Topic 11- FINAL
Topic 11- FINAL ECON 102
Popular in Introductory Microeconomic Analysis and Policy
Popular in Economcs
This 3 page Bundle was uploaded by John Om on Monday April 25, 2016. The Bundle belongs to ECON 102 at Pennsylvania State University taught by Wayne Geerling in Winter 2016. Since its upload, it has received 8 views. For similar materials see Introductory Microeconomic Analysis and Policy in Economcs at Pennsylvania State University.
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Date Created: 04/25/16
Topic 11: Price Discrimination Price Discrimination Price discrimination o A firm sells at the same good to different consumers at different prices for reasons NOT associated with cost differences Discrimination: negative connotation Examples of Price Discrimination College tuition Airline tickets Movie matinee Selected “discounts” o Student o Senior citizen o Military o Employee Conditions of Price Discrimination Two conditions must be met for price discrimination to be successful o 1. Firm must be able to distinguish groups of buyers with different price elasticities of demand (different willingness to pay) o Firm must prevent resale of the good or service (arbitrage) o Distinguishing Groups of Buyers General rule o Charge higher price to relatively inelastic consumers o Charge lower price to relative elastic consumers How to find these people? o Selfselection Perfect Price Discrimination Perfect Price Discrimination o Firms charges a unique price to each consumer equal to their maximum willingness to pay o Reservation price = maximum willingness to pay o If firm is able to do this, there will be NO consumer surplus Hard to implement in real life. Why? Graph Summary Compare a single price firm to a price discrimination firm.. With price discrimination: o The most inelastic people pay a higher price o A lower price is also charged which will attract more elastic consumers into market o The overall amount of sales increases o Overall welfare increases & deadweight loss is decreases Welfare effects of Price Discrimination Producers o Have higher Producer Surplus o Firms makes a higher profit Consumers o Benefit from more units being offered for sale & more trading occurs o In certain cases have higher overall Consumer Surplus Overall o Welfare increases and DWL decreases Profit = Marginal Cost A: Consumer Surplus B: Producer Surplus C: Dead Weight Lose Price Discrimination at the Movies Why do students get discounts for movie tickets but not for popcorn? o Firm waits until you get in
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