Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose 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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