price discrimination

Question 1

what is price discrim

Answer 1

when frm charges diff rices to diff consuemr for an identical g/s w no differences in COP

Question 2

WHAT ARE CONDITIONS NECESSARY FOR PRICE DISCRIMINATION

Answer 2

1. price making ability - so some kind of legal monoply power

2.information to seperate market(into diff PED) -elastic charge lower , inelastic charge higher

3. Prevent resale (market seepage )

Question 3

why do firms wanna create acounts when we do shopping onlin

Answer 3

colle ting info

so they can seGMENT
e us into mkts BASED ON PED

Question 4

why do you prevent resale of mkt

Answer 4

a consumer cannot purchase at the low price in the elastic sub-market, and then re-sell to other consumers in the inelastic sub-market, at a higher price.

or reduces profits for firm / discirm likely to be unsuccessful

Question 5

what are the 3 types of price discri

Answer 5

1st

2nd

3rd degree

Question 6

what is 1st degree price discrimnatino

Answer 6

when consumer charged exact price theey willing to pay for g/s

therfore eroding all consumer surplus and turingin it into monopoly profit

Question 7

how would we show 1st degree discirm on a graph

Answer 7

draw norml demand curve

p1 q1 everything above p1 shaded in

shade area label as CS turned into monoply profit

Question 8

in terms of 1st degree price discrim if firms got x what can they

Answer 8

good info

tey can do something about this

Question 9

we looka t 2nd degree discirm through

Answer 9

excess capapcity pricing

Question 10

what is excess capapcity pricing

Answer 10

When firm with fixe capapcity e.g airline (fixed number of seats)

makes no sense to leave any capacity idel as got fixed costs to pay

last minute lower prices to fill capcity and contribute towards fixed costs

consider this as last min deals

Question 11

how would you dan and explain on a graph

Answer 11

MC is contstant hwen it comes to filling 1+ seat on the plane extra cost e.g meal /admin

so mc line is horizontal up to a point then vertical

draw rev curves as normal

assume firm is profit maxer so MC=MR q1 p1

if max profit thers excess capapcity q1-qcap

makes o sense to leave idle space given FC to pay

lower price to make sure they can fill capciry and bring in rev to contribute to C
price where mc = ar p2 qcap

@p2 all cap is filled and rev coming in can contribute to pay FC

buy doing so consumers that pay last minute a lower price gain cs of under ar above p2

Question 12

what is 3rd degree price discriminatino

Answer 12

when firm ale to segment mkt into diff pED

one group with PED one group with PID

Question 13

HOW WILL firms recognise diff groups of PED

Answer 13

based on tiem diff , age , incom e, geo so charge diff prices to diff groups

Question 14

how have rail company seprate fonsumes

Answer 14

realised consumers wit inelastic dema -commuters who need to get to work

elastic deamnd - eisure travellers

Question 15

in terms of 3rd degree pricing who is the MC curve

Answer 15

constant and we take it across both market segments/graphs

Question 16

why in 3 rd degree is MC constnat

Answer 16

to fill 1+ seta on train the cost is the same eahc time

Question 17

how do we draw rev curves in inelastic and elastic 3rd degree discrim

Answer 17

inelastic - AR and MR is steep

elastic - AR and MR shallow

Question 18

how do firms behave in 3rd degree price discri on our grpah

Answer 18

profit max

mc=mr

Question 19

what do we notice about hte prices charged on diff PED

Answer 19

where demand is inealstic - prices higher to exploit fact PID

where demand is elastuc , prices are lower and we can

Question 20

what can we say about 3rd degree discrim and profit aming

Answer 20

firm chargin 2 prices

by doing this can max joint profits

if charged p1 across both mkts (from inelastic ) there woudl be no deamnd and sales at all

Question 21

what are the cons of price dsicrim

Answer 21

allocative inefficiency

inequalities

anti competitive pricing

Question 22

what are the pros of price discirm

Answer 22

dynamic efficiency

economeis of sclae

some consumers beenfit

cross subsidisation

Question 23

explain allocative inefificney con

Answer 23

chargin prices way beyond MC

exploiting consumers dratically

e.g 1st degree . PID 3rd degree

this means resources not distriuted optimally

so consuemrs unable to purchase hawt tehy want in Q they want

reduction in welafare for society

too ittle being produced and consumed form a socially desirable POV - so makt failure ?

this is the worst

Question 24

explain inequality negative

Answer 24

in 1st degree price discirm and inealstic 3rd degree price discrimination

they suffer the most

if they are low Y hh

they are paying more

this widens the inequality in society
less able to afford necessity goods

weaker social bonds between people, which in turn makes health and social problems more likely. - can have further negatove impacts on economic growht and stability of national eocn

Question 25

explain anti comp nature of priicng con

Answer 25

for those on 3rd degree elastic price discrim

ibusinesses lwoer prices in this case which can drive out comp

if firms leave mkt as are uable to lower prices to ssame extent and compete due to higher cop /costs

we can be left with pure monopoly poewr

can lead to further non desirable outocmes for society e.g lower levels of Q -even higher prices

Question 26

explai dynamic efficieny pro

Answer 26

can lead to higher profits for firms, so more reinvestment potential as well as dyno efiiciney benfits

but this depends on economic cliamte if high inflatin - creates uncertianty - so bs not likely to invest so no benefits for customers

Question 27

epxlain EOS poiitve

Answer 27

with higer quantties made in 2nd and 3rd degree price discirm

there MORE OUTPUT

so more chane of EOS

so inreaes EOS benefits in future

can lead to lowe rprices OT

but considering on the mkt strucure
this would be more effective in more comp mkt s e.g monopolsiitc and oligoopolistic than monopoly as dont have to reduce price to be comp where as monopolisitc might ?

Question 28

explain some consumers do benefit pro

Answer 28

2nd and 3rd degree elastic

benfit from lweor prices

but ths is no where near heavy as consumers that loose as a result of proce discrim

Question 29

explain cross sub benefits

Answer 29

higher prifits firms make can be used to cross sub loss making g/s elsewehre in comp

that consumers desire

so dont compeltely loose out on fav g/s or useful onees to them

Question 30

what is hte con that outweighs any pros

Answer 30

allocative inefficiency