Answer to Question #155330 in Microeconomics for suchayana

Question

Suppose the local pharmacy charges lower prices to additional units of products. The pharmacy is

practicing

a. perfect price discrimination.

b. second-degree price discrimination.

c. arbitrage.

d. third-degree price discrimination.

e. non-cost discrimination.

Answer 1

There are three types of price discrimination: first-degree or perfect price discrimination, second-degree, and third-degree. First-degree discrimination, or perfect price discrimination, occurs when a business charges the maximum possible price for each unit consumed. Second-degree price discrimination occurs when a company charges a different price for different quantities consumed, such as quantity discounts on bulk purchases. Third-degree price discrimination occurs when a company charges a different price to different consumer groups.

According to a definitions listed above, in our case there is a second-degree price discrimination, because a local pharmacy charges a different price (lower price) for different quantities consumed (additional units of products). Thus, the answer is (b) second-degree price discrimination.

Answer:

(b) second-degree price discrimination.