1. One change in supermarkets in the last few decades is that they now operate their own wholesale operations. They have gotten rid of that middleman but the function of that middleman (wholesaling) still must be undertaken, just now it is within the retailer company. Walmart has followed this strategy successfully for several decades. Under what conditions will this internal operation of wholesaling into the retail operation (a form of vertical integration) be profitable?
2. One result of the COVID pandemic is a new set of rules that have required restaurants in BC to allow more space between tables, so a lower density of seats and tables within the restaurant. Using our farm-retail price model, we can anticipate what will be effect of these new city-wide rules on the prices farmers will be paid for their raw food products that they normally sell to the restaurants. (a) use a diagram to illustrate and explain this side effect of the new COVID rules on farm suppliers. (b) Can you describe a different market situation where the farmer price would not change?
3. You are aware of the three pillars of the milk policy regime in Canada, and how quota levels are determined, given the other two pillars, but what will happen if the demand curve shifts right due to income and population growth, but for some reason the quota levels are not changed? What would you anticipate would happen in this market to result in a return to equilibrium, given no change in the price farmers are paid (P1), the quota level Q1, and the TRQ level which is exogenous in any case.
4. If the current milk pricing policy in Canada keeps the farm price of milk constant in real terms, but the MC over time declines in real terms, due to advances in technology, what will happen over time to the quota level (Q1), given what you know about how quota levels are chosen? If there is no change in demand, what other changes would follow from these declining costs?
5. Price Discrimination: Explain how the following cases involve price discrimination and how the seller attempts to prevent arbitrage of the different prices charged to different groups or persons: (10 pts)
a. Skip The Dishes offers a promotional code that can be used by new customers. Is this price discrimination? How can it prevent arbitrage?
b. A supermarket advertises its weekly sales and includes a coupon that you can clip or scan and show at the store to receive a discount.
c. Raw Milk going into different milk products (or ‘classes’, such as butter vs cheese vs fluid milk) is priced differentially to processors, only based on the product that is being produced, both in Canada and the US.
d. Starbucks has a loyalty scheme where you get a free coffee after you purchase a certain number of coffees, or spend a certain number of dollars.