Principles of Economics (Second Edition)
2nd Edition
ISBN: 9780393623826
Author: Lee Coppock, Dirk Mateer
Publisher: W. W. Norton & Company
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Question
Chapter 11, Problem 1QFR
To determine
Challenges overcome for effective
Expert Solution & Answer
Explanation of Solution
Before a price maker firm executes price discrimination policy effectively it must overcome 2 basic challenges: -
- Different
price elasticities of demand: For executing price discrimination policy effectively the price maker firm must be able to enjoy some or high degree ofmonopoly power and the same time different consumers must face different price elasticities of demand. E.g. people having low level of income will be more price elastic and sensible to price change while the business class travelers possess moreinelastic demand . - Separate markets: - The price maker firm must overcome the challenge of identifying and separating the market segments and prevent resale of good. E.g. to stop an adult people from using a kid's movie ticket. Preventing business travelers from purchasing discounted ticket.
Economics Concept Introduction
Introduction:
Price discrimination is the process of imposing different prices from different groups of people for different quantity or quality for the same good or service. The best example of price discrimination exercise is imposing differentiated prices for business class, first class and economy class travels in a same flight. Price discrimination can be exercised only when the firm or seller becomes price maker i.e. one which has partial or complete control over market price and the industry as a whole.
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Chapter 11 Solutions
Principles of Economics (Second Edition)
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