Price Discrimination (T.O.T.F)

Question 1

What is price discrimination

Answer 1

Charging different prices for the same good or service for reasons other than the cost of producing the good or service

Question 2

What is first degree P.D?

Answer 2

Charging each individual customer a different price based on their willingness to pau

Question 3

What happens to consumer surplus under perfect price discrimination

Answer 3

All consumer surplus would be eroded

Question 4

What is second degree P.D?

Answer 4

Where consumer choices about when & how much to buy influences the price (e.g. bulk buying)

Question 5

What is third degree P.D?

Answer 5

Different prices based on different times of the day and different characteristics of the consumer (e.g. peak train tickets & NHS discount)

Question 6

What is product versioning

Answer 6

Slightly changing a product or service and charging a higher price

Question 7

Why is product versioning not strictly price discrimination

Answer 7

It is not exactly the same good or service

Question 8

Give two examples of product versioning

Answer 8

Premium petrol
Priority boarding

Question 9

What are the 4 conditions necessary for price discrimination

Answer 9

• Different groups of consumers must have different elasticities of demand
• Must be possible to separate the markets and prevent arbitrage
• Admin costs need to be low
• The market needs to be imperfectly competitive

Question 10

What is dynamic pricing

Answer 10

The idea that algorithms can monitor demand in real time then raise prices accordingly (e.g. Uber)

Question 11

Give 2 examples of price discrimination

Answer 11

-A petrol station offers cheaper petrol on specific days (those with elastic demand would capitalise on this)
- Insurance premiums