📚 Learning Guide
Price Discrimination and Efficiency
easy

What is the primary effect of price discrimination on producer surplus in a market?

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Learning Path

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Choose the Best Answer

A

It decreases producer surplus

B

It has no effect on producer surplus

C

It increases producer surplus

D

It eliminates producer surplus

Understanding the Answer

Let's break down why this is correct

Answer

Price discrimination is when a producer charges different prices to different customers for the same product. The primary effect of this practice on producer surplus, which is the difference between what producers are willing to accept for a good and what they actually receive, is that it often increases producer surplus. This happens because producers can capture more consumer surplus by charging higher prices to those willing to pay more and lower prices to those who are more price-sensitive. For example, a movie theater might charge higher prices for evening shows when demand is high and lower prices for matinees, allowing them to earn more money overall. By effectively segmenting the market, producers can maximize their profits and improve their financial situation.

Detailed Explanation

Price discrimination allows producers to charge different prices to different customers. Other options are incorrect because Some might think that charging different prices lowers overall earnings; It's a common belief that changing prices doesn't affect earnings.

Key Concepts

producer surplus
Topic

Price Discrimination and Efficiency

Difficulty

easy level question

Cognitive Level

understand

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