If possible the seller would charge the older person

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Unformatted text preview: rice because some other buyer pays a lower price? For example, does some 30-year-old end up paying more for a dinner because some people get a “senior discount”? ANSWER: No, but most people seem to think it works this way. The seller wants to charge both the 30-year-old and the older person the highest price each is willing and able to pay. If possible, the seller would charge the older person $20 for the dinner 08 (186-221) EMC Chap 08 11/17/05 5:29 PM Page 219 Do you think some people pay more for a medical procedure because others pay less? How might an economist answer this question? instead of $15. If the seller did charge $20 to the older person, that seller wouldn’t then be content enough to charge the 30year-old only $18 for the dinner. The seller would still charge the 30-year-old $20 for the dinner. Again, the objective is to charge everyone the highest price he or she is willing and able to pay, no matter what someone else pays. Price Discrimination and the Law The general perception is that price discrimination is illegal in the United States. It is Defining Terms 1. Define: a. oligopolistic market b. cartel agreement c. price discrimination Reviewing Facts and Concepts 2. Why might a firm that voluntarily entered into a cartel agreement decide to cheat on (or breach) the agreement? 3. Why are oligopolistic firms price searchers? illegal under certain conditions. For example, it is illegal if a seller price discriminates, and, as a result, injures competition (which usually means reducing the amount or intensity of competition in the market). It is also usually illegal if one of the discriminating sales crosses state lines (for example, when a seller sells a good for less in one state than in another state and the difference in price is not warranted by a difference in costs). Price discrimination is not usually deemed illegal by government authorities if no injury occurs to competition or if the seller can show that charging a lower price to some customers is necessary to adequately compete in the market. 4. What conditions are necessary before a seller can practice price discrimination? Critical Thinking 5. If perfectly competitive firms are price takers, and monopolistic, monopolistic competitive, and oligopolistic firms are price searchers, then it follows that three times as many firms in the real world are price searchers than are price takers. Do you agree or disagree? Explain your answer. Applying Economic Concepts 6. Someone tells you that the firms in a particular industry are all selling their products for the same prices. Does it follow that the firms have entered into a cartel agreement? Section 4 An Oligopolistic Market 219 08 (186-221) EMC Chap 08 11/17/05 5:29 PM Page 220 Economics Vocabulary Chapter Summary Be sure you know and remember the following key points from the chapter sections. Section 1 The four types of market structure are perfectly competitive, monopolistic, monopolistic competitive, and oligopolistic markets. A perfectly competitive market has many buyers and sellers who have relevant information about prices, quality, and other factors; its firms sell identical goods; and market entry and exit are easy. Section 2 A monopolistic market consists of one seller of a good that has no good substitute in a market with high barriers to entry. A monopoly firm searches for the price at which it can maximize its profits. Some barriers to entry into a monopolistic market are legal barriers. Section 3 A monopolistic competitive market includes many buyers and sellers; firms produce and sell slightly differentiated products; and market exit and entry are easy. Monopolistic competitive firms are price searchers because of the slight differentiation in their products. Like other firms, monopolistic competitive firms must answer the questions of how much to produce and what price to charge. Section 4 An oligopolistic market has few sellers, firms sell either identical or slightly differentiated goods, and market entry and exit are difficult. Oligopolistic firms have some control over the price they charge. The barriers to market entry limit the amount of potential competition for oligopolistic firms. 220 Chapter 8 Competition and Markets To reinforce your knowledge of the key terms in this chapter, fill in the following blanks on a separate piece of paper with the appropriate word or phrase. 1. A(n) ______ is a seller that can sell all its output at the equilibrium price but none at 1 penny higher. 2. The conditions that characterize ______ include one seller, no close substitutes for the good the seller sells, and high barriers to entry. 3. A(n) ______ can sell some of its output at various prices, although it sells less output at higher prices. 4. A(n) ______ is a monopoly that is legally protected from competition. 5. A company that ends up being the only seller of a good because of its low average total cost is called a(n) ______. 6. The conditions that characterize ______ include many buyers and sellers, firms that sell slightly differentiated products, and easy entry into and exit from the market. 7. The condit...
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This document was uploaded on 01/16/2014.

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