Where firms with monopoly power charge different groups of consumers different prices for the same product.
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What does price discrimination allow a firm to do?
Increase its producer surplus at the expense of consumer surplus.
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What are the 3 conditions necessary for price discrimination?
Degree of monopoly power within firms, sub-markets of consumers with different elasticities, cheaper prices not being accessed if charged higher prices.
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What are consumer and producer surplus concepts of?
Economic welfare.
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What is consumer surplus?
The difference between what a consumer would be prepared to pay and the price they actually pay for a good or service.
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What is producer surplus?
The difference between what a firm would be willing to accept for a good or service and what they actually receive.
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What are 2 advantages of price discrimination?
Supernormal profits reinvested, those on lower incomes being able to access certain goods and services.
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What are 2 disadvantages of price discrimination?
Increases producer surplus at the expense of consumer surplus, may be seen as exploiting those in great need who have no choice but to use peak-time services.
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Other cards in this set
Card 2
Front
What does price discrimination allow a firm to do?
Back
Increase its producer surplus at the expense of consumer surplus.
Card 3
Front
What are the 3 conditions necessary for price discrimination?
Back
Card 4
Front
What are consumer and producer surplus concepts of?
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