INSTRUCTOR DISCUSSION NOTES:
VOIP Me Tonight, Okay

1. According to the article, basic telephone service may one day be free. Can there ever truly be a "free good?" Why or why not?

Not truly free because all goods and services always carry an opportunity cost of production. But the marginal cost of production can become sufficiently small as to approximate zero. This might be an excellent opportunity to show students how the industry has moved from a monopolistic structure to a monopolistically competitive one-with the consequent price and profitability changes.

2. If basic phone service is free, it could be considered a "loss-leader" in the market for communication services. What does it mean to be a "loss-leader"?

In marketing, a "loss-leader" is (usually) a basic good or service that firms offer at less than their cost to provide that good or service. But the contact with the customer then allows them to make up the revenue by profiting on related complementary goods that customers order along with the basics. An example: new high tech razors as the loss-leader, with replacement blades as the real revenue generator.

3. Take a survey of your classroom to determine how many students still have traditional landlines, how many use VOIP technology, and how many use cellular phones as their primary source of communication. Discuss how your results compare with what is discussed in the article. Do you think that demographics affect the need for landlines? Explain.

Answers may vary. Young singles often rely only on VOIP or cell phones, while families may feel the need for a landline as they establish a household with several occupants.

Multiple Choice/True False Questions

1. According to the article, the price of traditional telephone services is falling because of:
  1. Decreased demand for landline services.
  2. Increased demand for landline services.
  3. Decreased supply of landline services.
  4. Increased supply of landline services.
ANS . a

2. Overall usage of Internet-based telephone services is increasing because:
  1. Supply has risen as costs fall and more sellers enter the market.
  2. Demand has fallen.
  3. Demand has increased through cell phone use and other factors.
  4. A and C
ANS . d

3. According to the article, if both price and quantity of internet-based telephone services have increased, it must be because:
  1. Demand is increasing faster than supply is increasing.
  2. Supply is increasing faster than demand is increasing.
  3. Demand is falling faster than supply is increasing.
  4. Supply is increasing faster than demand is falling.
ANS . b

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