is large.

Q11. 9 The New York City Rent Stabilization Legislations of 1969 founded maximum hire rates for apartments in NEW YORK. Clarify how such adjustments can lead to shortages, especially over time, and other monetary costs. Despite apparent disadvantages, how come rent control remain popular?

Rent control is to make enclosure more affordable, especially for the elderly and the indegent that lives in the city. Supply of apartments is inelastic in the brief run, but imposition of rent settings has little effect on short-run supply. In the long run, landlords can exit the rental business given a growth to an upwards sloping long-run resource curve for flats. Short-run shortages in apartment availability will tend to be exacerbated in the long run. Rent control causes long waiting around lists and dark-colored market repayments to landlords. Disadvantages about rent control system are that the rich disproportionately occupy rent controlled devices, politicians and other bureaucrats unfairly take advantage of the system, which landlord bankruptcies cost Point out and urban taxpayers millions of dollars.

The level of popularity remains because anyone who is constantly on the live in a rent-controlled apartment gets the potential to benefit from "squatters privileges. " Rent control programs are extremely popular with the population which have higher incomes and benefits than the rest taking good thing about the machine.

Q15. 2 Explain why successful firms that utilize markup prices use completely allocated costs under normal conditions, but typically offer price special discounts or acknowledge lower margins during off-peak intervals when unnecessary capacity is offered.

Fully allocated costs can be appropriate whenever a firm is operating at full capacity. During top periods, expansions are required to increase production. Upsurge in production requires an increase in all flower, equipment, labor, materials, and other expenses. If a firm has unnecessary capacity, as during off-peak intervals the only costs that actually rise with creation is the incremental costs per product. When fixed costs represent a considerable show of total creation costs, savings for result produced during off-peak durations can be justified for lower costs.

An example because of this is the "Early Bird" concert halls, cleaning bills which vary based on the quantity of customers is the sole actual charge incurred, most cinema expenses are fixed. Revenue generated with the addition of customers during off-peak cycles can significantly improve the theater's revenue contribution and decrease the outcome. A number of the things that will donate to balance the low cost in the seat tickets is the deal in concessions that still at regular price in the off-peak times. Solution prices during peak durations reflect fully allocated costs when their staff (payroll) increase.

Q15. 5 "Among the least practical suggestions that economists have wanted to managers is that they establish marginal revenues equal to marginal costs. " Discuss this statement.

Profit maximization requires that prices be arranged so that marginal earnings similar marginal cost, it is not necessary to determine both to be able to set optimal prices. Using home elevators marginal costs and the point price elasticity of demand, the computation of profit making the most of prices is easy. MR = MC

The use of incremental examination in the charges practices of highly successful and profitable organizations, like the utilization of markup costing procedures, can be interpreted as support for the useful exact carbon copy of marginal analysis.

Q15. 7 What is price discrimination?

Price discrimination is the practice of charging different markups for the same product. May be the result when a organization charges different charges for the same product, or prices directly related products where the price differences aren't proportional to cost differences. Price discrimination can are present when equivalent or unequal prices are costed different customers.

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