Marginal consumers

Marginal consumers who will reduce consumption or do without entirely when the price rises... 

Cost is a significant factor in the consumer s acceptance of substitute dairy foods. Table 20 shows the relative cost of substitute fat and protein in the various substitute foods. A comparison of retail prices of selected dairy products and corresponding substitutes in four supermarkets in the midwestem United States in the Fall of 1992 are shown in Table 21. In all cases the prices for the substitutes are lower than the prices of the respective dairy product. The smallest price margin is in the area where the substitute products are advertised as fat-reduced or cholesterol-free. 

Thus with aMeSt, the kinetic chain is relatively short, monomer is consumed mainly by initiation and propagation, and chain transfer by the HSiCCHj CH H C Q initiator is unfavorable (see Sect. III.B.3.b.i.). In contrast, with isobutylene the kinetic chain may live longer because it is sustained by thermodynamically favorable chain transfer by the initiator. Scheme 5 illustrates the mechanism of isobutylene polymerization by the HSi(CH3)2CH2CH29>CH2Cl/Me3Al system. The kinetic chain is sustained by chain transfer loops shown on the left margin of the Scheme. 

The distortions that patents provoke were reviewed recently by Kremer.14 Monopoly prices create both static and dynamic distortions. On the one hand, some consumers will not be able to pay prices that are fixed above the marginal cost in order to recover the investment in R D. On the other hand, potential investors will not necessarily take the consumer surplus into account when they decide to carry out research projects. The value of a patent - and in this case of a pharmaceutical - may be very different for different consumers, but price discrimination is impossible. The industry may shelve certain projects owing to the lack of a satisfactory return, because of the difficulty of price discrimination. Kremer even claims that the welfare loss due to monopoly prices is in the region of a quarter of the sum of the profits and the consumer surplus. Other authors, such as Giiell and Fischbaum,15 estimate welfare loss as being around 60 per cent of the sales figure. 

We will suppose that the sunk costs that the company is seeking to recover amount to 500 monetary units and that the marginal cost of the product is 5 monetary units. The demand functions are q = 50 - /q for market 1, and q2 = 50 - 2p2 for market 2. It is plain to see that when the price is zero, the same quantity is consumed on both markets. However, demand is more price-sensitive (that is, elastic) in market 2 than in market 1. 

The moral hazard associated with health insurance is twofold that which occurs ex ante, which consists in failing to prevent health problems because he or she knows that he or she is protected in the event of falling ill, and expost moral hazard, which is what occurs when rational consumers consume quantities that are greater than the optimum once they fall ill, because the marginal cost for the co-insured patient is lower than the marginal cost of production. 

Non-linear pricing Non-linear prices usually consist of a two-part tariff. One part is fixed and does not depend on the quantity of the product consumed. The simplest way to establish this tariff is to estimate the potential loss (L) at the point where price = CMg and divide it by the number (N) of potential users, that is, the tariff equals L/N. The other part varies with the quantity consumed. In the case in which the variable component is fixed according to the marginal cost, the price structure is efficient and at the same time the company can avoid incurring a deficit. 

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