Study Guides (238,207)
Canada (115,009)
Economics (565)
ECO101H1 (118)

ECO100 - NOV 26 Test Review

4 Pages
Unlock Document

University of Toronto St. George
James Pesando

Puzzle. Car produced (Chrysler) in Windsor, Ontario sells for lower price in U.S than in Canada. Why is that? ● Why? ● 1. There must be difference in costs (import duties, paperwork, etc)? - NO ● => There are differences in elasticities of demand. ○ In Canada, import duties are higher, so fewer substitutes and lower price elasticity of demand. ● Explanation: it nothing more than price discrimination (tool to increase profits) Monopoly, Oligopoly, Monopolistic Competition ● All three firms faces downward-sloping demand curves ○ Perfect competition is an exception ● 1) If face a downward-sloping demand curve, have some degree of market power (ability to raise price without losing all clients) ○ Perfectly competitive firm cannot raise price ● 2) Since they have market power, they may try to price discriminate. Is price discrimination “bad”? ● Perfect price discrimination: Monopolist charges each consumer the maximum price the consumer is willing to pay ○ 1. Each customer pays their “reservation price” ■ maximum price he/she is willing to pay ○ 2. Is allocatively efficient if the monopolist is able to perfectly price discriminate ● Example: Used car salesman ○ A successful used car salesman Insight: If monopolist can perfectly price discriminate ● 1) Monopolist does not have to lower price on all previous units to sell an additional unit. ● 2) DD curve becomes the monopolist’s MR curve (since MR = P) ● 3) To maximize profits, monopolist will produce where P(=MR)= MC. ● 4) Same output as in perfect competition ● 5) Allocatively efficient ● Consumer surplus: decreases to zero ● Producer surplus: increases by: consumer surplus + deadweight loss ● Economicst article:[caveat] ○ Price customization software: trying to achieve perfect price discrimination Assignment: The
More Less

Related notes for ECO101H1

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.