IGCSE Economics Paper-1: Specimen Questions with Answers 5 - 5 of 10

Question number: 5

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Describe in Detail

Explain with the help of examples how price discrimination can operate.

Explanation

Price Discrimination:

  • Price discrimination is when a monopolist charges different prices for the same product from different consumers or industries. According to Koutsoyiannis, “Price discrimination exists when the same product is sold at different prices to different buyers. “

  • Price discrimination is of three types:

    • Personal price discrimination

    • Geographical price discrimination

    • Price discrimination according to use

  • When a monopolist charges different prices for the same product from different consumers, it is known as personal price discrimination. When the consumer is ignorant and he has little knowledge of the market, then the seller charges different prices from different buyers.

  • When a monopolist charges different prices for the same product from different locations, it is called geographical price discrimination. The monopolist charges high prices when there is no close substitute. But monopolist charges low prices for the same product in that location where many close substitutes are available in the market.

  • Price discrimination is possible when a product has different uses, monopolist charges different prices according to the use. For example, there are different electricity rates for commercial use and domestic use.

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