question
MODULE 1
answer
...
question
WTP & price
answer
price does not affect your WTP
question
demand curve convention
answer
The convention for graphing demand curves is to represent price on the y-axis, and quantity demanded on the x-axis.
question
diminishing marginal returns
answer
An individual's demand curve is typically downward sloping because a consumer will have a higher WTP for the first unit of a product, but a lower WTP for subsequent units.
Market demand curves are downward sloping because fewer consumers are willing to purchase the product at higher prices.
Market demand curves are downward sloping because fewer consumers are willing to purchase the product at higher prices.
question
shifting demand curve
answer
Changes in consumer willingness to pay result in shifts of the demand curve. For example, an increase in a consumer's WTP for a product will shift her demand curve outward; a decrease in WTP will shift her demand curve inward.
question
movement along the demand curve
answer
Changes in price correspond to movements along the demand curve
question
elasticity
answer
Steep curves are often called inelastic. Change in price = large changes in demand.
Flat curves are often called elastic. Change in price = small changes in demand.
question
The "price elasticity" of demand
answer
the percentage change in quantity demanded divided by the percentage change in price.
question
price elasticity of demand over time
answer
tends to increase over time.
question
MODULE 2
answer
...
question
In what way does randomization help an experimenter to overcome the "missing variables" problem?
answer
Randomization helps to account for systematic differences across groups of interest.
Randomization helps to ensure that the impact measured in a treatment vs. control group is due solely to the variable that is manipulated in the experiment.
Randomization helps to eliminate the adverse effects of sample selection/selection bias.
Randomization helps to ensure that the impact measured in a treatment vs. control group is due solely to the variable that is manipulated in the experiment.
Randomization helps to eliminate the adverse effects of sample selection/selection bias.
question
English auctions
open outcry auctions
open outcry auctions
answer
buyers submit increasing bids.
the consumer with the highest WTP wins, typically bidding (and paying) just above the consumer with the 2nd highest WTP.
the consumer with the highest WTP wins, typically bidding (and paying) just above the consumer with the 2nd highest WTP.
question
Vickrey auctions
Sealed second-price auctions
Sealed second-price auctions
answer
buyers submit sealed bids.
The highest bidder wins the auction, and pays the 2nd highest bid. Bidders are motivated to bid their exact WTP, to maximize their chance of winning the product without the risk of overpaying.
The highest bidder wins the auction, and pays the 2nd highest bid. Bidders are motivated to bid their exact WTP, to maximize their chance of winning the product without the risk of overpaying.
question
Sealed first-price auctions
answer
buyers submit sealed bids.
The highest bidder wins the auction and pays what he or she bid. Bidders might be motivated to bid below their WTP in order to ensure that if they win, they will capture some value.
The highest bidder wins the auction and pays what he or she bid. Bidders might be motivated to bid below their WTP in order to ensure that if they win, they will capture some value.
question
Auctions are more effective when...
answer
seller time sensitive
value interdependent
buyers' valuations of the item are close together
value interdependent
buyers' valuations of the item are close together
question
Revenue Equivalence Result
answer
under certain general conditions, each of these types of auctions should result in approximately the same revenue for the seller. This revenue will be approximately equal to the 2nd highest bidder's WTP.
question
winner's curse
answer
he winner of an auction "overpays" for a product - that is, pays more than what turns out to be the true value of the product.
this tends to occur when the product is worth about the same amount to each bidder; the winner is the person who most overestimated the value of the product.
this tends to occur when the product is worth about the same amount to each bidder; the winner is the person who most overestimated the value of the product.
question
revealed preference
answer
firms infer WTP from consumer actions (i.e., what consumers choose), rather than from what they say
question
Conjoint Analysis
answer
uses responses to assign a numerical value (called a "part-worth") to each feature. Firms can then use these numerical values to predict consumer reactions to a product, and to decide what product features to offer.
question
Strategies to increase demand
answer
Advertising
Substitutes and Complements
Network Effects
Substitutes and Complements
Network Effects
question
cross-price elasticity of demand
answer
For substitutes it is positive.
For compliments it is negative.
For no relation, roughly zero.
For compliments it is negative.
For no relation, roughly zero.
question
MODULE 3
answer
...
question
value created
answer
difference between the WTP of its consumers and the WTS of its suppliers
question
value captured of profit
answer
difference between the price that it charges its consumers and the price it pays its suppliers
question
consumer surplus
or value captured by the consumer
or value captured by the consumer
answer
difference between WTP and price
question
supplier surplus
or value captured the supplier
or value captured the supplier
answer
difference between WTS and costs
question
competitors
answer
A business' competitors include not only other companies in its industry, but also parties with which the business competes to capture value, such as suppliers and customers.
question
fixed costs
answer
do not vary as quantity produced rises or falls
question
variable costs
answer
costs that do vary with the level of production.
question
opportunity cost
answer
value of the best alternative use of that resource
question
economic cost
answer
taking into account the direct or explicit costs as well as its opportunity costs.
similarly, a firm's "economic profit" is the measure of profits that also takes into account the opportunity cost of the next best alternatives.
similarly, a firm's "economic profit" is the measure of profits that also takes into account the opportunity cost of the next best alternatives.
question
relative cost analysis
answer
how a firm's costs compare to its competitors for each activity in its business.
most useful when calculated on a per-product basis.
can predict the range of prices that the competitor would be willing to charge
most useful when calculated on a per-product basis.
can predict the range of prices that the competitor would be willing to charge
question
supply curve & entering a market
answer
A firm that is already in an industry will be willing to sell its product for any price at or above its variable costs.
A firm that is considering entering an industry will aim to cover both its variable costs and its fixed costs.
question
marginal costs
answer
same as per-unit variable costs
question
total costs
answer
sum of its fixed costs and its total variable costs
question
av. total costs
answer
total cost divided by the total volume of goods produced
question
fixed costs is/are true
answer
Companies that incur fixed costs primarily at the level of an individual store are likely to face difficulties scaling their businesses.
Fixed costs do not always imply that the bigger firm will experience cost advantages.
Fixed costs do not always imply that the bigger firm will experience cost advantages.
question
MODULE 4
answer
...
question
market equilibrium
answer
price and quantity designated by the intersection of demand and supply curves is usually referred to as the "market outcome" or "market equilibrium."
consumer surplus + producer surplus is maximized
consumer surplus + producer surplus is maximized
question
market equilibrium & equal or "fair" distribution of surplus between consumers and producers
answer
Doesn't not mean equal between consumers and producers, or across consumers or producers. (This is the principle of equity).
The distribution of consumer versus producer surplus depends on the elasticity of demand and supply curves, among other things.
question
sustaining profits
answer
government regulation, economies of scale, network effects, sustained innovation, or other "barriers to entry".
question
price ceiling
answer
excess demand
question
price floor
answer
excess supply - min.wage
question
tax
answer
a tax will have the same impact on market equilibrium whether it is explicitly (or “statutorily”) charged to the producer or the consumer:
the economic incidence of a tax is unrelated to its statutory incidence.
question
who pays the tax
answer
consumers bear most of the tax cost if the demand curve is steeper (or "inelastic")
producers bear most of the tax cost if the supply curve is steeper
producers bear most of the tax cost if the supply curve is steeper
question
MODULE 5
answer
...
question
marginal revenue
answer
the additional revenue that will be generated by increasing product sales by one unit
question
price discriminate
answer
charge different prices to different consumers, or set different prices for different units of a product.
Perfect price discrimination eliminates deadweight loss and consumer surplus, and the producer captures all of the value.
Perfect price discrimination eliminates deadweight loss and consumer surplus, and the producer captures all of the value.
question
two-part tariffs
answer
setting a per-unit price for a product (sometimes equal to $0)
charging a fixed fee to capture additional surplus.
charging a fixed fee to capture additional surplus.
question
observable characteristics
answer
consumer is a student or senior
question
self-selection
answer
business class versus coach for an airline
bulk discounts
bulk discounts
question
price bundling
answer
price bundling is more effective when consumers' preferences for the products are heterogeneous
question
preventing price discrimination
answer
a firm must be able to prevent buyers with high WTP from purchasing at the lower prices
competition from other firms
or if customers with low WTP could purchase the product and resell it to customers with higher WTP
competition from other firms
or if customers with low WTP could purchase the product and resell it to customers with higher WTP
question
differentiation
answer
attempt to avoid the "perfectly competitive outcome" through differentiation.
question
vertical differentiation
answer
some firms produce a version of the product that is perceived as "better" by all customer
when firms differentiate by lowering prices.
when firms differentiate by lowering prices.
question
horizontal differentiation
answer
differ in attributes that different customers value differently (e.g., location, color, etc).
if firms are horizontally differentiated, some customers will prefer a product from one firm and others will prefer the product from another.
if firms are horizontally differentiated, some customers will prefer a product from one firm and others will prefer the product from another.
question
INCORRECT ANSWERS
answer
...
question
A traveler's willingness to pay for a room in a hotel in a remote location is $200. The traveler's willingness to pay for internet access is $10. If the traveler views hotel rooms and internet access as complementary products, what is most likely the traveler's willingness to pay for a room in a hotel that offers free internet access?
answer
More than $210
Since the two goods are complementary, the traveler's WTP for a bundle of the two should be higher than the sum of WTP for the two individual products.
Since the two goods are complementary, the traveler's WTP for a bundle of the two should be higher than the sum of WTP for the two individual products.
question
The price of a product increases. Therefore, consumer surplus:
answer
unable to tell
question
In which of the following scenarios would both the price and quantity sold of paperback books decrease?
answer
A decrease in the price of e-books, a substitute good, would shift demand for paperback books to the left, resulting in a lower price and a lower quantity demanded.
question
A chocolatier produces truffles and sells each 1 pound box of truffles for $20. However, the chocolatier knows that some consumers would be willing to pay more than the cost of the chocolate, but less than $20 per pound, and wishes to sell truffles to these consumers as well. Which of the following price discrimination methods relies on the chocolatier knowing which types of consumers are likely to have a lower willingness to pay?
answer
Offering a discount to students and seniors
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
