Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Price discrimination allows firms to charge different prices based on consumer willingness to pay.
B
Price discrimination can only occur in perfectly competitive markets.
C
Effective price discrimination requires that reselling of the product is not possible.
D
Price discrimination helps firms maximize revenue by targeting different consumer segments.
E
Price discrimination eliminates all forms of consumer surplus.
Understanding the Answer
Let's break down why this is correct
Answer
Price discrimination is when a seller charges different prices to different customers for the same product or service. This can happen based on various factors, such as the customer's willingness to pay, age, or location. For example, a movie theater might charge less for children's tickets compared to adult tickets, even though both groups are watching the same movie. The goal of price discrimination is to maximize profits by capturing more consumer surplus, which is the difference between what customers are willing to pay and what they actually pay. Therefore, it is important to recognize that price discrimination is not unfair, as long as it is done within legal and ethical guidelines.
Detailed Explanation
Price discrimination means charging different prices to different customers based on their willingness to pay. Other options are incorrect because This option suggests that price discrimination is only about willingness to pay; This option implies that price discrimination can only happen in very competitive markets.
Key Concepts
Price Discrimination
Market Power
Consumer Surplus
Topic
Understanding Price Discrimination
Difficulty
easy level question
Cognitive Level
understand
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