Price discrimination

Question 1

price discrimination

Answer 1

Charging different prices to different customers for the same product or service, with the prices depending on the customers willingness to pay

Question 2

Conditions for price discrimination

Answer 2

Must be able to identify different groups of customers easily, different customers must have different PEDs, markets must be able to prevent resale, need to be a price maker

Question 3

primary/ first degree (plus example)

Answer 3

when the firm can charge a different price to each individual customer, one example could be ebay

Question 4

surplus in first degree

Answer 4

producer surplus maximised, zero consumer surplus as consumers pay at the exact price they’re willing to pay

Question 5

second degree (plus example)

Answer 5

charging different price for different quantities, an example is any bulk purchases such as coke 10 packs

Question 6

surplus in second degree

Answer 6

for each additional unit bought in a bulk purchase the consumer gains surplus and the producer looses surplus, also peak and off peak pricing

Question 7

Third degree (plus example)

Answer 7

When the firm can charge different groups separate prices, an example would be cinema prices with student and OAP discounts

Question 8

surplus in third degree

Answer 8

consumer surplus increases as within the groups of lower prices many are willing to pay more, producer surplus falls

Question 9

Pros for price discrimination

Answer 9

Equitable, profit maximising, gain producer surplus, may increase sales leading to economies of scale, allows firm to exploit spare capacity