Th3.4: Costs and Benefits

Question 1

How do firms benefit?

Answer 1

since they are able to increase their profits - this can go into research and development, improving dynamic efficiency

Question 2

Why do those in the elastic market gain?

Answer 2

as they are able to pay a lower price than they otherwise would - they benefit from cross subsidisation. these consumers may have been unable to access it without price discrimination and so this may increase equality

Question 3

What are some costs?

Answer 3

consumers lose some of their consumer surplus to the producers and some consumers have to pay a higher price

Question 4

What are the two other types of price discrimination?

Answer 4

first-degree price discrimination

second-degree price discrimination

Question 5

What is first-degree price discrimination?

Answer 5

where the firm can charge different prices for every unit of the good and so can eliminate all consumer surplus

Question 6

What is second-degree price discrimination?

Answer 6

charging a different price for different quantities such as discounts for bulk purchases