5、“Price discrimination is the result of different price elasticities of demand in different markets.” What does this mean? Offer another reason for price discrimination.
Wealth maximization for a monopolistic seller requires that their marginal revenues in different markets be equal, given the marginal cost of production being the same. If the elasticities of demand in different markets are not the same, equating marginal revenues implies the prices charged in different markets will be different, hence price discrimination.
But price discrimination may occur if and when information costs vary among different customers or in different markets, therefore price discrimination may occur even if elasticities of demand are the same. There is no systematic relation between information costs and demand elasticities. The typical example is people bargain when they buy, with each customer ending up paying different prices for the same goods, and this may bear no systematic relation with the elasticities of demand.
6、“In a one-man economy there is scarcity, but not shortage.” Do you agree? Explain. “In a society there is no shortage.” Do you agree? Explain.
When more is perfered to less, scarcity is implied. This situation certainly exists in a one-man economy, because that one man must be observed to sacrifice something to get something else. Whenever sacrifice is observed, scarcity is implied.
There is no shortage even in a society, for the simple reason that all markets must be “cleared” in order to produce equilibrium situations. If equilibrium is not attained, no theory is implied, hence economics cannot explain behaviour. If the price of a good is controlled to below the market price, the alleged presence of the shortage, hence disequilibrium, simply means that we have no theory. It is not a fact. If queuing occurs, equilibrium may again be derived as a matter of routine, but then the market is again cleared—hence no shortage.
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