Price Discrimination Flashcards
Define Price Discrimination.
Charging different prices to different customers for the same product with the prices being based on different willingness to pay.
What do firms need to be able to price discriminate?
- be a price maker
- to prevent resale
- have easily identifiable groups
- different customers must have different price elasticities of demand
What are the 3 types of price discrimination?
- 1st degree
- 2nd degree
- 3rd degree
What can 1st degree price discrimination also be referred to as?
Perfect price discrimination
What are the 4 ways to price discriminate?
- by consumer age
- by team (peak time ect)
- geographically
- by quantity bought
Define 1st degree price discrimination.
When firms can charge a separate price to each individual consumer.
Define 2nd degree price discrimination.
Charging separate prices for different quantities bought.
Define 3rd degree price discrimination.
Charging separate prices to different groups of customers.
Which price discrimination maximises producer surpluss?
1st degree
Which price discrimination has the lowest producer surplus?
3rd degree
Which price discrimination has the highest consumer surplus?
3rd degree
Which price discrimination has no consumer surpluss?
1st degree
What is consumer surplus?
The difference between how much consumers are willing to pay compared to how much they actually pay. It’s the measure of welfare gained from consuming a good.
What is producer surplus?
The difference between how much producers are willing to sell for compared to how much they actually sell for. It’s the measure of welfare gained from producing a good.
