Module 2

Question 1

Surveys and focus groups are used by firms to ___________ consumers about their preferences.

Answer 1

directly ask

Question 2

Surveys are _______ to run than focus groups.

Answer 2

Cheaper

Question 3

Surveys typically result in large amounts of _________ data.

Answer 3

quantifiable

Question 4

Focus groups can provide more nuanced, __________ information.

Answer 4

qualitative

Question 5

Some challenges with surveys and focus groups are designing them in a way that makes respondents willing and able to respond ________, and choosing the ________ sample of consumers.

Answer 5

truthfully; right target

Question 6

________ are a more effective approach for eliciting a consumer’s true WTP.

Answer 6

Auctions; because they tie the act of revealing one’s

preference for the good to the probability of obtaining it.

Question 7

________ auctions: buyers submit increasing bids. The consumer with the highest WTP wins, typically bidding (and paying) just above the consumer with the 2nd highest WTP.

Answer 7

Open outcry or English

Question 8

________ auctions: buyers submit sealed bids. The highest bidder wins the auction, and pays the 2nd highest bid. Bidders are motivated to bid their exact WTP, to maximize their chance of winning the product without the risk of overpaying.

Answer 8

Sealed second-price or Vickrey

Question 9

________ auctions: buyers submit sealed bids. The highest bidder wins the auction and pays what he or she
bid. Bidders might be motivated to bid below their WTP in order to ensure that if they win, they will capture some
value.

Answer 9

Sealed first-price

Question 10

The Revenue Equivalence Result states that, under certain general conditions, each of these types of auctions should result in ______________ revenue for the seller.

Answer 10

approximately the same

Question 11

All of these types of auctions should

result in approximately the same revenue for the seller. This revenue will be approximately equal to the ____________.

Answer 11

2nd highest bidder’s WTP

Question 12

Auctions are useful tools for a seller who has __________ about consumers’ WTP, but can result in uncertainty and delay for consumers.

Answer 12

little information

Question 13

__________ may be preferred to auctions in certain settings.

Answer 13

fixed prices

Question 14

The ________ occurs when the winner of an auction “overpays” for a product – that is, pays more than what turns out to be the true value of the product.

Answer 14

winner’s curse

Question 15

The winner’s curse tends to occur when the product is worth _________ amount to each bidder; the winner is the person who most _________ the value of the product.

Answer 15

about the same; overestimated

Question 16

Firms are using _____ on consumers’ past choices to determine their true preferences.

Answer 16

data

Question 17

An advantage of this approach is that firms _____ from consumer actions (i.e., what consumers choose), rather than from what they say: this is the ____________.

Answer 17

infer WTP; principle of revealed preference

Question 18

One challenge of using data on past outcomes is to ensure that _________ don’t confound the correct
interpretation.

Answer 18

missing variables

Question 19

One advantage of running _______ in order to determine WTP (e.g., by adjusting prices) is that firms
can avoid the problem of missing variables by randomizing treatment and control groups.

Answer 19

experiments

Question 20

__________ is a specialized survey design, which determines consumers’ preferences for individual features of a product.

Answer 20

Conjoint analysis

Question 21

Conjoint analysis asks respondents to \_\_\_\_\_ different bundles of features, and uses responses to \_\_\_\_\_ a
numerical value (called a “part-worth”) to each feature.

Answer 21

rank; assign

Question 22

Firms can use numerical values or part-worth’s to predict consumer ______ to a product, and to _____ what product features to offer.

Answer 22

reactions; decide

Question 23

Firms can often influence demand rather than taking it as a given. What are three strategies?

Answer 23

Advertising, Substitutes & Complements, & Network Effects

Question 24

Firms can advertise for a product, thereby influencing consumers’ WTP and shifting the demand curve _______.
Advertisements can be persuasive or informative.

Answer 24

outward

Question 25

Commonly observed forms of advertising are: (a) Advertising a _________, (b) Advertising an ________, or (c) _______ advertising against a competitor.

Answer 25

specific firm’s product; industry (e.g.,

diamonds); Negative (“badmouthing”)

Question 26

Advertising its own product shifts the demand curve facing a firm to the _____.

Answer 26

right

Question 27

Advertising an industry is more beneficial when a firm has few important _______: this will shift the demand curve for the entire industry to the ______, and since the firm has a large share of the market, most increased purchases in the industry will _____ the firm.

Answer 27

competitors; right; benefit

Question 28

Running negative advertisements about a firm’s competitor will shift the demand curve for the competitor’s product to the _____ and (if the competitor’s product is a substitute for the firm’s own product) shift the curve demand for the firm’s product to the _____.

Answer 28

left; right

Question 29

_______ are products that can replace each other.

Answer 29

Substitutes

Question 30

The combined WTP for two products that are substitutes is _____ than the sum of the WTP for each individual product.

Answer 30

lower

Question 31

As the availability of substitutes increases, or their prices fall, the demand curve for a firm’s product shifts ____.

Answer 31

left

Question 32

__________ are products that consumers wish to consume together.

Answer 32

Complements

Question 33

The combined WTP for two products that are

complements is ______ than the sum of WTP for each individual product.

Answer 33

greater

Question 34

As the availability of complements

increases, or their prices fall, the demand curve for a firm’s product shifts _____.

Answer 34

right

Question 35

Firms can ______ demand for their products by making substitutes less available or more expensive, or by making complements more available or cheaper.

Answer 35

increase

Question 36

__________ occur if a product is more valuable to its users, the more users it has (e.g., telephones, fax machines, social networks).

Answer 36

Network effects

Question 37

An individual’s demand curve shifts _____ as other users purchase the product.

Answer 37

right

Question 38

For products exhibiting network effects, a firm may wish to price ___ initially in order to encourage early adopters - and then ______ its price later once the product commands a large installed base (and network effect).

Answer 38

low; increase