Question

Gadgets for Sale ... or Not How come the prices of some gadgets, like the iPod, are the same no matter where you shop? No, the answer isn't that Apple illegally manages prices. In reality, Apple uses an accepted retail strategy called minimum advertised price to discourage resellers from discounting. The minimum advertised price (MAP) is the absolute lowest price of a product that resellers can advertise. Marketing subsidies offered by a manufacturer to its resellers usually keep the price at or above the MAP. Stable prices are important to the company that is both a manufacturer and a retailer. If Apple resellers advertised the iPod below cost, they could squeeze the Apple Stores out of their own markets. The downside to the price stability is that by limiting how low sellers can go, MAP keeps prices artificially high (or at least higher than they might otherwise be with unfettered price competition). Source: Slate, December 22, 2006 Why might the MAP strategy be against the social interest and benefit only the producer? The MAP strategy might be against the social interest and benefit only the producer if O A. encourages retailers to sell fewer more iPods B. it discourages retailers from discounting O C. further research and development is discouraged OD. it keeps the price of iPods higher than without the MAP

Answer 1

Answer (D) it keeps the price of iPods higher than without the MAP

Since the prices are kept artificially higher than they would be in a competitive environment, it reduces the social benefit by creating a dead weight loss. This concept is similar to the price floor concept that the government uses. While it protects and helps the producer, it reduces the overall social benefit due to higher than competitive prices.