1. Price Discrimination

2. Takes place when a producer sells the same product to two or more different markets at different prices. And the price difference is not related to any difference in costs.

3. Example Student have elastic demand for cinema tickets. If the price goes up they won’t go. Therefore they are charged a low price for tickets. Website for this image missgeeky.com Full-size image - Same sizex largerFull-size image This image may be bject to copyright.

4. Continued Adults have an inelastic demand for cinema tickets. If the price goes up they will still go. Therefore they are charged a higher price for tickets.

5. Categories of Price Discrimination 1 st degree – consumer surplus – get as much from each customer as you can. 2 nd degree – bulk buying – discounts 3 rd degree – elastic demand – low price (student) - inelastic demand – high price (adult)

6. Conditions needed for price discrimination Monopoly power Separate markets Different elasticities of demand high elasticity – low price low elasticity – high price Consumer ignorance Consumer inertia (indifference)

7. Dumping (p278) Is a form of price discrimination. Selling surplus goods on the export market at a price below the cost of production.

8. ctd A profit has been yielded form the home market. Increasing sales here will only drive down prices. Therefore selling abroad at a low price will increase revenue instead.

9. Exam Questions 2010 2008 Q 2 (b) P 11 2004 Q 1 (c) P 39 2000 Q 2 (a) P 65 1998 Q 1 (c) P 79