5.7 Price Discrimination

Question 1

What is price discrimination

Answer 1

When a firm charges consumers different prices for the same good or service

Question 2

What is firs degree price discrimination

Answer 2

When each consumer is charged a different price

Question 3

What is second degree price discrimination

Answer 3

When prices are different according to volume purchased

Question 4

What is third degree price discrimination

Answer 4

When different groups of consumers are charged a different price for the same good or service

Question 5

What allows a market to split and different prices to be charged

Answer 5

Demand curve of different elasticities exist with each group of consumer

Question 6

Costs to the consumer of price discrimination

Answer 6

Loss of consumer surplus

Higher prices in the long run for customers

Question 7

Benefits of price discrimination for consumers

Answer 7

Consumers could benefit from net welfare gain as a result of cross subsidisation

Question 8

Costs of price discrimination for producers

Answer 8

Can face investigation if used as a predatory move

Might cost the firm to divide the market which limits benefits

Question 9

Benefits for producers of price discrimination

Answer 9

Producers make better use of spare capacity

High supernormal profits can stimulate investment