ECO 555 Managerial Economics

Final Exam

Autumn 2022
Question 2

Q. 2a

In example (a), price discrimination does exist because children are charged a lower price

than adults for the same product. For price discrimination to hold, there must be a difference in the

prices charged for the same good or service. In this case, there is a difference in the prices charged

for zoo tickets, so price discrimination does exist. Price discrimination does not also exist because

of the conditions that must exist for price discrimination. For example, there are two groups of

consumers with different elasticities of demand, and the seller can identify which group each

consumer belongs to. In this case, children have a lower elasticity of demand for zoo tickets than

adults, meaning they are less likely to reduce the quantity demanded in response to a price

increase. According to Bashir et al. (2011), elasticity refers to a tool used to measure a function's

responsiveness to parameter changes in a unit-less manner. The seller can identify which group

each consumer belongs to, as children can easily be distinguished from adults.

Moreover, this case is also similar to an example provided in CHAPTER 14: Price

Discrimination of the class material. It states that due to the rarity of the subject, many students are

prepared to spend a high tuition rate to pursue a degree in hotel management. That is because the

zoo ticket is a rare subject, and thus students may opt to use the ticket money for other important

use.

Q. 2b

In example (b), price discrimination does not exist because the price of mailing a letter

from Los Angeles to New York is the same for all consumers. For price discrimination to hold,

there must be a difference in the prices charged for the same good or service. In this case, there is

no difference in the prices charged for mailing a letter, so price discrimination does not exist. It is

also possible that there could be no discrimination because the conditions that must exist for price
discrimination are that there are two groups of consumers with different elasticities of demand and

that the seller can identify which group each consumer belongs to. In this case, while there may be

two groups of consumers with different elasticities of demand, the seller cannot identify which

group each consumer belongs to. This is because the ticket price is the same regardless of where

the consumer is.

Q. 2c

In example (c), price discrimination does not exist because the price of the newspaper is the

same for all consumers. For price discrimination to hold, there must be a difference in the prices

charged for the same good or service. In this case, there is no difference in the prices charged for

the newspaper, so price discrimination does not exist.

In addition, it can also be argued that there is no price discrimination because the

conditions that must exist for price discrimination are that there are two groups of consumers with

different elasticities of demand and that the seller can identify which group each consumer belongs

to. In this case, while there may be two groups of consumers with different elasticities of demand,

the seller cannot identify which group each consumer belongs to. This is because the product's

price is the same for all consumers.

Question 3

Summary

Before delving into the main questions for this section, it is essential first to provide

a summary of the TED talk. In his TED talk, "The Case for Letting Business Solve Social

Problems," Professor Michael E. Porter argues that businesses are uniquely positioned to

solve many of the world's most pressing social problems and that businesses should be
allowed to solve social problems. He cites examples of businesses that have successfully

tackled issues like poverty, healthcare, and education. Porter believes that businesses are

motivated to solve social problems because it is the right thing to do and because it is good

for business. In conclusion, Porter urges businesses to embrace their power to solve social

problems and improve the world.

Q. 3a

In his TED talk, "The case for letting business solve social problems," Professor

Michael E. Porter argues that businesses are better equipped to solve social problems than

nonprofits, NGOs, and governments. Porter points out that businesses are motivated by

profit, which gives them a strong incentive to find efficient solutions to problems. In

contrast, bureaucracy and red tape often hamstrung nonprofits, NGOs, and governments.

Porter also argues that businesses have more expertise in solving problems than nonprofits,

NGOs, and governments. He cites the example of how businesses have been able to

successfully tackle environmental issues, such as pollution and waste management.

According to Porter, businesses are more nimble and flexible than nonprofits, NGOs,

and governments. They can rapidly test and implement new solutions to problems, whereas

nonprofits, NGOs, and governments often take years to implement change. Porter makes a

compelling case for why businesses should be given a more significant role in solving

social problems. However, it is worth noting that businesses also have their agendas and

may not always act in the best interests of society. For example, businesses may be more

likely to prioritize short-term gain over long-term sustainability, or they may choose to

ignore social problems altogether if they are not profitable.

Overall, we turn to nonprofits, NGOs, and governments to solve society's biggest

problems because they have the resources and the expertise to do so. They also have the
ability to mobilize public support and pressure businesses to change their practices.

Q. 3b

In his TED talk, "The case for letting business solve social problems," Professor

Michael E. Porter suggests that conventional wisdom would not work in solving social

problems. He argues that businesses are better equipped to solve social issues than

governments or NGOs because businesses are motivated by profits (Porter, 2013). On the

other hand, governments and NGOs are motivated by politics and ideology. Porter cites the

example of the clean water crisis in Bangladesh. He argues that the government and NGOs

have failed to solve the crisis because they are more concerned with ideology than practical

solutions (Porter, 2013). On the other hand, businesses are motivated by the bottom line

and are more likely to find practical solutions to the crisis.

Porter's argument is compelling. Businesses are indeed motivated by profits, which

can lead to practical solutions to social problems. However, it is essential to remember that

businesses are also motivated by other factors, such as reputation and public relations. In

some cases, these other factors can lead businesses to make decisions that are not in the

best interests of society. It is also important to remember that businesses are not always the

best equipped to solve social problems. In some cases, government intervention is

necessary. For example, the government may need to regulate businesses to protect the

environment or ensure that workers are treated fairly.

Overall, Professor Michael E. Porter makes a convincing case that businesses are

better equipped to solve social problems than governments or NGOs. However, it is

essential to remember that businesses are not always the best equipped to solve social

problems. In some cases, government intervention is necessary.

Q. 3c
 In his TED talk, "The Case for Letting Business Solve Social Problems," Michael

Porter argues that businesses should be encouraged to solve massive social problems like

climate change and access to water. He makes the case that businesses are uniquely

positioned to solve these problems because they have the resources, motivation, and

expertise to do so.

Porter argues that businesses are motivated to solve social problems because it is in

their self-interest to do so. He cites the example of Walmart, which has saved billions of

dollars by becoming more efficient in its energy and water use. He also argues that

businesses have the resources to solve social problems (Porter, 2013). He points to the

example of GE, which has invested billions of dollars in developing new technologies to

solve problems like climate change. Finally, Porter argues that businesses have the

expertise to solve social problems. He points to the example of IBM, which has developed

sophisticated software to help manage water resources (Porter, 2013).

Overall, Porter's argument is convincing. Businesses are indeed uniquely positioned

to solve a lot of social problems, such as climate change and water accessibility. They have

the resources, the motivation, and the expertise to do so. However, it is worth noting that

businesses are not always motivated by altruism. They may also be motivated by profit.

Thus, it is vital to ensure that businesses are encouraged to solve social problems in a way

that benefits society and not just their bottom line.

 References

Bashir, F., Inam, B., Basit, M., Waqas Iqbal, M., Javeed, S. & Mehmood, A. (2011). Demand

Estimation, Elasticity, and Forecasting of LG Air Conditioners: A Case Study of

MASHALLAH Electronics. SSRN Electronic Journal. 10.2139/ssrn.1855594.

CHAPTER 14: Price Discrimination (class material) (n.d).

Porter, M.E. (2013, June). The case for letting business solve social problems [Video]. TED

Conferences.

https://www.ted.com/talks/michael_porter_the_case_for_letting_business_solve_social_pro

blems?language=en