Is peak pricing economically efficient? Explain. Give an example to illustrate your answer
Yes. Economic efficiency requires that prices reflect the marginal utilities involved. If demand rises, then the price may have to rise to allocate the output to the most highly valued usage. If demand falls, then the price will have to fall in recognition of the lower utility which people derive from the good or service. Therefore, peak pricing, which reflects changes in demand, is efficient. The two examples offered in the text are of peak pricing for commuters on toll bridges and telephone rate differentials between night and day service.
You might also like to view...
If the elasticity of demand for mothballs is 0.50, then moving along the demand for mothballs:
a. A 20% rise in the price of mothballs will lead to a 10% fall in the quantity of mothballs demanded. b. A 10% rise in the price of mothballs will lead to a 20% fall in the quantity of mothballs demanded. c. A 20% rise in the price of mothballs will lead to a 10% rise in the quantity of mothballs demanded. d. A 10% rise in the price of mothballs will lead to a 20% rise in the quantity of mothballs demanded.
In 2003, government spending as a percentage of GDP was approximately
a. 75 percent b. 50 percent c. 33 percent d. 20 percent e. 10 percent
Average cost is equal to total cost divided by quantity
a. true b. false
Refer to the information provided in Figure 15.5 below to answer the question(s) that follow. Figure 15.5 Refer to Figure 15.5. Assume the Custom Sweater Shop has fixed costs of $500 and is a monopolistically competitive firm. If this firm is producing the profit-maximizing level of output and selling it at the profit-maximizing price, the firm's profit is
A. -$400. B. -$350. C. -$500. D. -$50.