AQA A-Level Economics Flashcards - Price Discrimination

A set of flashcards covering key concepts related to price discrimination in economics.

What is price discrimination?

When a firm charges different prices to different consumers for the same good/service, not based on cost differences.

What are the three conditions required for price discrimination?

1. Market power 2. Different price elasticities in sub-markets 3. Barriers to prevent resale/arbitrage.

What is first-degree price discrimination?

Each consumer is charged the maximum they are willing to pay - perfect discrimination.

What is second-degree price discrimination?

Prices vary by quantity consumed or product version (e.g. bulk discounts).

What is third-degree price discrimination?

Prices vary based on consumer characteristics (e.g. age, time, location).

Give an example of third-degree price discrimination.

Student or senior discounts on train tickets or cinema tickets.

Give an example of second-degree price discrimination.

Buying more units of electricity reduces the price per unit.

How does a firm maximise profit in each sub-market under third-degree price discrimination?

By setting output where MR = MC in each market.

What happens to price and quantity in the elastic market?

Lower price, higher quantity.

What happens to price and quantity in the inelastic market?

Higher price, lower quantity.

How might price discrimination improve allocative efficiency?

It increases access for more price-sensitive consumers, potentially raising output and bringing MB closer to MC.

Why is price discrimination common in transport and entertainment industries?

These industries have high fixed costs, easy market segmentation, and strong barriers to resale via tickets/ID.

How does price discrimination affect equity?

It can be seen as unfair to some groups but can also improve access for low-income consumers.