Price Discrimination and Economic Principles

These flashcards cover key concepts related to price discrimination, economic principles, and decision-making strategies in economics.

Price Discrimination

Charging different prices to different consumers for the same good or service based on their willingness to pay.

Inelastic Demand

Demand that does not change significantly when prices change; consumers continue to buy despite price increases.

3rd Degree Price Discrimination

A pricing strategy that charges different prices to different groups based on observable characteristics, like time of day.

Perfect Price Discrimination

A pricing strategy where a firm charges each consumer the maximum price they are willing to pay, capturing all surplus.

Marginal Cost

The cost of producing one additional unit of a good.

Utility per Dollar

A measure that compares the satisfaction gained from a good or service to its price.

Nash Equilibrium

A situation in which no player can gain by changing strategies if other players keep theirs unchanged.

Diminishing Marginal Utility

The principle that as a consumer consumes more of a good, the additional satisfaction gained from each additional unit decreases.

Dominant Strategy

A strategy that is optimal for a player regardless of the strategies chosen by other players.

Prisoner's Dilemma

A situation where two individuals acting in their own self-interest do not produce the optimal outcome.

Negative-Sum Game

A situation in which the total losses exceed the total gains, resulting in a net loss.

Substitution Effect

The change in quantity demanded of a good due to a change in its price relative to other goods.

Expected Value

A calculated average outcome based on all possible values weighted by their probabilities.

Fairness of Payoffs

The consideration of fairness in the distribution of payoffs, which can influence decision-making.

Advertising and Demand Curve

Advertising can shift the demand curve by increasing consumer awareness and perceived value, making demand more inelastic.

Predatory Pricing

Setting prices extremely low to drive competitors out of the market, which may lead to higher prices in the long run.

Tit-for-Tat Strategy

A strategy in repeated games where a player responds to a competitor's previous action, fostering cooperation.