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The Social Welfare of Price Discrimination

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Introduction to Price Discrimination Practice Questions

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The Social Welfare of Price Discrimination Practice Questions

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1. Airline travel and time of departure

Airlines charge different prices depending on the season, time of the flight and day of the week. During the peak holiday season, the prices will be higher because demand is greater and more inelastic.

2. Quantity Purchased

Many sellers offer quantity discounts for bulk purchases as a way to get buyers to buy more.

3. Coupons

Companies often give coupons to selected consumers. For example, CVS sends coupons to regular customers to get special offers, e.g., 20% off selected items. These coupons are often highly targeted to your spending habits and previous purchases. This difference helps them segment the market based on purchase pattern and frequency.

4. Age Discounts

A popular way to segment the market is by age category, e.g., students often get discounts on travel and retail. Students have lower income than working adults and so are more sensitive to changes in price.

5. Choosing your seat early

Airplanes offer numerous ways to charge different prices for privileges like choosing a seat early or priority check-in. These perks are a way of extracting higher prices from those who want to pay for extras.

6. Three for Two offers

Bookstores often advertise that you can buy three books for the price of two to encourage consumers to buy a higher quantity.

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Price Discrimination | Intelligent Economist

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Airlines charge different prices depending on the season, time of the flight and day of the week. During the peak holiday season, the prices will be higher because demand is greater and more inelastic. Many sellers offer quantity discounts for bulk purchases as a way to get buyers to buy more.

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Questions we worked on in class (with answers)

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Questions we worked on in class (with answers)

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Alternatively the government could force the monopoly to produce where price equals average total cost, leaving the firm a zero economic profit. Thus the firm will remain in the industry since it is covering all opportunity costs. As demonstrated in our graph, the price is less than that of the unregulated monopoly but higher than the economically efficient price.