Price discrimination

Question 1

Price discrimination?

Answer 1

Charging different prices to different consumers based on their willingness to pay more or less

Question 2

4 conditions needed for PD

Answer 2

Must be able to categorise/group consumers
Must be different elastics in demand
Separable markets
No resale

Question 3

Purpose of PD?

Answer 3

Convert consumer surplus into supernormal profit

Question 4

4 advantages of PD

Answer 4

Increased supply surplus
Can be equitable
Needed so companies can take losses in the long run
More R+D

Question 5

4 disadvantages of PD

Answer 5

Loss of consumer surplus
Not always equitable
Administration costs DWL
Profits can finance predatory pricing

Question 6

1st Degree?

Answer 6

(Perfect discrimination) when a firm changes a different price for every unit therefore all surplus is captured

Question 7

2nd Degree?

Answer 7

(Quantitative discrimination) different price for different order sizes

Question 8

3rd Degree?

Answer 8

(Qualitative) Different price by group