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Scope 1 Monopoly Pricing
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New Horizon Economics
Assignment: News Commentary
— ‘HongKongDisneyland’simplementationofprice
discrimination is beneficial to society? ?’
Monopoly Pricing
Scope 1:
New Horizon Economics School-based Assessment Resources Package (Elective)
�
Assignment: News commentary
Hong Kong Disneyland’s implementation of price discrimination is beneficial to society?
In reality, many firms will provide price reduction, special offers, etc., to attract customers. The following mind map can help you think about how to choose a suitable topic lives on ‘monopoly pricing’. Complete the mind map below and provide other examples.
Simple monopoly pricing
Price discrimination
Definition:
Example:
Definition: The seller charges along the demand curves of different consumers in order to extract the consumer surplus from each consumer completely.
Partial example: Dutch auction
Definition:
Example:
First degree
Third degree
Second degreeMonopoly
pricing
Definition:
Example:
Step Setting a topic1Step Setting a topic1
Scope 1 Monopoly Pricing
�
The following report is about Hong Kong Disneyland’s attendance. Read carefully and answer the questions.
Disneyland’s Annual Pass holders increases A spokesman from Hong Kong Disneyland said that the sale of its Annual Passes launched since the end of 2006 has reached 130,000 sets, which is 120,000 sets more than that at the end of July this year, showing that the effect of the financial tsunami on Disneyland is small. Its Managing Director Andrew Kam said there is no plan to lower the price at the moment.
Yet, Disneyland’s attendance is unsatisfactory since it was open in September 2005. A paper from the Legislative Council shows that in the three financial years 2005/06 to 2007/08, Disneyland had only received 14.5 million visitors. Except the first year, the figures of the other two years were below 5 million. The paper also points out that in 2007/08, visitors were mainly local people due to an increase in Annual Pass holders, and Disneyland had added new attractions that targeted at local youth.
Disneyland currently offers Annual Passes for adults from $650, while students can enjoy concessionary rates from $460.
Disneylandhasnoplantolowerthepriceatthemoment.
A01 Local News DAILY NEWS 11 December 2008
From the mind map on the previous page and the news report above, what issue do you think is derived from Hong Kong Disneyland’s charging visitors of different age groups for different prices?
From various examples of monopoly pricing in society, students can examine the effects to the buyers, sellers and society as a whole. Now, use the topic ‘Hong Kong Disneyland’s implementation of price discrimination is beneficial to society?’ and write a news commentary. List the tools, economic concepts and theories involved.
Topic Tools, concepts and theories
Hong Kong Disneyland’s implementation of price discrimination is beneficial to society?
•
•
•
New Horizon Economics School-based Assessment Resources Package (Elective)
�
What do you think should be included when collecting information related to the above topic? List two of them.
1.
2.
Where do you think you can collect the above data? List two of them.
1.
2.
What are the effects brought by Hong Kong Disneyland’s implementation of price discrimination? According to the data collected, give a preliminary analysis by completing the following mind map:
Visitors
Disneyland
Students pay less. Their consumer surplus increases.
Society
If consumer surplus generally increases, social surplus will increase.
Effects of Hong Kong Disneyland's implementation of price discrimination
Step Data collection and analysis2Step Data collection and analysis2List the main contents in the introduction, analysis and conclusion of the news commentary.
Introduction
Analysis
Conclusion
Step Drafting an outline3Step Drafting an outline3
Based on the data collected in the above steps, write a news commentary on the topic.
Hong Kong Disneyland’s implementation of price discrimination is beneficial to society?
I ntroduction
Step Writing a news commentary4Step Writing a news commentary4
Scope 1 Monopoly Pricing
�
List the main contents in the introduction, analysis and conclusion of the news commentary.
Introduction
Analysis
Conclusion
Step Drafting an outline3Step Drafting an outline3
Based on the data collected in the above steps, write a news commentary on the topic.
Hong Kong Disneyland’s implementation of price discrimination is beneficial to society?
I ntroduction
Step Writing a news commentary4Step Writing a news commentary4
�
New Horizon Economics School-based Assessment Resources Package (Elective)
School-based Assessment Guide
Hong Kong Disneyland’s implementation of price discrimination is beneficial to society?
I. Background informationStudents should be familiar with the following knowledge and concepts before they start working on the news commentary:
Knowledge required Concept required
• Features of different types of price elasticity of demand (4B: Ch.10)
• Relationship between price elasticity of demand and total revenue (4B: Ch.10)
• Differences between price discrimination and simple monopoly pricing (Elective Part 1: Ch.2)
• Price elasticity of demand (4B: Ch.10)
• Price discrimination (Elective Part 1: Ch.2)
• Simple monopoly pricing (Elective Part 1: Ch.2)
II. Suggested teaching procedure
1.Teachersmaygothroughsomeimportanteconomicknowledgewithstudentswhentheyaredoingstep1, suchas the relationshipbetweendifferent typesofpriceelasticityofdemandand totalrevenue.Then,askstudentstothinkabouthowtoapplytheireconomicknowledgetoanalyzethereasonswhyHongKongDisneylandimplementspricediscrimination.
3.Ask students topayattention to thecoreandbranchesof themindmap.Then, refer to theframeworkandlisttheeffectsofHongKongDisneyland’simplementationofpricediscriminationonitself,visitorsandsociety.
4.Askstudents toorganize thedata instep3,and list themainpoints in introduction,analysisandconclusion.
2.Whenstudentsaredoingstep2,teachersmayremindthemtocollectdataonthepricesofHongKongDisneyland’sAnnualPassesandotherdiscountsofferedfromitsofficialwebsite.Besides,theyshouldalsobeawareofrecentreportsaboutHongKongDisneyland.
5.Whendoingstep4,guidestudentstousetheeconomicknowledgealongwiththepreliminaryanalysisinstep2.Theyshouldstatetheirpointsandimplicationssystemically,andmakeinformedjudgements.
III. Suggested answer
Simple monopoly pricing
Price discrimination
Definition: The firm sets only one price for each unit of its output; at this price, consumers can buy as much as they want.
Example: All goods that are charged at one price only.
Definition: The seller charges along the demand curves of different consumers in order to extract the consumer surplus from each consumer completely.
Partial example: Dutch auction
Definition: The seller charges buyers higher prices for quantities with greater marginal benefits and lower prices for quantities with smaller marginal benefits.
Example: Quantity discounts, two-part tariffs
First degree
Third degree
Second degreeMonopoly
pricing
Definition: The seller separates customers with different price elasticity of demand (or information costs) into two or more groups and charges them different prices.
Example: Discounts for students and the elderly
The topic derived from the news report: Hong Kong Disneyland’s implementation of price discrimination is beneficial
to society?
Step Setting a topic1Step Setting a topic1
�
Scope 1 Monopoly Pricing
III. Suggested answer
Simple monopoly pricing
Price discrimination
Definition: The firm sets only one price for each unit of its output; at this price, consumers can buy as much as they want.
Example: All goods that are charged at one price only.
Definition: The seller charges along the demand curves of different consumers in order to extract the consumer surplus from each consumer completely.
Partial example: Dutch auction
Definition: The seller charges buyers higher prices for quantities with greater marginal benefits and lower prices for quantities with smaller marginal benefits.
Example: Quantity discounts, two-part tariffs
First degree
Third degree
Second degreeMonopoly
pricing
Definition: The seller separates customers with different price elasticity of demand (or information costs) into two or more groups and charges them different prices.
Example: Discounts for students and the elderly
The topic derived from the news report: Hong Kong Disneyland’s implementation of price discrimination is beneficial
to society?
Step Setting a topic1Step Setting a topic1
�0
New Horizon Economics School-based Assessment Resources Package (Elective)
Write a news commentary on the following topic, and list the tools, economic concepts and theories involved.
Topic Tools, concepts and theories
Hong Kong Disneyland’s implementation of price discrimination is beneficial to society?
• Demand-supply theory
• Consumer surplus and producer surplus
• Price discrimination and simple monopoly pricing
What do you think should be included when collecting information related to the above topic? List two of them.
1. The prices and items included in Hong Kong Disneyland’s Annual Passes
Types and prices of Hong Kong Disneyland’s Annual Passes:
Type Value Deluxe Premium
Admission valid days230 days
(Most weekdays)
340 days
(Most weekdays & weekends)
365 days
(Every day)
Adult $650 $1,300 $1,800
Student (12-25 years
old full time student)$460 $930 $1,250
2. The reasons why Hong Kong Disneyland charges visitors of different age groups for different prices
Where do you think you can collect the above data? List two of them.
1. Hong Kong Disneyland’s official website (http://park.hongkongdisneyland.com/)
2. News reports on Hong Kong Disneyland
Step Data collection and analysis2Step Data collection and analysis2
What are the effects brought by Hong Kong Disneyland’s implementation of price discrimination? According to the data collected, give a preliminary analysis by completing the following mind map:
Visitors
Disneyland
Students pay less. Their consumer surplus increases.
Society
If consumer surplus generally increases, social surplus will increase.
Effects of Hong Kong Disneyland's implementation of price discrimination
If consumer surplus generally decreases, social surplus will decrease.
Attendance figures increase.
Income and profit increase.
Adults pay more. Their consumer surplus increases.
List the main contents in the introduction, analysis and conclusion of the news commentary.
Introduction
Briefly introduce the prices and items included in Hong Kong Disneyland’s Annual Passes.
State that the main point of discussion is to find out whether price discrimination is beneficial to society.
Analysis
Analyze the motives and advantages of implementing price discrimination.
Analyze the effects of price discrimination on buyers and sellers.
Deduce the effects of price discrimination on social surplus.
Step Drafting an outline3Step Drafting an outline3
��
Scope 1 Monopoly Pricing
What are the effects brought by Hong Kong Disneyland’s implementation of price discrimination? According to the data collected, give a preliminary analysis by completing the following mind map:
Visitors
Disneyland
Students pay less. Their consumer surplus increases.
Society
If consumer surplus generally increases, social surplus will increase.
Effects of Hong Kong Disneyland's implementation of price discrimination
If consumer surplus generally decreases, social surplus will decrease.
Attendance figures increase.
Income and profit increase.
Adults pay more. Their consumer surplus increases.
List the main contents in the introduction, analysis and conclusion of the news commentary.
Introduction
Briefly introduce the prices and items included in Hong Kong Disneyland’s Annual Passes.
State that the main point of discussion is to find out whether price discrimination is beneficial to society.
Analysis
Analyze the motives and advantages of implementing price discrimination.
Analyze the effects of price discrimination on buyers and sellers.
Deduce the effects of price discrimination on social surplus.
Step Drafting an outline3Step Drafting an outline3
��
New Horizon Economics School-based Assessment Resources Package (Elective)
Conclusion
Restate that Hong Kong Disneyland’s implementation of price discrimination may be beneficial to society.
Conclude the effects brought by price discrimination.
Sta te the area and m a i n p o i n t s o f discussion.
Hong Kong Disneyland’s implementation of price discrimination is beneficial to society?
I ntroduction
Hong Kong Disneyland was open in September 2005, bringing much fun to
local and overseas visitors. The Annual Passes it offers starting from 2006 allow
holders to visit the park for infinite times on specified dates, and enjoy discounts
on hotel accommodation and shopping. Below shows the types and prices
of the Annual Passes for adults and students:
Type Value Deluxe Premium
Admission valid days230 days
(Most weekdays)
340 days (Most weekdays
& weekends)
365 days (Every day)
Adult $650 $1,300 $1,800
Student (12-25 years old full time student)
$460 $930 $1,250
Source:HongKongDisneyland,2008.Downloadedfromhttp://park.hongkongdisneyland.com/.
This news commentary will examine the motives and advantages of
Hong Kong Disneyland’s implementation of price discrimination,
the effects on buyers and the seller, and find out whether price discrimination
is beneficial to society.
A nalysis
Since the services and costs that Hong Kong Disneyland provides to students
and adults are essentially the same, while students can enjoy concessionary
rates, it is price discrimination.
Step Writing a news commentary4Step Writing a news commentary4
��
Scope 1 Monopoly Pricing
F i r s t po in t ou t tha t Hong Kong Disneyland i m p l e m e n t s p r i c e discrimination, and list the required conditions.
Wi th the a id o f the d e m a n d - s u p p l y theory and diagrams, explain the reasons why charging students and adults (who have different price elasticity of demand) for different pr ices can increase total revenue.
The following shows the required conditions:
Condition 1: Hong Kong Disneyland is a price searcher with monopoly power.
Condition 2: Compared with students, adults have a lower price elasticity of
demand and are more willing to pay the price.
Condition 3: The cost of Hong Kong Disneyland involved in preventing adults
from using students’ Annual Passes is negligible.
Price discrimination is beneficial to the seller (Hong Kong Disneyland)
Students’ market Adults’ market
Fig1:Studentshaveahigherpriceelasticityofdemand.Loweringthepricewillincreasethetotalrevenue.
Fig2:Adultshavealowerpriceelasticityofdemand.Raisingthepricewillincreasethetotalrevenue.
As shown in Fig 1, the price elasticity of demand of students is greater than 1.
Hong Kong Disneyland’s gain in total revenue due to an increased number of
students’ visits is greater than the loss due to a fall in price, that is, the total
revenue will increase. Fig 2 shows that the price elasticity of demand of adults is
smaller than 1. The gain in total revenue due to a rise in price is greater than the
loss due to a fall in the number of adults’ visits, that is, the total revenue will
increase.
Compared with simple monopoly pricing (that is, only one price is set for a
product), Hong Kong Disneyland lowers the price for students with a higher
price elasticity of demand, and raises the price for adults with a lower price
elasticity of demand may increase its total revenue. Since service provision
mainly involves fixed cost (such as the construction cost of the facilities), an
increase in total revenue will increase the profit.
��
New Horizon Economics School-based Assessment Resources Package (Elective)
Hong Kong Disneyland is a private profit-making institution. Under the postulate
of profit maximization, its long-time implementation of price discrimination
implies that the profit under such pricing arrangement is higher than that
under simple monopoly pricing.
Price discrimination is beneficial to the buyers (students)
Compared with simple monopoly pricing, under price discrimination, a lower
price not only increases students’ consumer surplus, but also increases their
quantity demanded. More students are able to visit Hong Kong Disneyland. Yet,
a higher price will reduce adults’ consumer surplus and number of visits.
Is price discrimination beneficial to society?
After Hong Kong Disneyland has implemented price discrimination, since the
change in consumer surplus is uncertain, total social surplus may not increase
according to the following formula:
Total social surplus = Consumer surplus + Producer surplus
However, compared with simple monopoly pricing, under price discrimination,
the number of students’ visits increases but the number of adults’ visits
decreases. Since the price elasticity of demand of students is higher than that of
adults, the increase in the number of students’ visits will probably be more than
the decrease in adults’ visits, which increases the overall number of visits.
An increase in the total number of visits means an increase in consumer
surplus, which implies an increase in total social surplus.
C onclusion
Hong Kong Disneyland charges higher prices on adults who have a
higher willingness and ability to pay, and provides students with concessionary
rates may increase its total revenue. If the implementation of price discrimination
enables more people to enjoy the facilities of Disneyland, it may be beneficial
to society. In addition, allowing sellers to select pricing arrangement freely
may also be beneficial to society.
Compare the changes i n t h e c o n s u m e r surplus of s tudents and adults under price discrimination.
Explain the reasons why price discrimination may be beneficial to society.
State your points and opinion.
��
Scope 1 Monopoly Pricing
IV. School-based Assessment Form
News commentaryTopic: Hong Kong Disneyland’s implementation of price discrimination is beneficial to society?School’s name :
Student’s name : Class :
Date :
Assess the student’s performance based on the following criteria and give comments.
Assessment dimensions
CriteriaMarks
Comments5 4 3 2 1 0
Introduction
Able to state the main points and area of discussion
Suitable length and able to stimulate readers’interest
Analysis
Integrate news reports and make analysis
Able to use relevant economic theories and models for analysis
Able to make objective analysis and reasonable deductions
Clear arguments with proof and evidence
Correct use of grammar and no wrong spelling
Able to lead readers to develop deep reflections
Conclusion
Able to summarize the whole essay and respond to the initial question
Able to show one’s own opinion
Overall comments: Total marks: